5 Must Ask Questions For Evaluating Any Network Marketing Company
Too many people choose to join a network marketing company after falling in love with the company’s product(s) or compensation plan.
Falling in love is a fine way to begin a romantic relationship. But it’s not a good basis for making a business decision.
Even in a romantic situation, lovers usually do their due diligence with regard to their partners’ background before committing to each other for the long term.
You need to do the same before you sign-up for that “once-in-a-lifetime” business opportunity. You need to find out everything you can about the company before you say, “I do.”
Here are five questions you need answered to find out if that knight in shining armor is really a frog in shining armor or if that princess bride is just Rosie O’Donnell with a good veil or…..well, you know what I mean.
It may sound sexy and exciting to get in on the “ground floor” of a business opportunity but it’s the people on the ground floor that get squished when the building collapses!
Unless you’re a gambler, stick with companies that have been around for at least 5 years. There is a lot of misinformation about the exact percentage of businesses which fail in their first 5 years of business but there’s no question that it is greater than 50%. And of those that survive their first five years, almost half of them will be gone in the next five.
There are advantages and disadvantages to each.
A publicly traded company is owned by the shareholders. Therefore, the decisions made by the board will primarily benefit the shareholders. Shareholders look for retained earnings. Increasing retained earnings sometimes means lowered compensation to the field, i.e. the distributors, i.e. YOU.
For this reason, publicly traded companies are notorious for changing their compensation plans to the detriment of the distributor or commissioned sales force. Ask any pharmaceutical rep.
On the other hand, publicly traded companies are required by the SEC to publish their financial information. That information will be required to answer the next three questions.
Privately held companies are owned by an individual or a small group of individuals. This means that they have much more flexibility to make decisions that benefit the distributor - but that doesn’t mean their decisions will.
Privately held companies don’t have to publish their financial information. If you are looking at a privately held company, ask for their financial statements. You need to see their income, balance, and cash flow statements. If they don’t provide them to you, you don’t sign-up. Period!
Take a look at the cash flow statement(s) of the company. Go back five years. Is cash flow positive or negative? What is the trend?
Cash flow is the lifeblood of any company. If cash is leaving the company faster than it is coming in, that company is not long for this world. Despite how much the world has changed, cash is still what is needed to pay the bills.
You want to see positive cash flow. That is, more cash coming in than leaving. And you want to see year-over-year growth in cash flow.
Don’t let them fool you into thinking negative cash flow is the result of investment in research and development. If they don’t have the cash coming in to pay the necessities they definitely shouldn’t be putting money into this.
Take a look at the income statement(s). Again, go back 5 years. Are revenues increasing or decreasing? What is the trend?
Increasing revenues are good. Decreasing revenues are bad. Especially if they make their own products!
If they have positive cash flow but decreasing revenues, it usually means they are raising prices, expenses are staying the same, but sales are dropping off. Don’t get in front of this train! It’s only a matter of time before expenses rise and cash flow starts dropping off.
Get the balance sheet(s) for this one. Take a look at liabilities vs. assets. Are liabilities greater than assets? If so, the company is in debt.
Again, this is not good. If you’re investing in a high tech company, this may be ok. But a network marketing company should have very little for which they need to borrow.
Since there are enough good debt-free companies out there, you don’t need one saddled with debt.
If the company that is courting you does not score, positively - no pun intended - in all 5 areas, keep looking. There are more than one fish in the sea, or frog, or….you know what I mean.
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