Don’t want your child to spend the summer watching TV, playing video games or complaining that there’s nothing to do? A summer business can be a fun way to encourage creativity and confidence.
These business ventures aren't really about making money. In fact, if extra income is the priority for the summer, a job is the safer route. But starting a business provides an invaluable life experience for kids, plus it develops very practical skills like organization, money management, problem solving and communication.
If your budding entrepreneur shows interest in starting a business this summer, here are a few tips to help make the experience a positive one:
1. Choose a business. Let them pursue their passion.
It’s important that your child is passionate about what he or she is doing. You want them to enjoy the experience and not lose interest and be back on the couch by the end of June.
If your child doesn’t already have a specific business idea in mind, have them make a list of their favorite things to do. If they love animals, they could start a pet-walking or pet-sitting business. Maybe they want to make candles and sell them on Etsy. They could hold an acting workshop for younger kids in the neighborhood, teach music lessons or even design a mobile app.
It’s okay to think outside the box. Zappos founder Tony Hsieh started a worm farm at the age of nine, with the goal of becoming “the number one worm farmer in the world.” Resist the urge to say things won’t work or that no one would pay for their idea. This process is a learning experience; the end result doesn’t necessarily matter.
2. Set goals and make a plan.
Have your child think about all the nuts and bolts needed to turn their idea into a reality. What kind of equipment, supplies or training do they need? If they’ll be mowing lawns, what do they need? A lawn mower, gas for the lawn mower, etc. If they’ll be baby sitting, should they take a CPR or first aid course beforehand?
They should write down their goals for the business, including both financial goals and anything else they want to achieve. It will be fun and educational to revisit these goals in September.
3. Introduce the concept of money management.
A summer business is a great way to introduce kids to basic money management skills as well as complex topics like calculating gross profits and managing overhead. Teenagers can keep track of income and business expenses. Younger kids can practice adding up price totals and counting change.
You may need to give your child money to kick start their business. If so, have them itemize all their upfront costs, so they know exactly how much is needed. You could offer to fund a certain amount, as long as they contribute some of their own birthday money or allowance. You could even hold an investor meeting where your child pitches their idea to you and outlines their financial needs.
4. Work on customer service and communication skills.
Being an effective communicator and empathetic listener are essential building blocks for entrepreneurship. Help your child develop how to succinctly explain their product/service and understand their business’ value proposition. Stress the importance of customer service, and encourage your child to listen to and accommodate special requests when needed.
5. Manage the legal requirements.
Child business owners are subject to the same rules and legal requirements as adults. You can find out if any local licensing or permits are needed by checking with your local city/county clerk’s office.
In some cases, you may actually want to create an official company structure, but only if you’re concerned that the business will take off or put your family’s assets at risk. For example, our oldest son loves designing apps. If it seems that an app will be commercially successful on iTunes, we’ll decide to roll it under our holding company. And, if we didn’t already have a holding company, we’d form an LLC (Limited Liability Company) for it. You can decide the scope of your child’s business and your family’s liability protection needs.
6. Pay taxes.
If your child’s earnings are greater than $400, they’ll need to file their own tax return. Most likely, they won’t be in a position to owe any income tax, but they will need to pay self-employment tax. Help them prepare for this ahead of time -- perhaps setting aside 15 percent of the earnings for tax time. They’ll report their business income and expenses on Form 1040 Schedule C, and self-employment tax is reported on Schedule SE. And in case you’re wondering -- yes, you can still declare your child a dependent even if they file their own return.
The most important thing to remember is that the process should be fun. Entrepreneurship is a labor of love, not just labor. It’s also about taking chances, making mistakes, learning from those mistakes and doing it all over again. Keep those messages front and center throughout the journey.