October 12, 2015 Financial Management en_US If you think lemonade stands are great for kids, here is a little food for thought. Find out how a stand teaches kids about entrepreneurship, and how it does not. https://quickbooks.intuit.com/cas/dam/IMAGE/A5dlVcZEg/b6d9cfdaaedd6fddbad8756f8ecda4ae.jpg https://quickbooks.intuit.com/r/financial-management/financial-lessons-you-can-learn-from-a-lemonade-stand Financial Lessons You Can Learn From a Lemonade Stand
Financial Management

Financial Lessons You Can Learn From a Lemonade Stand

By Barry Moltz October 12, 2015

Did your kid start a lemonade stand this past summer? Were you proud when they “made money?” Do you now see them as a future entrepreneur?

Instead of answering those questions first, start with this one: Is a lemonade stand really a good way to teach children about running a small business? Many adults are quick to answer “yes,” but it’s important to evaluate whether or not it really is a good proving ground for a budding entrepreneur. When examining it through the filters of standard business practices, the answers may surprise you.

Here are the problems with treating a lemonade stand like a real business enterprise.

1. No Cost of Goods

When the parents provide the cups and lemonade mix, there is no cost to the kid entrepreneur. For little Sam or Sally, whatever they sell, that money goes right to their bottom line and inside their pockets. This arrangement also avoids cash flow issues of having to pay for a product before it gets sold. In business, the cost of supplies are always purchased—and typically need to be paid for up front—before any sales happen.

Kid entrepreneurs also live with their parents. Unlike real small business owners, they have no living expense obligations to meet. As a result of all these factors, kid entrepreneurs can sell their product well below their “competition” for 5 to 25 cents a glass. Any real cost-of-goods expenses would push this price much higher for a typical business owner.

2. Free Labor and Rent

Kid entrepreneurs work for free. There is no opportunity cost because they are not giving up another paid job to sell at the lemonade stand. Real entrepreneurs always have choices and need to make the most of their time. Many quit their day jobs to start a company.

In addition, wherever the lemonade stand is placed, kid entrepreneurs are not paying rent to be there. This is because they usually are set up on private parental property or public spaces at no cost. For every other real entrepreneur, a retail location is never free, and typically takes a substantial 10% of their sales. I won’t even mention licensing and taxes that real enterprises must pay.

3. The “Love” Factor

Some customers may buy because they are truly thirsty, but most purchase the lemonade because they know the kids and want to donate to their cause. Many customers even give larger than normal tips like 75 cents for a 25 cent drink which add to the kid entrepreneur’s “profit.”

Lemonade stands actually operate more like a non-profit charity cause than as a for-profit enterprise. The pain they solve is that people buy out of caring or love. Real entrepreneurs, on the other hand, need to earn a client’s business in a competitive marketplace by solving a customer’s pain at a fair price.

There are, however, real business lessons that can be learned from the lemonade stand.

1. They Take Initiative

These same kids could be playing video games, watching television or doing another activity that does not make money. Instead, they set up a small business. They begin to think about producing and selling the lemonade. They thought about what to charge and where the stand should be located. They even talk about how to split up the profit. Every adult enterprise begins with the same type of initial process.

2. They Want to Earn Money

They are getting involved in commerce and selling a product. They want to earn some money instead of just being dependent on their parents for it. This starts the idea of economic freedom inside them. They realize that it is much more satisfying buying something from money that was earned instead of given. Many adult enterprises start with the owner’s desire to earn more money than they currently have.

3. They Work as a Team

This team may be with a brother, sister or a friend. The team divides up the responsibilities and works together as one group to accomplish their common goal. In this case, someone makes the lemonade, another sells the product or makes the change. They also need to decide on how to divide up the profits at the end. Learning effective teamwork is one of the key factors in any successful enterprise. The sooner you learn how to work as part of a team, the better off everyone will be.

What have you or your children learned from their lemonade startup? You may be surprised when you ask them.

If you’re looking for more insights on startups, read our profile of New York fashion brand Ooshie.

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Barry Moltz is an experienced small business owner. He now speaks and writes to help people grow their companies. Read more