Start the teaching process with a guitar and a goal. Most parents buy their beginning guitarist a cheap beginner's guitar. The problem is that many beginner's guitars have problems that make them difficult or unrewarding to play. The fault list for acoustics includes high action, sharp frets and sticky fretboards. Electrics can have subpar vibratos and gritty tuners.
Encourage parents to find a higher-quality beginner's guitar that fits a child's hand, and when they have a model in mind, to buy a used version of that guitar. This might mean a junior Yamaha or a Taylor Big Baby for acoustics, or an electric Daisy Rock, Peavey T-15, or Squire Strat.
Electric guitars require amps. Buy an amp that's easy to carry and has reasonable clean and distorted sounds. Onboard effects save money on stomp boxes and enhance the fun factor. Vox, Line 6, Behringer, Peavey, and Roland make good-sounding, small, affordable practice amps with effects that make great first amps.
Students and teachers need a goal. Have the student bring in an example of guitar music they like and would like to learn to play. This is particularly helpful in teaching older kids. It not only gives everyone something to shoot for, but it encourages them to take an ownership stake in their instruction. It also allows you to tailor an instruction plan to their likes and aspirations.
Build your instruction plan around the music-reading ability of your student. Many people have learned to play guitar without being able to read music, but understanding measures, rhythms, and patterns is vital stuff -- and every musician can benefit from knowing how to read music. Because of this, the instruction plan for a book-three Suzuki violin student picking up the guitar will be vastly different from that of a student whose only contact with music came playing the finger cymbals in the Christmas program.
Be patient with students who have little or no previous musical experience, especially if the student is 10 or younger. Your instruction plans for these students should allow at least half a year of weekly lessons to teach basic concepts such as the length of notes and rests.
Choose a series of method books for teaching basic concepts. The Mel Bay children's method is a standard for a reason: It works. It's arranged logically, and encourages development of basic musical knowledge while applying that knowledge to the guitar. It also deals quickly and effectively with guitaring basics such as tuning and holding the pick.
Teach fingerpicking and flatpicking, chords and single notes. Even older students whose only goal is to learn the break in "Ride the Lightning" benefit from learning basic chord structures and how they can be moved around the neck; similarly, dedicated strummers need to know how to use their fingers to accompany ballads.
Teach the whole neck from the beginning. When teaching kids about an open G, show where the same note can be picked on the fourth, fifth and sixth strings. Similarly, show chord positions on the whole neck. Show that a basic D chord is a G chord when moved to the seventh fret. Teach inside-string chord forms the same way.
Teach partial chords with younger or small-handed students. Teach them the one-finger G chord and the two-finger C chord to start. Show them the full form, but do not demand they play full forms. Too many students have a "play all six strings" mentality when most music only demands three-string chords at most.
Augment book lessons with songs geared to your student's goals. You're probably not going to be able to teach even the chords for "Ride the Lightning" after a couple of lessons, but you can teach the two-finger fifths from "Back in Black" to just about anyone.