In This Chapter

Obtaining spousal buy-in

Paying yourself

Avoiding some of the dangers of success

Being smart about taxes

Four out of five representatives say they joined or are considering joining a direct sales company to make extra money. Even if you initially joined with other things in mind, like discounted or free product, a chance to earn a free trip, or the opportunity to make new friends and have some fun, every independent representative needs to learn some basics of how to handle the money. This chapter aims to convey some important money-management tips I’ve discovered, especially with regard to direct sales.

Whether you’re wildly successful and your direct sales business is bringing in more money than you could have ever dreamed possible, or you think you’re barely turning enough profit to cover filling up the gas tank, the tax benefits alone of managing and tracking your money properly make it worth learning more about tactics and facts.

Don’t worry. Managing this money, whether it seems like a trickle or a tsunami, is simpler than you think. Really. I promise!

Often I find that suddenly making extra money comes as a surprise to a lot of people, even if they are part of the 80 percent who join a direct sales company for the money. Especially if they start making a substantial amount of money, they find themselves not knowing what to do.

Regardless of how healthy your relationship is with money, if you’re like most people, managing your money, preparing for tax time, and understanding what it means to be an independent contractor can be challenging. This chapter aims to help you navigate some of these challenges so you will be better prepared.

Please note: I am not a qualified tax expert, or financial advisor, and this chapter is not meant to be a comprehensive guide to all of your money needs. In addition, I highly recommend finding a small business accountant to at least consult with when you get started, if not to handle your taxes and advise you throughout the year. Especially if you’re making substantial money, seeking out qualified individuals to support you in your financial planning and your tax preparation is important. Tax laws are ever-changing, and things can get unpleasant if you proceed on your own without comprehending income tax basics. For this reason, and many others, it is imperative that you find a professional who is up-to-date on tax law and who understands direct sales and how your business works.

That said, after 35 years in direct sales and self-employment, I have a lot of experience, have made it through struggles, and have watched many other independent representatives struggle with money challenges as well.

Getting Spousal Buy-In

One of the greatest challenges with this business is getting full support or “buy-in” from your spouse, especially for women who make up the vast majority of independent representatives.

Spouses often have a natural “show-me-the-money” attitude. When you can truly show your spouse the financial details, pay for an unexpected bill, or spring for an all-expenses-paid vacation — you will typically find that your spouse is suddenly much more ready to treat your direct sales work as a business, rather than considering it just a “fun job” you have.

It can still be a “fun,” extra stream of income, if that’s what means the most to you. But when you can actually document the money you have made, there will actually be more support available from your spouse, whether you’re a woman or a man. I interview men all the time about their wives’ businesses, and their story seems to always be the same, some version of the following:

• “When she first joined, I thought she was just looking for something fun to do to get out of the house, but then I started seeing the money and I told her with a little more effort she might really be able to do something with this. Then she started making really good money and now I just try to help her wherever I can. I never had any idea it could be what it has become.”

I have heard virtually that same story repeated over and over again. Once I had a team member who joined the business with a very specific goal in mind: She wanted to redo her living room. She talked about the new furniture she was going to get, the new color scheme and paint, and even the flooring. This was her burning desire as she started her business.

I urged her to open a separate checking account and a savings account and designate them for her business only. Her husband was making a significant income, so the money from her business wasn’t really needed for their day-to-day living expenses. She deposited every cent she earned into her accounts, diverting 80 percent of it immediately to savings and leaving 20 percent in the checking account to cover the expenses of her business.

In less than four months, she had saved more than $3,000 and was able to order her furniture. Impressed, her husband covered the rest of the renovations, including new floors and professional painting. What was even more fun for all three of us was that he came to me soon after to learn more about what his wife could do to really ramp up her business and earn even more money! Talk about spousal buy-in!

When you diligently manage your money, you’re able to shift from a “tell them” model to a “show them” model and nothing is more impactful than demonstrating success by allowing people to see the change.

Paying Yourself and Keeping Track

It is important to keep track of your commission and expenses and learn how to manage your money wisely.

To make sure you’re very clear on how much you are truly earning — and to keep your records taxman-approved — you need to keep your money separate. Accountants will advise you not to “co-mingle” your funds. That means keeping completely separate accounts where all the money related to your business is kept completely separate from any of your personal income or expenses.

All the money you receive connected to your business gets put in the separate checking account you use for your business. That means every check and all the cash from your customers, as well as your commissions check from your company, is deposited into that business account. Then all expenses related to your business get paid out of that account, by check or with a linked debit card. If you need more money available for day-to-day expenses with your business, either open a new credit card account or designate one of your existing credit cards as your “business” credit card and use it only for business expenses. Pay the bill for that card using the checking account you use for your business.

Some companies issue commissions to a pre-paid debit card. Again, only use that card for business expenses. Transfer money periodically from that company-hosted debit card account to the checking account you’re using for your business. It is common for people to lose track of how much they’re earning when their commissions are on a debit card they’re just using for expenses, especially if they’re using that card for personal expenses as well. (Which, as mentioned, is a bad idea! Keep business business and personal personal.)

You may be wondering: then how do I get the money to spend for things other than my business? The easiest and most organized way is to write yourself a “paycheck” from the account you use for business. You can decide what you want your “pay” to be and write yourself a check for a set amount, such as $500 per week or $1,000 every two weeks.

Another method is to write yourself a check only when the money hits a certain threshold, for example, write yourself an $800 check (or transfer money to yourself) every time the balance reaches $1000. This way, when your business expenses are higher or your income from your business is lower, you’re only taking out money that is actually available profit.

The benefit of these two methods is that you can track how much you’re truly earning, after expenses, by tallying up how much you’ve written yourself in checks each month, each quarter, or each year.

Keep a cushion in your account for unexpected business expenses. A good rule of thumb, once you get a feel for how much you’re making each month, is to keep a balance in your checking account equal to or higher than 20 percent of what you earned last month. This balance minimum is after typical ongoing expenses are paid and after you’ve paid yourself. This may sometimes mean paying yourself less than usual to keep a healthy balance in the checking account you use for your business.

Watch Out for Overnight Success

Another real danger I have seen over the years is that people suddenly start making a substantial income and don’t know how to manage it.

If that happens, get a financial advisor, pronto!

Some people are so overcome with the results of building a large team that they don’t understand that direct sales is a peaks-and-valleys business. The income they are generating today may not be the same a year or so down the road. They increase their cost of living to match their spike in income and then don’t plan appropriately or save accordingly.

I married young, and we had two small children. My direct selling income was not extra — it paid our bills! If I wanted to stay home with the kids, I had to make a certain amount. We struggled month to month just to pay our bills and put some into savings. By 29, I was earning on average $10,000 a month. This was in the late 1980s, early 1990s, and was very good money for that time. It still is a substantial income for most people.

When I started making those big paychecks, it was exciting! I got a new car, and we were finally able to get a boat (we were living on a lake). Rather than asking myself whether we could afford these things, I only asked myself, “Can we afford these payments?” Of course, with that income, at that moment, the answer was, “Yes!”

My income stayed at $8,000 to $10,000 a month for quite a while, and I slipped into the mindset of believing that the money was never going to stop, that it was only going to get better. When you’re working hard and maintaining best practices, this is generally true. But you’re never in complete control of outside circumstances that can have an impact on the productivity of your team. I suddenly experienced a perfect storm of situations outside of my control that greatly impacted my team and created a downward spiral of income.

While my income seemed to be going away, my financial obligations didn’t. I learned a difficult but vital lesson: No matter how exciting your commission income is, it’s important to save, plan, and prepare for things to change; so that in the event a downturn happens, you are able to take care of your financial obligations.

One of my favorite books on this topic is Smart Women Finish Rich (Crown Business, 2002) by David Bach. In it, I learned some great principles for how to manage my money while times are good so that even when times aren’t so good, my family and I would be fine. Because of this book, I now automatically evaluate what I’m going to do with my money. I set aside special funds for things like vacations, house projects, checking, savings, and so on.

Very often, people make more money in direct selling than they’ve ever earned before. And if the company is relatively new with a hot product, a rep may find herself earning $20,000 or $30,000 a month within just a couple of years. That kind of income can sneak up on people before they’ve begun to implement the good business practices for training and recruiting that can help sustain their business when the product is no longer a hot trend.

Direct selling is like any other business; it goes through ups and downs. And while you’ll be earning commission income based on the efforts of others as well as your own, you’ll discover that in sales, as in life, there are no guarantees. Your company’s product will not always be a hot trend. There may be a product recall, the economy may have a downturn, or you may have lower productivity when key leaders stop performing due to personal circumstances such as divorce, death in the family, critical illness, or a priority change. Any of these things can cause a significant downturn in your income.

Opening Your Eyes to Taxes

It would never fail. Every year around tax time I would lose some team members because their husbands felt their fun-time hobby was costing them more than they were making. It’s often hard for people who have always traditionally worked a nine-to-five job to understand what it means to own your own business when it comes to how taxes work. This section touches on a few tax issues as they relate to direct sales. For much more on the tax implications of owning a home-based business, check out Home-Based Business For Dummies by Paul and Sarah Edwards (Wiley, 2010).