Today, I want to give you a quick class on managing the money and cash flow in your MLM Business.
I’ve found that most people in this industry have NEVER owned a business before and therefore, they are absolutely clueless when it comes to managing business finances, cash-flow, money projections and financial reports.
In the paragraphs below, I’m going to share 17 ways to manage your MLM Money wisely. They are listed in no particular order.
# 1 Educate Yourself About Small Business Taxes
The first thing you want to do is educate yourself about small business taxes. Hire a CPA or bookkeeper for an hour or two to find out what you can and can’t deduct, what reports you should create, how to keep your receipts, how to organize things, when and what taxes are due, and so forth. For a couple hundred dollars and a few hours of your time you can learn a lot about small business taxes. You don’t need to be an expert, but you must have basic fundamental knowledge. I also suggest you read a few books on small business taxes and bookkeeping. There are even some great YouTube videos on the subject. The bottom line is to be an informed entrepreneur.
# 2 Get organized
Step two is to get organized. Set aside a designated space in your home office where you can keep all of your receipts in one place. I have one drawer in my desk where I keep all of my receipts each month. Every time I get a receipt, I throw it in the drawer. On the first of the month, I tally up all of my receipts for the previous month by category and update my financial reports. I also have a designated space to keep my tax records in my guest room closet. Find an organization system that works for you and stick with it. Keep it simple. You can use a filing cabinet, binder, envelope system or whatever works best for you.
# 3 Have a Separate Checking Account for Your MLM Business
You need a separate personal checking account that you can use for your network marketing business. Visit your local bank or credit union and open up a second personal checking account. Deposit $500 to $3,000 in this account, so your business has some working capital. Make sure that you handle ALL business transactions out of this checking account. When you make retail sales, put the money in your business account. When you get your monthly bonus check do the same thing. Whatever you do, keep your personal and business money separate. This shows the IRS that you are running a business and it keeps your finances organized and in order. If you try to run everything out of your personal account, it will create problems.
# 4 Keep an Updated Monthly Profit and Loss Statement
All smart business owners keep a monthly profit and loss statement for their business. This is a list of all your income and all of your expenses. It shows whether your business made a profit or loss for the month. It also gives you a bird’s eye view of your business and lets you see where your money is going out and coming in from. Whatever you do, don’t wait until tax time to do this. You need to know the financial health of your business at all times. Doing so will let you notice trends in your business. You can do this with QuickBooks or you can use a simple Excel Spreadsheet like I do. Some people even use a handwritten ledger.
# 5 Make Financial Projections
All SUCCESSFUL businesses make financial projections. This is a list of projected revenue and expenses for the year. I make my projections for each year on January 1st. I estimate expenses and income for the year and have GOALS to aim for. Your projections are rarely 100% accurate, but you still need to make them. It gives you a good goal to aim for. It’s your starting point AND it keeps you on track. Remember, failing to plan is planning to fail. Your first year in business you will have to guess, but once you’ve been in business a year or two this will be much easier to do.
# 6 Don’t Expect to Make a Profit Your First Year in Business
You can make a profit in your business the first year, but don’t expect it. And even if you are making money you should probably reinvest it back into your business anyway. Most businesses take at least two years to make a profit. You won’t have to wait that long in your MLM Business, but don’t expect to be making big bucks in your first 90 days. That is just unrealistic.
# 7 Don’t Spend Money Just to Spend Money
Small businesses have to be smart with their money. Before you purchase anything, ask yourself what the potential return on investment will be. Anytime you are thinking about purchasing something for more than $100, sleep on the decision at least one night AND get at least three price quotes. This will give you added perspective and keep you from making rash, or bad decisions.
Now, I do believe you should invest in your business education, buy some books, attend seminars and conferences and consider hiring a coach. You might want to invest in advertising as well. These are all wise investments if you are serious about your network marketing business. But, don’t buy a large quantity of product just to qualify for a bonus. Don’t ever spend money just to spend money! Be smart and frugal with your money. Always ask yourself what your potential return on investment will be if you spend the money.
# 8 Maximize Your Tax Savings
Owning a business can be a HUGE tax savings. If everyone knew the tax benefits of owning a home based business, everyone would have one. Of course, you have to run your business like a business (not like a hobby), and have the intent to make a profit, but you would be absolutely FOOLISH not to maximize your tax deductions and save money on taxes. As a network marketer, you are eligible for the same tax deductions as a traditional business owner. Educate yourself about what you can and can’t deduct. Hire a bookkeeper or CPA to do your books, or at least help you get set up. The tax savings alone can easily be several thousand dollars per year for most families, if not substantially more.
# 9 Pay Yourself Retail
I learned this concept while I was in Amway. Most companies have a retail and distributor cost. Typically, there is a twenty to thirty percent difference. To put things in context, let’s assume that you pay $70 distributor cost for $100 worth of retail products. That is a 30% markup. What you would do in this example is write a check for $100 from your personal checking account and deposit it into your business account. You would then pay the $70 from your business account to buy the products. This would leave a $30 profit in your business account that you can use to help pay for business expenses. This is an easy way to fund your business, especially in the first couple of years.
# 10 Never Loan Money to Your Team
This lesson should be common sense, but never loan money to anyone on your team. You are not a bank, a pawn shop or loan shark. Loaning someone money is a quick way to put tension in a relationship, especially if they don’t pay you back. The last thing you want to do is ruin a relationship over $20 or $50. It’s just not worth it. If you’re thinking about loaning someone money, just give it to them and tell them it’s a gift. I still don’t recommend you do that, but it’s better than loaning money. Loaning money almost always backfires.
# 11 Review Your Bills Each Month for Errors
You should keep a close eye on your monthly bills for your business. Spend 15 minutes each month before you pay your bills and check each one for accuracy. Creditors do make mistakes. Make sure you clearly understand the charges and what they are for. Even if you just find one mistake, it could cost you hundreds of dollars per year if you don’t fix it. Keep an eagle eye on your bills. It’s a good way to manage your money and expenses.
# 12 Use a Barter System When Possible
I grew up in small town Maine where everyone was encouraged to barter. To this day, I love to barter. For example, maybe you need to hire a babysitter. Is there a way you could trade some extra products instead of paying the person? Maybe you want to advertise in the local newspaper. Why not ask them for a discount? Maybe you could trade some products or time to have someone build you a website? The options are endless if you get creative. Bartering is a great way to save money. I do it all the time.
# 13 Monitor Your Inventory Closely
I do not encourage you to keep an inventory. Some direct sales companies encourage it, but in most cases it is not a good idea. Unless you sell a lot of product every month and have a good idea about what will sell, I would tell you to keep a very small inventory or no inventory at all. Inventory is like having money sitting on shelf collecting dust. It ties up your money that could be used better in different areas. The bottom line is to keep a close eye on your inventory.
# 14 Outsource Work You Aren’t Good At
I love outsourcing. Don’t spend your $100 an hour time to do $10 per hour tasks. For example, don’t spend 200 hours to build a website that you could have someone else do for a few hundred dollars. By doing it yourself you tie up your time from doing other tasks that would produce money. What if you spent that same 200 hours selling your product and could make a couple thousand dollars? That’s a lot better than spending all your time building a website. Outsource whenever possible. Work with professionals and experts that know what they are doing. It saves you time and money, even if you have to spend money to do it.
# 15 Price Shop When Possible
Smart business owners look for ways to save money. Let’s suppose you need a replacement ink cartridge for your printer. Instead of spending $50 for it at the local office supply store, buy it online for $25 to $30. Spending 10 minutes to price shop would be well worth your time. In most cases, a few minutes spent shopping online can pay huge dividends and save you a lot of money.
# 16 Watch Your Cash Flow Closely
Manage your cash flow wisely. This is nothing more than managing when money comes in and when money leaves your business. You want to make sure you always have money in your business account to pay your bills. You want to “time” when you pay your bills so that it coincides with your cash-flow. For example, if you get your bonus check on the fifth of the month, pay all of your business expenses after the fifth of the month.
# 17 Save Money for Taxes
My last tip is to save money for taxes. You pay taxes based upon the net profit of your business. For example, if you receive $20,000 in commissions from your MLM Company this year and you have $10,000 in business expenses, you would pay taxes based upon the $10,000 net profit. Does that make sense?
Depending upon your tax bracket, it makes sense to save at least 15% to 30% of your net income from your business to pay for taxes. If you are keeping your monthly profit and loss statement like we talked about earlier you will know exactly how much you should save. Take this money and put it in a savings account each month and pay your quarterly taxes (or save it for tax time).
You do not want to get caught with your pants down at tax time with no money to pay your tax bills. That means you need to save money throughout the year. Follow this advice and you should be set.
At the end of the day YOU have the responsibility to be smart with your money! As a network marketer and business owner, you must manage your cash flow and money in your network marketing business with care, so your business never goes bankrupt. Following the MLM Money Tips mentioned above is a good starting point to do that.
What are your thoughts? What do you do to manage the cash flow and money in your MLM Business? Leave a comment below to share your thoughts. I look forward to hearing from you.