Managing the Money and Cash Flow in Your MLM Business

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.

17 Tips On Managing the Money and Cash Flow In Your MLM Business

In the paragraphs below, I’m going to share 17 of my best tips on managing the money and cash flow in your MLM Business. These tips 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 $200 to $300 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 about how things work.

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 add up 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, three-ring 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 checking 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 discover 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 achieve.

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 wise investments if you are serious about your network marketing business.

But, don’t buy a large quantity of products each month just to qualify for a certain rank or 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 offer 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 during the first couple of years.

# 10 Never Loan Money to Your Team Members

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.

managing money and cash flow in your mlm business# 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 a 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 doing $10 per hour tasks.

For example, don’t spend 200 hours to build a website that you could have someone else to build for you 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 few thousand dollars? That’s a lot better than spending all your time building a website.

Outsource tasks whenever possible. Work with professionals and experts who 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 whenever they can.  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 price 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 today 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. Uncle Sam won’t let you off of the hook that easily. That means you need to save money throughout the year.  Follow this advice and you should be set.

Final Thoughts

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 are your best tips on managing the money and cash flow in your MLM Business? Leave a comment below to share your thoughts.  I look forward to hearing from you.

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20 thoughts on “Managing the Money and Cash Flow in Your MLM Business”

  1. Hi Chuck,

    If I want to start a couple of side businesses, is it ok to have them both setup with the same business account? Or do I need to have a separate business account for EACH business?

    Thanks 🙂

  2. Make sure you set aside some money for a rainy day fund. Be disciplined and put some of your profits aside every month for business development, new equipment, and unexpected business expenses. It will rain one day, so make sure you are prepared.

  3. Make sure that you keep an updated profit and loss statement for your business every month. Keep a close eye on revenue and expenses and look for ways to reduce expenses and increase revenue. If you don’t track it, you won’t know where you stand. Don’t wait until the end of the year to know how your business is doing financially!

  4. Don’t forget to invest in yourself. Set aside $50 to $100 (or more) per month for your personal development and business education. Buy books, audio programs and attend seminars every single month. You can’t lose money when you invest in yourself.

  5. Make sure you put aside money each month to pay for your business taxes. The last thing you want at the end of the year is a big tax bill from the IRS, but not have any money to pay for it. You can either send in quarterly tax payments, or deposit money in a separate savings account every month.

  6. Every day when you get home from work, empty the change out of your pockets and put it in a jar. At the end of each month, take the change to the bank and put it toward the principle of your mortgage. Do this every month and you can easily pay an extra $200 to $800 toward your mortgage each year.

  7. Be sure you educate yourself about what you can and can’t legally deduct on your taxes as a business expense. It’s true, many small business owners overpay BILLIONS of dollars in taxes each year because they are scared to use perfectly legal tax deductions. Here are a few neat deductions you might not know about:

    • Vehicle Mileage
    • Home Office
    • Guard Dog for your Home Office
    • Office Supplies
    • CPA
    • Legal Advisers

    One of the best things you can do is hire a CPA or a book keeper for an hour or two and have them answer your questions about anything you are unsure of.

    Just remember, it’s your job as a business owner to be a good steward of the money in your business. One of the best ways to do that is to know what you can and can’t legally deduct.

    That’s why I believe having a CPA for an adviser is vital to your long-term business success.

  8. Georgia Avery

    This is a topic I was slow to learn. Many of them I learned the hard way. I’d like to share a bit of my personal experience contained in several of your excellent points.
    Starting out with #2 ~ have a good organizational system before even starting your business. I waited until my paperwork was piled high and then spent hours making sense of it all and filing it. That was before I had money to hire someone. This was a precious loss of time. The company I’m involved with now provides a website that creates an account of all of our transactions, purchases and retail taxes online. For me, this was a huge help. All I have to do is print it out and file it.

    #3 ~ No commingling of your personal and business funds. Fortunately, my very first sponsor advised me to set up a separate checking account and credit/debit card at the time of starting my business. This keeps your financial files clean with no red flags to the IRS.

    #8 ~ I spent so much money I didn’t need to. I tried marketing at several vendor shows. I purchased all kinds of display and gift packaging supplies to make huge impressive presentations and gift baskets and often bought food, candy and beverages for the amount of people I expected. I received a lot of “ooohs” and “ahhhs’, but very little cash. After I created the mistake a few more times, I finally learned my lesson. I then only did this for special orders going forward. I found that people just liked to see my products simply placed on a nicely displayed table so they could pick them up, read the labels, etc. Sometimes we just need to learn the hard lessons for ourselves.

    #13 ~ Bartering has become much more popular in the midwest in the last few years. Barter on the Retail value. It’s a great win win especially for those that may not ordinarily spend the money for the products they want.

    #15 ~ Outsourcing work. Summer is upon us leaving many teens and college students looking for work. Who knows, they just might want to know more about what your doing ~ ?

  9. Training on money management is sorely needed for new business owners. I find that the profit and loss sheet is the most valuable tool I have to manage my money. First it shows me what I’m making and what I’m spending at a glance. I can use the this information to budget better for expenses and keeping this form up to date makes tax time so easy. I never heard of paying myself retail but I like that idea a lot and will try to incorporate it.

  10. The separate business and personal accounts is a must. Not doing so is setting yourself up for some financial trouble. When I first started I thought I could simply manage out of my own account, but boy was I wrong. I ended up dabbling into some of my personal finances to handle business transactions and it was all just a mess. I learned very quickly that in order to keep things organized I needed the two separate accounts.

  11. This is one of the most important posts on your blog in my opinion. There are many businesses that fail because of bad money management. I also did not realize that MLMs can have the same tax breaks that traditional businesses receive. This in itself is a great reason to have a network marketing business. Very good post Charles.

  12. Joe Mardesich

    Outstanding post! Thanks for teaching how to treat one’s MLM like a business (is is one) rather than a hobby!

  13. I am an MLM neophyte. Neither my sponsor, or any of the company sponsored training, touch on this topic. They focus on recruiting. Thank you so much for sharing this. I have recently set up a separate account. Of course, my start-up costs to this point have come out of my personal account. I have gone into my company back office and updated the account I want my payments to go to. I have also set up my first P & L statement. Not much on it, but it’s a start. Thanks again.

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