How to Finance Your Network Marketing Business
As Robert Kiyosaki says in his brilliant new book, THE BUSINESS OF THE 21st CENTURY, "If you want a solid future, you need to create it. You can take charge of your future ONLY when you take control of your income source. You need to own your own business". The first step in becoming a business owner is to start to THINK like a business owner. Business owners understand the difference between "price" and "cost". When you start a business, the price you pay for the things you need in order to get started is NOT the "cost" of starting that business. The "cost" is what you pay for the money you use to get started until you pay the money back. For example, when a partner and I started a mortgage company here in Orange County California in 1988 we did a very careful analysis of how much capital we would need in order to make it through the first year. We looked at how much we would need to spend to get started properly, and how much we would need for the ongoing expenses like rent, payroll, phones, marketing expenses, utilities, supplies, and so on; and then subtracted a conservative estimate for how much revenue we would bring in that first year. The result of that analysis showed that we would need $250,000 to get started. In other words, the PRICE we would have to pay to get started and operate our business for a year exceeded our expected revenues by $250,000. That's not unusual for a traditional business. We had $50,000 between us when we started and we got a bank credit line for the difference. So how much do you think we had to borrow against our bank credit line by the end of the first year? Well, our analysis was exactly correct, so if you did the math in your head you know that we owed the bank $200,000 at the end of that first year. The $250,000 shortfall for the first year minus the original $50,000 we had put in. Were we worried that we were $200,000 in debt after 12 months? Not at all. We were right on track. Most new business take at least a year to become "cash flow positive"... where your gross profits exceed your expenses... and another 2-5 years just to pay back the initial investment. We went on to payoff that debt, and pay ourselves back, and build what became at one time the 3rd largest mortgage brokerage in the county at that time. Here's my point. It did not "COST" us $250,000 to start that business. That was the PRICE we paid for the things we needed over and above what we could cover from the income from our business. The COST for our start up was the price we paid for the MONEY until we paid the money back. So our cost to start that mortgage company was about $24,000 which is the total of the interest we paid on the credit line until we had paid it off from profits in the 2nd year. Robert Kiyasaki's new book, "THE BUSINESS OF THE 21ST CENTURY" is the latest in his RICH DAD / POOR DAD series. If you read just ONE book this year, I highly suggest that you make this the one. It can set you free because it can help you stop thinking like an employee and start thinking like an entrepreneur. He also has some great free audios and videos on his website. Check them out at TheBusinessOfThe21stCentury.com In that book he points out that one of the many advantages of Network Marketing is that the start up cost is so low that you don't need a bank line of credit to get started. If you plan to make money, you DO need to treat your new business like a business and start it correctly in order to make the most amount of money in the least amount of time, but unlike a franchise that might require $50,000 to many HUNDREDS of thousands to get started, you can fully capitalized your start up in network marketing for so little money that it would be considered a rounding error in a traditional business analysis. The "seed capital" you need to start your network marketing business correctly and cover your start up expenses is so small that you don't need to go to a bank to get a business line of credit. If you don't have the money you need in a savings or investment account, you can just use OPM... Other Peoples Money... and you can cover the interest on that money and be "Cash Flow Positive" in your very first month! What that means is that you can literally get your business started for with NO cash out of your pocket. You can even start your business for FREE if you earn back the initial start up cost and pay off your start up loan before the interest is due. Here's how that can work... Remember, there are two things that you will need to cover each month: Your monthly business expenses, and the interest you pay on the money you used to get started until you pay that money back. To make the most amount of money in the least amount of time you want to start at level where you can maximize as many aspects of your company's compensation plan as possible. In most legitimate network marketing companies, you can do that for less than $5000 and the monthly business costs are less than $300 a month. In the company I'm with, for example, you can position yourself to maximize the compensation plan for less than $2000, and your monthly business expenses are only about $150 a month, so let's work the numbers.... Cost of $2000 (worst case - 24% credit card) $40/month Monthly Business Expenses $160/month Total Monthly Break Even $200/month This is my "Break Even" point. As long as I earn at least enough to cover my monthly Break Even Point, everything above that amount is profit. Most companies have a Fast Start Bonus of some kind that pays at least $50 to $200, so it's easy to cover the monthly Break Even Point just with personal production as long as you are working your business. That means that you can literally use a credit card to start your business and earn the money to cover your Break Even Point BEFORE the credit card bill even arrives. If you earn enough in that first month to cover your Monthly Break Even Point AND to payback your start up loan in your first month, you will have started your business for FREE because you won't even owe the interest on the money if you pay it back within 30 days of receiving your credit card statement. A weekly pay plan with a good Fast Start Bonus and a simple effective system for building your business makes that very feasible. In addition, if you don't already have a business that is based exclusively out of your home, the TAX BENEFITS are often more than enough to offset your monthly expenses. Be sure to check with a tax advisor who is familiar with home based business tax law. To quote Kiyosaki again, "In network marketing, instead of earning income directly, you are building an ASSET - your business - and it is the asset that generates the income... Network marketing creates passive income but requires very little cash investment to start up. It has very low overhead, and can be operated on a flexible part- time basis until it generates enough cash flow for the entrepreneur to transition out of his current full-time job." To Summarize... 1) The COST to start up a business is not the PRICE you pay to get your business started, it is the price of the MONEY you use to get started until you pay that money back. 2) If you use your own money, the "opportunity cost" to get started is the interest you could have earned on that money which is very small these days. If you use other people's money (OPM) your cost is the interest you pay on that money until you pay it back. On a 24% credit card that is only 2% per month. 3) Most legitimate network marketing businesses can be fully capitalized for less than $5000 and have monthly business expenses of less than $300. That means that your monthly break even point is VERY low and can be achieved in your very first month if your company has Fast Start Bonuses that pays weekly, and a proven system for building your business. 4) The tax benefits of owning a business that is based solely out of your home can allow you to legitimately reduce your tax liability by converting some of your after tax expenses to pre-tax business expenses. If you are paid on a W-2, you may be able to immediately reduce the amount that is withheld from your paycheck, thus effectively giving yourself a "raise" in takehome pay. Be sure to consult with a competent tax advisor. 5) The start up cost is so low in network marketing that it's possible to earn enough money in your first month to completely repay your start up loan before your credit card bill is due. In that case you won't owe an interest at all and you will have started your business for free. 6) Once you have found a network marketing business that makes sense for you, start at a level that will maximize the compensation plan so that you can make the most amount of money in the least amount of time, then follow their proven system for building your business. DOUG JONES is a 24 year veteran of the network marketing industry. He has and MBA in entrepreneurship and finance, he has owned two traditional businesses and served as a corporate controller early in his career.
