SIL looking at a MLM "opportunity" - how to protect her?

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Khanmots
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SIL looking at a MLM "opportunity" - how to protect her?

Post by Khanmots » Fri Jan 01, 2016 10:51 pm

MLM = multi-level marketing.

I know, she should be avoiding this, and that it's doubtful that she'll make any money, and so forth. I've gently pushed that to her. However, she can afford to lose the money, and I'm not going to endanger the relationship by trying harder to talk her out of it.

What I'm really interested in is what she should be doing to protect her personal assets and move as much risk away from her personally as possible. It's only selling clothing, but I've just got visions of smarmy lawyers deciding that when their client rolled around on the stove and the shirt caught fire... well... obviously it must be the sellers fault.

Would there be any point to setting up a LLC? S-Corp? Something else? Or is the risk low enough for such a small business (I'd guess it'll be $10k-20k/year gross for however long until she gives it up) that the costs outweigh the benefits?

She does have a background in taxes (personal and corporate) as well as accounting; so I don't expect her to get in trouble by misreporting or not being able to handle the paperwork associated with it.

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Phineas J. Whoopee
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by Phineas J. Whoopee » Fri Jan 01, 2016 11:06 pm

I can't say whether it's worth the premiums or not in this case, but if she has even mild concern, she should look into both business liability insurance, and errors and omissions insurance.

Sorry if the premiums will eat into the MLM-hinted (they're not silly enough to promise) profits.

PJW

lawman3966
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by lawman3966 » Sat Jan 02, 2016 12:00 am

I confess that I haven't heard this particular concern before.

If fear of personal liability is the issue, the first item on the agenda would be get a qualified attorney to review any contracts carefully before signing them.

After being laid off from a Fortune 500 company, my sister started doing marketing for an MLM outfit. I was as skeptical as anyone about the likely outcome. However, whether due to pure luck, or purely to spite me, she has made successful career of it. That said, I for any new entrants I would still recommend thoroughly investigating the business model, and interviewing as many current and former participants as possible. The common view that 1% or fewer of the starting sales people succeed is likely right.

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BL
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by BL » Sat Jan 02, 2016 12:14 am

She sounds like an intelligent person who knows what she is doing. You might get yourself an umbrella policy and then mention it to her as a suggestion (liability in case someone is injured in a car accident or someone falls in her home, etc.) Other than that, I would stay out of it unless she asks.

mpowered
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by mpowered » Sat Jan 02, 2016 1:24 am

An LLC or S-Corp could potentially limit her liability, but if she is running the business out of her home, any invitees of the business would name her personally in the suit as the owner of the home. Insurance is probably the way to go if that is the case.
BL wrote:She sounds like an intelligent person who knows what she is doing. You might get yourself an umbrella policy and then mention it to her as a suggestion (liability in case someone is injured in a car accident or someone falls in her home, etc.) Other than that, I would stay out of it unless she asks.
I am not sure a homeowner's umbrella policy would cover you for business related accidents... you'd have to get a commercial general liability policy to cover those sorts of accidents. You can get 1MM-2MM in coverage for fairly cheap.

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Khanmots
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by Khanmots » Sat Jan 02, 2016 1:49 am

Appreciate the feedback so far. I had not thought of the business insurance route, will mention it to her.

And BL, she has asked. I was running through her math with her and pointing out areas she needed to do further research in. Limiting liability is one of those areas and I told her I'd ask for thoughts.

A related area that I have no knowledge of is related to credit for the business. I imagine that for a new LLC (or S-corp) any business credit, even relatively small stuff (under $5k) would require her to personally back it?

mpowered
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by mpowered » Sat Jan 02, 2016 1:53 am

Khanmots wrote:A related area that I have no knowledge of is related to credit for the business. I imagine that for a new LLC (or S-corp) any business credit, even relatively small stuff (under $5k) would require her to personally back it?
Typically, yes. for instance, almost all SBA loans require personal guarantees from those owning a substantial portion of the company.

IPer
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by IPer » Sat Jan 02, 2016 4:01 am

Many on this board may chime in with anti-MLM sentiment, however, I have been with quite a few over a long spread
of years and view them as at least a great way to get real business exposure and limit your expenditures. There are
many MLMs where your exposure is limited to say, a couple hundred to $500/mo or $2-6K/year. There are almost no
other small businesses one can start that have such a structure!

As for liability protection and all of that there have been some lawsuits, generally on those who are quite successful and
then get preyed on, so I would ask her to monitor her success and when it gets to a predefined level consider the insurance.

Also, make sure she is a user of the product so that whichever product she sells she will also use so if she does opt out
and has product on hand that it doesn't go to waste.
Read the Wiki Wiki !

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warowits
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by warowits » Sat Jan 02, 2016 4:31 am

I think MLMs are evil. That being said you mentioned she has a background in accounting. Encourage her to keep fastidious track of profits/losses, but also her hours. Many of them you lose money, but some you turn a profit and tell yourself your doing ok, only to do the math and realize your working for 3 dollars an hour.

normaldude
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by normaldude » Sat Jan 02, 2016 5:10 am

Just email her some links, and say that you're concerned about her involvement in a MLM pyramid scheme.

Based on available data from the companies themselves, the loss rate for recruiting MLMs is approximately 99.9%; i.e., 99.9% of participants lose money after subtracting all expenses, including purchases from the company.

http://en.wikipedia.org/wiki/Multi-leve ... #Criticism

https://www.youtube.com/watch?v=_92zhGt05gU

http://www.mlm-thetruth.com/shocking-stats-2/

99% of MLM participants lose money..

http://www.ftc.gov/sites/default/files/ ... -57281.pdf

CNBC Documentary about MLM Pyramid schemes..

http://video.cnbc.com/gallery/?video=3000140029

http://www.cnbc.com/id/100364484

Q: If 99 percent lose, 1 percent does make money. But where does that money come from?

A: It would show that it came from the people's-- that lost the money. It came from their investments. It would disclose that nobody is actually earning a net profit from what the business claims to be -- retail selling, direct selling -- that in fact, the money they made came from the investments of the other distributors who had joined and failed.

http://www.cnbc.com/id/100366687

jridger2011
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by jridger2011 » Sat Jan 02, 2016 5:19 pm

Your SIL has a background in accounting and would know how much she needs to earn in profit in order to sustain this venture. What would probably need protecting are relationships since she needs to cast a wide enough net to profit. I feel like these MLM things make for really awkward conversations with people after chatting with them and then pitching hard.

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Khanmots
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by Khanmots » Sat Jan 02, 2016 6:34 pm

mpowered wrote:...almost all SBA loans require personal guarantees from those owning a substantial portion of the company.
Good to know. Given that, any reason to take a 0% introductory rate for the business rather than self-fund?

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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by mpowered » Wed Jan 06, 2016 11:54 am

Khanmots wrote:
mpowered wrote:...almost all SBA loans require personal guarantees from those owning a substantial portion of the company.
Good to know. Given that, any reason to take a 0% introductory rate for the business rather than self-fund?
0% is typically a teaser, and doesnt last long enough to really make it worth it. plus, if you borrow money to fund the business, you'll never know when you can fully pay it back, so you really have to look at a longer term picture of what the cost of funds is going to be. Are there fees involved? Is there a higher interest rate that applies if you don't pay it off within X months?

SouthernCPA
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by SouthernCPA » Wed Jan 06, 2016 12:10 pm

I'll defer to the attorneys for liability protection discussions, but her biggest risk is losing her "investment."

If she's got any business sense at all, have her read this: http://www.vandruff.com/mlm.html

That's the best explanation I've ever seen as to the economics and mechanics to why MLM's are terrible.

It addresses supply/demand economics, etc.

I hate the MLM model because typically the only way to make real money is to recruit other "business owners" beneath you. It's selling dreams with a product as a mask. Real companies do not have to distribute their products this way.

I've had friends get involved and all it does it make me want to avoid them because they are always pitching everyone some "opportunity." It changes folks, I'm telling you. They become almost cult-like.

alex_686
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by alex_686 » Wed Jan 06, 2016 12:45 pm

I am on the "MLM is evil". I am sure that there are exceptions but I have seen too many people get sucked up into these. In the end they wind up with a large high interest credit card bill and lots of inventory in the garage.

I would point out to your SIL in law that this is a exciting activity. She is going to need that excitement to motivate her as a saleswoman. On the flip side, that excitement can cloud her judgment. The MTM tend to exploit this.

So, before she starts, try to get her to promise the following things:

If she ever says "This MTM is not a cult" then she knows it is a cult, has drunk the Kool-Aid, and that she is not using her independent reasoning, and that she should get out.

If she ever says "You have to spend money to make money" she knows her judgment is impaired. In short, set up a business plan ahead of time with clear trip points on how much time and money (i.e., start-up costs, losses, debt) she is willing to put in. It is easy to get caught in the marginal trap of "if I only buy $1,000 in inventory, start-up kit, etc. to get to the next level. Before you know it you are in too deep.

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Khanmots
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by Khanmots » Sun Jan 10, 2016 11:19 pm

alex_686 wrote:I am on the "MLM is evil". I am sure that there are exceptions but I have seen too many people get sucked up into these. In the end they wind up with a large high interest credit card bill and lots of inventory in the garage.

I would point out to your SIL in law that this is a exciting activity. She is going to need that excitement to motivate her as a saleswoman. On the flip side, that excitement can cloud her judgment. The MTM tend to exploit this.

So, before she starts, try to get her to promise the following things:

If she ever says "This MTM is not a cult" then she knows it is a cult, has drunk the Kool-Aid, and that she is not using her independent reasoning, and that she should get out.

If she ever says "You have to spend money to make money" she knows her judgment is impaired. In short, set up a business plan ahead of time with clear trip points on how much time and money (i.e., start-up costs, losses, debt) she is willing to put in. It is easy to get caught in the marginal trap of "if I only buy $1,000 in inventory, start-up kit, etc. to get to the next level. Before you know it you are in too deep.
alex, good points. I've done some talking with her about setting up bail-out criteria before she goes in... looks like I need to do some more.

Southern, I'll read up on that, thanks.

mpowered, it looks to be 0% for a year. She'll either have been successful or bailed by that point, cut her losses, and paid everything off.

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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by Pha430 » Mon Jan 11, 2016 2:00 pm

Eventually things will become clearer as she gets in more deep, worst case scenario she could be out a few hundred dollars or maybe a few thousand and the loss of time.

I've had a fair share of these MLM's pitched to me, and even gave one a try my self. There's a lot of fakeness going on in these, as the sales are really generated by the associates and the team. So during the meetings they give praise to all the up lines about the awesome sales they had that month. When in reality the lower level associates still have merchandise sitting at home and still trying to unload it. There is always pressure from the up lines to produce more numbers by X date and hit X goals. And I've seen people just stock up on junk just to save face, so when the monthly meeting happens your praised and so is the upline and the cycles continue. Most of the items are junk and no ones really interested in buying the over priced crap. I have a friend who was trying to pitch me on this coffee mlm company, the system was horrible though! They don't even allow you to sell the merchandise online, for goodness sake we are in 2016 who is really going to be peddling merchandise out of the trunk of a car.

All in all, I didn't loose money. I made a profit of about 3000 dollars in about 6 months, I do consider it a loss in a way because I put many many hours into it, from making phone calls, meeting people, going to lame motivational events and meetings, the gas spent on driving around. I would of been way ahead financially if I had picked up a part time job instead. I did feel bad afterwards, because those I did recruit I wasn't able to even have them at least break even because generally those you recruited drop out at a higher rate.

I felt very lonely in this MLM crap, it changes you, and it can consume you. Also almost all MLM's want you to target the people who are closest to you, which is your family and friends. And when you do this, guaranteed your family and friends will start avoiding you while you are doing this mlm especially if you bring it up way too often or at all. If you do decide to do this, it's best to know your boundaries amongst the people who are closest to you. It's not worth ruining family and friend relationships over it. And what's worse is, if you do recruit family and friends they usually only join because they feel like they need to support you. Eventually they will drop out faster than you and they may be bitter against you now, since they are also out of a few hundred bucks or more.

there are much better ways to start a business online, plenty of dedicated blogs out there that focus on e commerce businesses and such things. At least this way your doing your own thing without the mlm hype.

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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by surfstar » Mon Jan 11, 2016 2:17 pm

Tell her about the powerball lotto instead, if she feels that lucky.

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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by Carson » Mon Jan 11, 2016 3:35 pm

I think the only other thing to caution her on is if this this is the MLM opportunity I am thinking of, the company requires you to take inventory and manage it. It's not the same as other ones in that you submit an aggregate of actual orders received and then deliver them to the recipients.
30-something personal finance enthusiast, just get getting started on this whole portfolio thing.

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Khanmots
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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by Khanmots » Thu Apr 18, 2019 12:45 pm

Resurrecting an ancient thread, but wanted to let y'all that helped with advice know how things ended. (Shoulda posted long ago XD)

She had fun for a while (then it turned into a major source of stress), learned a lot, and got out after most of a year. She wound up making a bit even after liquidating her inventory for cheap... but given the time it took it sure wasn't minimum wage.

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Re: SIL looking at a MLM "opportunity" - how to protect her?

Post by Stinky » Thu Apr 18, 2019 12:51 pm

Khanmots wrote:
Thu Apr 18, 2019 12:45 pm
Resurrecting an ancient thread, but wanted to let y'all that helped with advice know how things ended. (Shoulda posted long ago XD)

She had fun for a while (then it turned into a major source of stress), learned a lot, and got out after most of a year. She wound up making a bit even after liquidating her inventory for cheap... but given the time it took it sure wasn't minimum wage.
That’s a good end to the story. Making any money at all is an accomplishment!

Hope that SIL has learned her lesson, and won’t do it again.
It's a GREAT day to be alive - Travis Tritt

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