We carefully watch the requests for information on MLM startup capital, and we see a wide array of requests, that all seem to have a single focus:

• MLM funding
• MLM startup capital
• MLM budget services
• MLM forecasting
• MLM budgeting and MLM budget services
• MLM financial analysis
• MLM growth analysis
• Starting capital for MLM
• How to fund an MLM startup
• MLM raising capital
• Other similar requests

There is indeed a high degree of interest and hope centered on the topic of, “where do I obtain the necessary financial backing to start and operate a successful MLM enterprise?”

To these questions, we offer insights and encouragement.  First, the encouragement.

From mid-2008 until today, we have seen the single biggest surge in the history of MLM startups.  We’re believers in the entrepreneurial spirit that drives the brave men and women into the front lines of battle.  People are starting strong MLM companies, and they are succeeding!

One of our clients launched in January of 2010, and within 90 days, they had achieved more than 2,800 enrollments into their monthly autoship program.  If you consider that most attain breakeven at our around 500 to 1,000 active accounts, you can only imagine the great relief and confidence that this company already enjoys.  And, they attribute much of their success to thoughtfully and effectively arranging the necessary MLM startup capital.  This came as a result of rigorous MLM forecasting, MLM growth analysis, and careful attention paid to how to fund an MLM startup.

We can barely keep up with the vision and determination of so many brave and visionary souls who are tireless in their MLM budgeting and MLM forecasting which assure that they have sufficient MLM funding.

Second, allow us to share some of the important insights we have gained in the journey.  In creating your forecast for MLM funding, start by giving very careful thought to the growth model, including the assumptions behind behaviors that drive MLM growth.  Since the sales model is completely dependent on the results achieved by your voluntary sales force, it follows that a close analysis of the behaviors will be the key to forecasting MLM growth and financial demands.

Thus, here are some the key considerations for MLM growth modeling and MLM financial forecasting:

• What percentage of distributors will join your company simply to be able to obtain a favorable price on the products and services?

• Of those who join, what percentage will introduce 1, 2, 3, 5, 8, 13, and 21 new customers and other distributors to the company?

• What attrition percentage will you apply to your MLM growth model?  From all our years of researching retention trends, we offer a basic rule of thumb:  for Home Party Play Companies (such as Pampered Chef), distributor retention is 40% per year.  This means that of 100 distributors who join in January, 40 will still be active in December.  For MLM retention, the norm is 20%, for hosts of reasons we will explain in other articles and seminars.

In my next blog, I will share the “not-so-secret” secrets of how to raise capital for MLM startup.

When funding your MLM startup or new party plan business, there are two basic types of financing that you can pursue:  debt financing and equity financing.

Debt financing is an interest-bearing loan, the cost of which has no direct relationship to your business’ sales, profits, or future growth.  Instead, the cost of money is determined by the terms of the loan – interest rate and term of the loan.

Equity financing offers investors an ownership position in your business’s future and the right to share on some pro rata basis the profits and/or final disposition of the assets.  Those taking an equity position will generally require some level of control over the day-to-day operating decisions of the business.

Debt financing and equity financing are not mutually exclusive, and often a combination of the two provides an option.

Here are some of the most common sources of capital you can pursue that are often a good match for a network marketing or party plan company:

Internal financing.  In your business planning and in running your business, don’t overlook four important sources of internally generated capital.  First, make sure you collect your accounts receivable (your income) as quickly as you can.  Second, optimize trade credit by seeking out vendors and suppliers who will give you the longest possible payment periods.  Third, improve your inventory turnover.  Simply stated, inventory that sits in the warehouse is not earning anything and is tying up cash.  Inventory that turns over more rapidly ties up less money and generates income more quickly.  Fourth, consider leasing versus buying and subcontracting tasks versus doing things in-house.

Private investors.  You can approach people you know very well, and even those you might know as well, to invest money in your business.  Investors may be passive or active.  Passive investors desire less involvement in the day-to-day operations of the business, whereas active investors desire more involvement in the day-to-day operations of the business.  Private investors are almost always equity financers, although sometimes your arrangement with them will also include debt financing.

State and Local Development Agencies.  Your state government, local community, and universities may have economic development or business development organizations.  These organizations can be an excellent source of information for locally available low-interest loans and even business grants.  Sometimes these organizations actually manage their own investment funds.

Commercial Bank Loans.  Commercial banks offer several types of loans:

• Lines of Credit – The bank makes available a certain amount of money.  You draw out funds as you need them.  Interest is generally charged only on the funds drawn.  Sometimes the bank requires the line of credit to be periodically paid down or even paid off (for example, once a year), after which the line of credit can be used again.

• Straight Commercial Loans – The bank loans money for a period of less than 90 days, after which the complete loan plus interest, is repaid.

• Character Loans – The bank loans money for a short-term, and the loan is unsecured.  These loans are generally made only to individuals or companies of high credit standing.

• Collateral Loans – These loans are made to individuals or companies who give security in the form of real estate, inventory, or other assets.

• Bank Credit Cards – Although not thought of as such, the bank credit card is a source of funds.  Credit cards generally carry relatively high interest rates and should be used only for small amounts of money to be repaid quickly.

• Term Loans – A term loan is a business loan with a maturity of not less than one year and usually no more than ten years.  Interest rates can be fixed (set for the life of the loan) or variable (vary tied to some index like Treasury Bills) and payments are made monthly.  Sometimes lower monthly payments can be negotiated with a “balloon payment” (paying off a lump some) at the end of the loan.

When pursuing any of these sources of funding, a professionally prepared business plan is a vital tool to convince the lender or investor of your credit worthiness.  Most will want to thoroughly review your business plan prior to making a lending or investing decision.  If possible, try to arrange for an oral presentation to accompany the presentation of your business plan so you can communicate your passion and vision for the business.   It is important to realize that many investors and lenders will be initially skeptical of network marketing or party plan concepts, and must be educated as to the viability of your business model.