May 1999


Bookkeeping 101 for Network Marketing Distributors - Tom Willet

Tom Willett

Did you spend frustrating hours pulling figures together to prepare the Schedule C for your 1998 tax return? Did you promise yourself this year was going to be different-- that you were going to get organized?

None of us got into Network Marketing to become a bookkeeper. Maybe you took a bookkeeping class in high school or college, and it probably wasn't your favorite class. Of course, now almost everyone has a computer, but even learning to use accounting software programs, like Quickbooks, One Write Plus, or Peachtree, can be daunting. And even if you learn it, can you teach those you sponsor? More importantly, can they teach those they sponsor? As an accountant, I use One Write Plus and tried to teach it to my downline. It didn't work, but in the process of trying, I also discovered that my distributors did not understand bookkeeping basics.

Most Network Marketing companies say the business is so easy you can run it off your kitchen table. With that promise, you need an equally simple bookkeeping system to offer your new business partners.


Starting Right

When we start new distributors in the business, most of us tell them to get three-way calling added to their phones, but we also need to help them get started right financially.

1. Open a separate checking account for your new business

2. Deposit all of your business income into this account

3. Write a check for everything (or charge it on a credit card used exclusively for the business)

4. Complete a monthly bank statement reconciliation

5. Prepare a monthly Profit and Loss Statement


Sales and Income

Naturally, most Network Marketing distributors will have several forms of income-- initially, retail and possibly wholesale income, later, residual income and bonuses-- and it's best to track each separately. Why is this important? Because it tells you the source of your income. Are you strong in retail sales, but not wholesale? Analysis: You're selling, but not converting customers to distributors. Use your company's retail forms to record retail sales. Use their reports accompanying your check to breakdown the other income.


Personal Usage

All Network Marketing distributors are going to use the products or services they sell. You will need to account for this usage to avoid audit trouble with the IRS. You could write a check, but it is just as easy to record the amount and add it to your monthly income. In either case, the amount should be based on your cost. (You could reduce inventory, but I don't recommend this method.)


Recording Expenses

We've all had years of experience writing checks, but it's another step to record and track these expenses in a bookkeeping system. Doing this will tell you what it truly costs to operate your business and where your money is going. It also provides the evidence you'll need to back up whatever deductions you claim on your tax return.

Begin recording expenses in the categories listed on IRS Schedule C, such as car, office, meals and entertainment. Then add other typical Network Marketing categories, such as telephone, postage, dues, and bank fees. Be sure to record expenses that you do not write a check for, such as your bank's monthly service fees and finance charges on credit cards.

If you are like most Network Marketing distributors, you are going to use at least one credit card for your business. The charges on these cards are like writing a check. The monthly credit card statement should be used to put each charge into the appropriate expense category, just like the checks you write.

One special category you need to add is Other Items. It is not an expense category, but you need it to record checks written or charges made. List checks in this category that you wrote to yourself for money you take out of the business for personal use. Likewise, record the checks written to make payments on your credit cards. List checks or charges for assets purchased for the business, such as your file cabinet, telephone, or answering machine. These are assets, which must be listed and depreciated on IRS Form 4797.


Profit and Loss Statement

Recording income and expenses is an important first step, but if you stop there, you will still be running your business blind. You'll have no idea where you're going or what you'll run into without a Profit and Loss Statement to give you a monthly picture of how your business is doing. Are you really making money, or just handling a lot of it?

Create this statement each month by adding all your income and subtracting your product expenses from that figure to determine gross profit. By adding your remaining operating expenses and subtracting them from the gross profit, you will determine your profit-- or loss-- for the month. By adding each month's figures to the previous months' total, you will also determine your year-to-date profit or loss.


Other Tips

Here are a few tips to make your Network Marketing life easier. To file your records quickly, easily and effectively, file everything by month. Need to find a bill? Look it up in your bookkeeping system and find the bill itself in that month's file.

Record your vehicle mileage at the beginning and end of the year. During the year, keep a business mileage log-- include the date, who you went to see and where, as well as beginning and ending mileage for the trip.(There's no need to record personal mileage)

Starting this year, most Network Marketers will be able to claim Office In Home expenses (IRS Form 8829). While all of these expenses are paid by personal check, it will save time and energy if you set up a sheet to record these expenses each month as you pay them, such as gas, electric, sewer, water, rent (you can obtain mortgage interest, real estate taxes, and insurance on your year-end statement from the mortgage company).

Finally, if you keep any products at home for sale, use the company's sales sheet with prices to complete your year-end inventory. Count the number of each product on hand, multiply by the retail price (add sales tax and shipping if appropriate) and reduce the final figure by your discount to arrive at your actual cost of inventory.

Bookkeeping does not have to be hard or time consuming. When you have a system designed and in place, then it only takes a little time each week and month to keep it up to date. More importantly, these figures will tell you how your business is doing so you can make informed decisions on what to do to reach your goals.


TOM WILLETT is the author of Tracking My Business Profits, a simple manual bookkeeping system designed for Network Marketers. He is the owner of TRW Consulting Services, providing accounting and tax services to small business owners for the past 12 years, and has been personally involved in Network Marketing since 1995. Tom has served as a SCORE volunteer for over ten years teaching seminars on bookkeeping and taxes, and is an instructor for Tolles Tech School where he teaches Starting and Managing a Small Business. You can reach TRW at or visit their website,

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Reprinted with permission from Upline, Willett Feature - May 1999, 888-UPLINE-1,


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