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  • Network marketing is huge and has changed the lives of so many people around the world. It is an amazing business model for businesses that are starting out without a ton of capital to invest in marketing, and it is wonderful for people looking to leverage their personal market to make an income first as a side business and eventually a full-time one. No matter where you are at in your network marketing career, though, you need to understand the basics of accounting for your business so that you can maximize your tax savings to the fullest. Also, you need to be sure you are reporting all of your income received, whether it is from commissions or other sources from the company. But more on that later.

    Financial Statements for Networking Marketing

    For most network marketing professionals, the basic accounting equation is an important lesson to learn. Essentially, it is assets + liabilities = owner’s equity. What this equation means is that whatever you own in the business minus the amount of money you owe equals how much net worth you have in the company or equity. This is what we show on the balance sheet, something a lot of network marketers will not see from an accountant or tax professional until tax season. Most MLM businesses do not meet the IRS requirement to have to produce a balance sheet for tax purposes, which is $250K, but it is still good practice for an accountant to produce a working one for you.

    The one statement that most business owners pay the most attention to is the profit & loss statement and for good reason. This is the quick snapshot of the profit and expenses of your business, and with the right accounting software and setup, you can see easily see the true health of your business. Even if a business is doing their own bookkeeping throughout the year, as long as they are keeping up with their records, they can still have a decent picture of how their business is doing by looking at the profit & loss statement. While it is wise to at least have an accountant look at your records at least quarterly to help with tax estimates and statements, business owners can still look at how they are doing financially.

    Bookkeeping for Network Marketing

    I feel that the bookkeeping portion of your network marketing business is the most important part in the financial sense. Keeping accurate records of all your business income and expenses does three things for you. One, you will not get in trouble with the IRS. This is obvious. Report your income that you earned and deduct your expenses as allowed and you will be safe! Two, you will get a true idea of how well your business is doing. You may be thinking you are doing great in your business, but the numbers don’t lie. They will tell you exactly just how well you are doing. Three, it will help you pay as little in taxes as possible. Keeping good track of your expenses will let you deduct as much as you are legally able to, which is a win for you.

    Bookkeeping for your MLM business or network marketing company can be quite simple really. As a self-employed individual with no other employees typically, you can typically use a basic Quickbooks online account to keep track of your expenses and income. You can even link your business bank account to your online Quickbooks account so that all your transaction pull automatically. All you have to do is go in and classify the transactions and you are done. Then, monthly, quarterly or yearly, you can hand over your file to your accountant and they can make the necessary adjustments to get the correct financials. While your financials will not be perfect, you can at least get a good idea of what is going on with your business by doing this.

    Taxes for Network Marketing

    This is always the worst part for any business, the tax burden. I like to take a different approach with my clients. Taxes are not fun at all, and no one likes to pay them. However, they are a necessary evil and we can’t escape them, so I help my clients pay the right amount of tax. I don’t allow them to pay any more than they should legally by the tax code, and we do this in many different ways. One is the structure of the business, but in many situations, this does not come into play. I typically only see a big difference in tax situations when income from the business is over at least $30K. Another place I help save is by optimizing deductions that self-employed individuals can take advantage of. However, there is one area that I excel in where I save people the most money.

    I understand the nature of the beast in terms of how a network marketing business works. My wife is heavily involved in the industry, and I have studied it greatly and understand how to maximize all deductions. I have a good working knowledge of all the popular network marketing businesses, such as Monat, Amway, Young Living, doTerra, Jeunesse, Primerica, Motorclub of America, Legal Shield, Younique, Avon, Mary Kay, Omnilife, Plexus and Herbalife. Each business has their own quirks and things that you can deduct that are special to that business. If you do not know the business, you may not know what you legally can deduct, and you either may pay too much in tax or deduct the wrong amount and get audited. Once you get audited, the IRS can start to dig deeper, so you want to make sure your records are clean and that they look good if you would get audited.

    Network Marketing Accounting Summary

    In short, accounting for network marketing businesses is crucial for so many different reasons, but in the end, you really need to know if you are making money. The more you get into your business, the deeper you will want to get into the financials. When that happens, you will need to upgrade your software, but for most businesses, you can operate on this level that has been outlined above. Get Quickbooks Online, connect your bank accounts, classify your transactions and turn over your software on a regular basis and you will have a great idea of how you are doing. The cost will be minimal, and the information that you will get can be invaluable to grow your business.

    When you need help either setting up your network marketing accounting system or reviewing your account, contact us to schedule a time to talk. We will review your business and help point you in the right direction in your networking marketing business.