Breaking the Small Business Code

MBA Schools "Retooling Emphasis" and Business Grads With No Jobs

     I recommend those interested in high end business schools read this article about Wharton MBAs in Reuters.  It is an interesting analysis of two key problems facing business schools and their graduates.

     The first problem is many of the banks, financial houses and major corporations had CEOs and senior advisors who were graduates of some of the most elite business schools in the country.  Yet having degrees from the exclusive programs at Harvard, Yale, Wharton and others did NOT stop the melt-down, bank failures, etc.  As a matter of fact, many insiders are saying the pride and hubris of these elite graduates would not let them consider there could be downsides to their actions!

     This "failure to plan for failure" has led schools like Wharton to rethink the curriculum being taught.  Many of the major companies had used the programs and skills they learned in Biz schools to justify their flawed thinking. So schools are now looking at planning for downside assumptions and using the melt-down as a "teachable moment".  As an engineer, I was taught to ALWAYS plan for failure.  Makes me wonder if maybe tech geeks would make better managers to help lead us out of this crisis!

     This leads to the second problem which is the lack of jobs for graduates. The article presents the obvious reason which is the traditional employers are gone or in serious contraction.  But what was unsaid is many employers do not want to hire students whose predecessors have not done such a good job! 

     I don't think graduating from a name brand MBA program will become a "Scarlett Letter" that keeps graduates out of good jobs. But many companies are not giving graduates a "free pass" just because they came from an elite school.  I see more and more companies looking for "dirty hands" and experience in making things work and grow. I am recommending more internships, MLM/network marketing businesses, and/or running a business from a "dorm" to my students!

    Comments and experiences from recent graduates are welcome!

MLM Network Marketing for College - Part 2

      Boy, my last post on MLM and Network Marketing opened up the floodgates of Twitters and calls!  So here is what I have been sharing in response to everyone who wants to learn more about using MLM for generating revenue for college (as well as other dreams and goals).

Question 1 -  Do I really have to do the 5 steps you listed in your previous blog to be a business?  Idon't have the time or money to do it until I am successful with the MLM.  If you want to be able to deduct expenses in excess of earnings on your taxes, per the IRS, yeah, you gotta do all 5 steps.  I don't make the rules.   And these steps are NOT expensive or time consuming.  I would recommend if you aren't going to run it like a business, stop thinking about it as a way to make money. Just enjoy buying the products or services of the MLM at a member discount.

Question 2 -  Which MLM and Networking Company(s) do you recommend?  This is a complicated answer so I'm going to take about 4 paragraphs to answer.
       I have tried many MLMs over the years including Quixtar/Amway, VitaMark, Isagenix, Arbonne, JuicePlus, Cambridge, YTB Travel, Jafra, and several that disappeared like ForceOne.  Many were great, some sucked, some were out and out rip-offs.  Most were sold to me by well-meaning and excited friends.  The  friend who sold me the sucky one disappeared from our circle of friends out of embarrassment!  But in doing this blog I realized that the 3 I am with now were not sold to me by friends!  They were sold by people who ran their MLMs like a BUSINESS.
       After learning how to really measure what makes a GREAT MLM it came down to 4 things: (1) upline support & training, (2) compensation plan (read the contracts!), (3) longevity, and dead LAST (4) the product or service.   
       Most new MLMers get it out of order by fixating on the wonderfulness of the product and not the 3 more important items.  You will never sell anything without training.  You will not be successful unless you understand the compensation plan contract and how to optimize your results.  And you do NOT want to be on the "ground floor". You want a company that has been around a while as a successful organization because they have survived complaints and growing pains. They have the money to be there when you have built your downline.  FYI - Less than 3% of people in the US are in MLM so there is ALWAYS room for growth. You do not need ground floor.
      I am active in 3 MLMs.  One is for basically for wholesale personal use only(NuSkin) for 4 years, two for business support (Send Out Cards for 3 years and Prepaid Legal for 14 years), and two I actually sell as an MLM business (Send Out Cards and Prepaid Legal).   I am not affiliated at this moment with any vitamin or health MLMs although my sister in-laws are very successful with Isagenix.

Question 3 - Where do I find the Training I need? BEFORE YOU JOIN any MLM, meet the upline to whoever is recruiting you. Go to local training events at least 3 times and see if they are training or "rah rah" pep rallies that only teach you to sell, sell, sell.  See what kinds of tools they recommend. Are they sales tools or business training tools?  Can you access experts in that company even if they are not in your upline?  One of the things I like about Prepaid Legal Services was the amount of business training they offer AS WELL AS the fact I am encouraged to work with local and regional successful PPL "executives" that are not in my direct upline.  (There may be other MLMs that do that, I just know most I have been in do not).

Question 4 - Why should I read the compensation contract? That's a lot of stuff I don't understand. Per Michael Dlouhy of Vitamark (whom I respect), if you can't understand the contract in plain every day terms, don't join. There are probably so many wiggle words that they can take your downline away for almost anything!  I would take the time to read the contract before joining. If you read something you don't understand, have the upline or home office explain it in WRITING for your files.

Question 5 - Where do I learn how to run it as a business?  There are lots of good books and training tapes on MLM as a business.  I recommend going to Networking Times and subscribe to their Training University. Some of it is free, others are a nominal fee.  They are independent and support MLM as a concept.  I wrote an article for them on using MLM to pay for college that was well-received.

     I hope this helps get those of you who want to learn more about using an MLM to pay for college and anything else you want to create!

MLM Network Marketing for College Funds

    WHOEEE. Got a ton of eMails and Twitter "tweets" on using Multi-level Marketing AKA MLM AKA Network Marketing to pay for college and other cash flow needs.  What I shared was so popular, I was asked to publish it on my blog so here you all go!

NOTE:  Make sure you check with your personal tax advisor for how this information relates to your situation (sorry, this is my official CYA). 

 

      Joining an MLM means you are now a retail customer or an "independent" representative, (associate, partner, business owner, etc.) but usually BOTH.  The key to success is to understand that if you joined to sell and recruit for that MLM, you are now representing a product/service.  You now own your own wholesale and commissioned sales COMPANY. 

      The key to success is making sure you run your COMPANY as a real business!

The IRS clearly defines what is a business and what is a hobby.  If you run your MLM as a “hobby”, you can only deduct the amount you spend up to the amount you earn.  So if you earned $400 and then bought a laptop for $1,500, you would be limited to zeroing out your earnings but the other $1100 is not deductible as a business expense.

      Sadly, most people try to run the MLM as a kinda sorta thing and drift from one MLM to another looking for the right product or company.  They never learn it's not usually the product that's the proble.  It's REALLY more about how they were taught (or sadly, not taught in most MLMs) to run their new MLM as a business!

 

      GOOD NEWS is if you do run your MLM as a business, you can go “negative” and deduct more than you earned which may save you taxes.  NOTE - you want to MAKE money in the MLM or any business you start! You are not in business to lose money! You should not join an MLM to spend more than you make!  But in the early start-up days, the IRS allows you to deduct losses to help you grow into a profitable business.

 

      The key is to RUN YOUR BUSINESS LIKE A BUSINESS. You MUST, MUST, MUST behave as a home-based business with a "clear intent to make a profit" as defined by the IRS. That means you must have at LEAST the following in place for ANY business but especially and MLM network marketing companies:

1.  You must use a Schedule C on your federal taxes.  You can incorporate as an S Corporation or C Corporation and use a K-1 Form but that is probably not something you do unless you are already making a profit and probably more than $3,600 in MLM earnings.
2. You MUST have a separate checking account used SOLELY for the MLM business.  It can be a personal account but it must be separate from the account you use for your daily life.  I keep my personal account at a different bank (WAMU) than my “business” account (Wells Fargo) to keep it simple for tracking. 
3. You must deposit all income checks into the MLM account and use checks from the account ONLY for MLM activities & purchases. If you use a personal credit card, buy something for the MLM from the other checking account or spend cash, you MUST write yourself a check from the MLM account to reimburse yourself. You need to keep the money separate like a real business does.
4. You MUST keep books on your business.  Use a checking account program like Quicken or MS Money.  Track all expenses and income through these books.  Don’t worry if they go negative in the account.  This is NOT a checkbook balancing thing. So you would put in $400 and then put in the $1500 laptop and would show a $1100 negative. You also put in your monthly costs for the product only if you share it.  You cannot deduct it if you consume it personally.
5.  Keep track of activities like where you are when you make an MLM presentation in a diary or calendar.  Keep track of mileage, meals, sodas, Starbucks, etc., when you are talking about the MLM.

 

     When you do these 5 things, you are much more likely to be presumed by the IRS to be in a real business.  If you run the MLM like most people as a “sometime thing” or where you are only spending money on the product and NOT selling it retail and actively recruiting, you are presumed to be a hobby or using it for personal reasons. Then you have the "hobby" limits on deductions.

 

     A lot of people look at all those steps and think it’s too much work.  But it is VERY profitable if you do it right!!  You want to make money, not lose money. But in the early days of an MLM, losing money is okay if you can deduct it all! 

 

     Let’s assume you are in a 20% tax bracket between federal and state taxes.  That means you will be refunded 20% of your taxes for all negative expenses.  Lets assume you made $400 in 2008.  So you’d get back 20% of $400 profit minus the $1500 laptop costs => 20% times $1,100 = $220 in tax savings. 

      Would you do the 5 steps for $220 in tax refunds? 

      But let's assume you use the product for marketing and it costs you $180 per month. Your potential tax savings are now 12 x $180 in advertising = $2160 x 20% = $432 in tax savings. 

      So between the two – buying a laptop and using the products – you could save $652 per year in taxes if you are in the 20% net tax bracket.  Is doing the 5 steps now worth it? Would you do these things for $54 per month?

 

     Hope this helps . . .