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Summer break. For school-age children, those are the two sweetest words in the English language. 

For parents, it’s … a mixed bag. 

You might have family vacations and cookouts and some memory-making planned, but it also means YOU are the one figuring out what to do with the young people during the long days so they’re not at your heels every five minutes looking for something to do. 

One topical thing we should mention, as summer gets started: day camps – science camps, sports camps, educational camps… all the camps. The great news about that (besides a little peace around the house) is that camps can mean good things for your taxes, because a lot of camps qualify for the Child Care Tax Credit. 

However, once we talk about summer camps, now we’re talking about spending extra money, right?

And that’s something a lot of people are facing right now, whether you have kids or not: the need to spend extra money, because of higher gas prices, higher grocery prices, rents, etc.

When you need to spend extra money, well obviously that gets you thinking about…making extra money.

And that’s when a friend or family members asks you something like, “Do you keep an open mind, when it comes to making extra money?”

Of course you say “yes,” because I mean who doesn’t keep an open mind when it comes to making extra money, right?

Next thing you know you’re on a “three way call” with your friend’s friend and you’re learning all about a new opportunity.

And you realize that you’re now being invited to join an MLM (multilevel marketing) business. These often start as a side hustle for a little extra cash, but sometimes those side hustles can turn into lucrative business ventures – if you have the drive and are committed to sell, sell, sell. 

If you’ve ever thought of jumping into an MLM venture (or know anyone who has), it’s a good idea to start by taking a look at the pros and cons…

Let’s do some of that here and now, because we’ve seen more than a few clients enjoy success with MLMs, but we’ve also noticed that you need to be clear-eyed about how these opportunities work…

Keep in mind that nothing here should be taken as an endorsement of any company or any business model, this is more in the “food for thought” category…

The Pros and Cons of MLMs for First-Timers
“In his heart everyone knows that the only people who get rich from the get-rich-quick books are those who write them.” – Richard Nixon

Sell products and gradually get others to sell, too. Then, before you know it, you’ll be getting a cut of their commissions.  Every new person you add to your “downline” starts generating money for you, as long as you can also help that person make money.

Although many people consider MLMs, by nature, a “pyramid scheme,” the truth is that there is a lot of variation between different MLM programs.

And some people have actually done well in MLMs…especially women who need to earn money while not committing to a full-time “regular job” (for example, stay-at-home mothers). 

How did they do it? 

By knowing exactly what they were getting into and being realistic about the opportunity. 

Nothing’s for everybody

Recent research shows that more than one in 10 American adults has participated in an MLM – and that nearly 60% quit soon after starting. 

Yet, a third of Americans have also purchased products or services from one of these companies, and only a small percentage of those folks report being dissatisfied. 

People are selling what seems to be a good product, yet they still bail. Why? 

Basically, distributors recruit workers like you to sell to family, friends or communities, or others, sometimes historically through get-togethers and more recently using social media. In addition to face-to-face selling, you also often (usually) are asked to recruit junior sellers (aka your “downline”) so you’ll earn commissions on their sales. 

Surveys found that only one in four people make money with MLM. 

However, the defenders of MLMs will tell you that only one in four people make money with any kind of sales…which, we must say, they kind of have a point!  🙂

Triangle of trouble?

Some folks join these companies hoping to save money on products they’d buy anyway or even make extra cash selling goods they enjoy and believe in. But most who sign on to legitimate MLMs make little – and sometimes lose a lot. 

The feds take a dim view of the downline structure of some MLMs. “Scams,” the Federal Trade Commission warns. “They can look remarkably like legitimate MLM business opportunities and often sell actual products, maybe even ones you’ve heard of. But if you become a distributor for a pyramid scheme, it can cost you and your recruits … a lot of time and money.” 

The problem, the FTC adds, is that your income would be based mostly on how many people you recruit, not how much product you sell. Often, you’ll be encouraged – even required – to shell out for a certain amount of product regularly, even if you already have more inventory than you can use or sell. 

And this brings us to the first major “red flag” of MLMs:

In a legitimate MLM, people make money from selling an actual product or service that has worth and utility in and of itself.  Meaning that an “end user” customer actually uses the product or service.

Contrast this with the more “scammy” MLMs, where the main revenue stream comes from the “sign ups” of people buying the MLM “program” itself.

The pros

So, how come MLMs work out for some people? 

These businesses do have good points, and the people who excel in them have the right personality – doggedness and a passion, not just an interest, for sales. More importantly, most do their homework before signing up. 

MLMs are an opportunity for entrepreneurs with the right mindset: in comparison to a “traditional” business, they’re usually easy and cheap to start, with a cost-effective way to reach many potential customers. 

Although there are (usually) no fixed salaries or benefits to be had, it’d be hard to find a more flexible schedule, and multiple layers of participants (in the right program) means mentorship can be easy to tap (resistance to helping a newcomer can be a sign of a bad MLM). 

  • Do you want to sell? 
  • Does selling make you feel better than any other job? 
  • Got a solid sales plan – who’s going to buy this product from you? W
  • hat are your goals for income? 
  • Can you risk the time and money? 

Then come the questions for the MLM people. Search them online and in the news and seek out their distributors. What do they say? Does everybody make just a few too many claims about “big money?” What about the product supposedly at the center of all this sales hubbub: Is it any good? 

Direct questions for whoever tries to sign you up: 

  • How long have you been in the MLM, and how much did you make last year, gross?
  • Great, now how much did you make net, i.e. after expenses?
  • Have you borrowed money or used your credit card to fund your business?
  • Do you need to have recruits to make money? 
  • How many people have you recruited – and how many of them have left the business?
  • How much inventory did you buy from the MLM last year? Did you sell all of it?

Understand all the costs and ask about refunds. Study the paperwork and have someone help you study it. Until you sign anything, the fine print is your best friend.  

Taxes

No talk about a new business is complete without taxes. In an MLM, you’re an independent contractor, which means you’ll have to “manage” your own taxes.  Meaning if you’re making a profit, you’ll (usually) need to pay estimated taxes, to cover the tax on that profit.

It also means you potentially be able to take certain business deductions such as home office, travel, supplies, and other areas. Be warned: This is not an “open sesame” to tax breaks – there are several catches (recordkeeping requirements, etc.)

Make sure you have a trusted tax pro on your side and having your back, during this process. 

And sit down with yourself for a deep discussion before you join an MLM. 

They can work – if you’re genuinely a good fit for one.  

But like ANY business, you’ll need wisdom, hard work, and persistence to make it a success.

Hope this helps, and hope you know that we’re for you, in any season.