WITHOUT an income stream, your business will fail. Having multiple streams of income is a good way of safeguarding your business against a downturn in one particular stream. It can give your business stability and the opportunity to grow.
Monitoring your income and expenses is essential. Here are some ideas about different income streams.
Active and Passive Income Streams
There are two types of income streams, active and passive. Your business is most likely using an active income stream.
This is where you do some work or provide a service, and someone pays you for it.
Passive income is where the income is not directly tied to the work you do. Although it says passive income, there is still work required to generate the revenue.
In general, the work needed for a passive income stream takes place early on, and the income comes later.
An excellent example of this is an online store. The work at the beginning is to build the website, upload your products, and then promote them. The passive income comes later as people begin to buy products from your store. It’s passive, as people can even buy products when you are asleep!
Big business has been diversifying its income streams for centuries. They expand their business operations into different sectors to generate new streams of income. The most potent diversification is into a completely new business sector. But that takes a lot of effort and expense.
An excellent study of a company that has grown and diversified is the Virgin Group. Initially started by Sir Richard Branson as a record label, Virgin has since expanded into aviation, holidays, mobile telephony, and much more.
Aside from diversification, here are the seven streams of income;
Earned income is your primary income stream through a job. The majority of us start here, and many go no further. For most, earned income is very limiting and has attracted the acronym, Just Over Broke!
In other words, you earn just enough to survive. Of course, some jobs pay exceptionally well, but these are exceptions, not the norm.
To go beyond a job and start your own business requires taking risks and moving into profit income.
Selling a service or product for more than they cost you is the basis of profit income. You can open a retail store and sell products, offer professional services and charge for your time, or combine the two.
Becoming self-employed or an entrepreneur can be a difficult road, but it is the dream of many employees.
If you or your business has spare cash sitting in the bank account, it is losing money. There are many ways you can put your money to work and earn a passive income stream.
You can invest it in a savings scheme and use the power of compound interest to gain a passive income.
When you buy shares in a company, you become part-owner of that company and entitled to dividend payments. Well-timed investments in companies can generate excellent passive income streams.
Property investment is an excellent way of protecting your money and generating a rental income. There are two downsides to this income stream. Firstly, it requires a substantial investment initially, unless it is part of an investment scheme.
Secondly, releasing the cash can be time-consuming and costly, so if you may need the money quickly, this is not for you.
Capital Gains Income
Buying and selling assets can provide you with an income known as capital gains. For example, if you buy stocks and shares worth $100 and then sell them on for $120, the capital gain is $20.
It is essential to consult an accountant about capital gains, to understand the law of each country about capital gains tax.
This passive income stream is generated by designing, building, or making something unique and charging people and businesses to use it.
For example, musicians are signed to a particular label, such as Virgin Records. The record company pays to record the musicians, produce the records, market them, and sell them.
The musicians then receive a royalty payment for every album sold or every time it is played to the public. Famous musicians, such as Elton John, make millions from the royalties for playing his music.
As the popular saying goes, “Don’t put all your eggs in one basket.” It simply means spreading your income streams is an excellent way of earning more money and reducing risks.
With your newfound income streams, don’t forget to keep a business account and keep them separate.