When evaluating a network marketing company, one of the areas you want to assess is the company’s debt status.
It should give you confidence if the company you’re looking at is debt free. But what if it isn’t?
It is not uncommon for MLM companies to start with debt on their books. To launch a company, requires a LOT of money. We are talking millions of dollars.
So it is not unusual for the founding owners to pitch to investors in order to raise capital and get a loan to start their company.
There is nothing necessarily alarming if the company you’re assessing has debt on its books, especially if it is relatively a new company.
How quickly a company pays back that debt is a mark of good leadership and a healthy business in any industry.
When a company pays off its debts and becomes debt free, it’s cause for BIG celebration not just for you but also for the company and you should expect to hear a major announcement about it from the corporate team.
The problem isn’t whether or not company owners raised capital to launch. Sometimes founding owners seek to raise capital after their companies’ initial inception phase in order to expand into new markets or launch new product/service verticals. That is not alarming either.
What is alarming though is WHO are the founding owners borrowing the money from? WHO are the investors fueling the operation of the founding owners that is funding YOUR opportunity?
A few years ago, my wife and I were flown over to meet the founding owner of a network marketing company.
During our meeting, he lamented about a mistake he had made in the past taking money from the “wrong” investors who drove his company to the ground.
There are a certain type of investors behind the scenes in network marketing who prey on network marketing companies needing cash flow. Some of these investors loan owners money and in return buy a percentage of the company. When the company can’t service the debt, they take over.
It’s similar to any venture capital situation in corporate America. The main difference in MLM is that these investors have the power to affect YOUR opportunity.
Be aware that when you are considering to join a company with a debt balance, your opportunity and dynasty could end up at the mercy of investors at the helm with decision making power that may have their own interests in mind more than yours.
Companies in network marketing sometimes get into a real life Gordon Gekko Bluestar airlines situations where the investor plans to gut the company and sell off its parts.
Not long ago, my wife and I were sitting with another MLM company owner where we were discussing this very subject of debt that some companies get into.
Company names were being thrown around and we were not too surprised to find out that a very well established company was financially compromised and was looking to raise capital to be able to make their commission payments to their top leaders.
This is not something completely uncommon in the industry. We’ve known of several companies where the company owners had cash flow problems and couldn’t pay their top leaders. We’ve even experienced being in one.
Professionals who make their full time income from network marketing and have big lifestyles to maintain can’t afford to and shouldn’t stay in companies that can’t hold up their end of the bargain of paying out commissions as promised in the compensation plan.
Network marketing is a cash flow intensive business and companies need to have the capital available to pay out commissions, expand, and launch new product lines/services.
If the company you’re evaluating isn’t debt free, it’s not a deal breaker but it’s good to know who the investors are and what are the investment terms. They won’t always tell you but it doesn’t mean you can’t ask.
These are tough questions that more than likely only someone whose an industry insider can answer for you — someone who is already part or highly connected with the industry’s inner circles.
Nevertheless, in the end you want to be in a company that is well funded. It must have resources, deep pockets, and the type of leadership that is unwilling to jeopardize your opportunity and put your future with the company at risk.
When owners of a company borrow money from investors just to be able to put out fires or keep the doors open for another month, they threaten the very foundation of your business. Loans can have a high cost and it can cost you loosing your business.
If the company you’re evaluating is in a good financial position, sit back with a sigh of relief! It’s one less thing you have to be concerned about and one more reason to get excited about, so you can focus on what you need to do….which is build.
The right questions:
#29. Is the company you are assessing debt free?
If not, Who are the investors, what are the investment terms and how much decision making weight or power do they have over the company?
Till next time,
Charles
Co-authored with Dr Maral “YESS” Yessayan, PhD.
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