I bet you’ve heard that you need seven or eight streams of income in your business, and you might be wondering how that can be possible – or even why you would need that. Diversifying your income streams in your business is smart because that diversity protects your business.
Let me explain.
When you rely on one stream of income, you are revolving your entire business around that one way of earning revenue. You know that you need revenue to sustain your business, but if you are only generating one source of revenue, if there is a dip in demand or consumer tastes have changed, you will have a hard time staying in business.
For example, if you sold pencils to a school, and that is all your business was based on. Your clients were only schools when you started the business; there was a massive demand for pencils, but as time wore on. Schools replaced pencils and paper with computers and technology, and the demand for pencils dissipated. You were left with no customers because you only focused on selling pencils to schools. Now your business has folded.
So regardless of what type of business or industry you serve, you can see the importance of diversification for revenue streams as it protects your business from folding.
Income source meaning
Let’s talk about income source meaning. An income source is a way to earn money, whether personal or business income.
Types of business income sources are:
- income from sales of different products
- income from services offered such as consulting or coaching
- investment income
- royalty income
- dividend income
- interest income
- rental income
- license fee income
- sponsorship
These are just a few examples, but an income source is any way you generate income.
What is active income?
Active income is how you actively generate income. For business purposes, active income is what your business focuses on selling to customers. For example, if you are a jewelry shop, the main focus of your jewelry shop is to sell necklaces, pendants, earrings, and other types of jewelry. That is your active income.
What is passive income?
Passive income is an income stream that comes to you after you have done the work upfront. While active income is what you consistently generate revenue for, passive income involves investing and seeing the income come to you for months or years.
Many mistake passive income for requiring no effort and having income roll in, but that is a misconception. Passive income still requires you to monitor your investment, you just don’t put as many hours into it as you do for passive income.
For example, if you were to write a book, all the work you put into the book is outlaid at the beginning of the project. You have to write the book, but it can be sold for years after you’ve written it, and that is considered passive income because you put the work out at first, but now you have little involvement with the sales, and that income can follow for many years to come.
Make your money work for you
When you want to create wealth for yourself and get rich off that wealth, it is vital to get that money working for you. That’s why passive income is perfect to set up in your business. Passive income does not require much maintenance on the backend but can require a lot of work upfront.
For example, when you create a digital course to sell to clients. Creating, filming, and editing that course can take a lot of effort upfront, but once that course is completed and ready to sell, you can put it on autopilot. What took a lot of effort to create upfront will sell for years with little effort on the backend.
Here’s a list of my favourite ways to get my money working for me in my business:
1. Writing a book
Getting a traditional book publishing deal has been one of the highlights of my career, and although a lot of work went into writing the book and now promoting the book, there will be royalty payments for years to follow. But not only will I have royalty payments, but the reach my book will offer will bring in new clients and community members.
2. Sponsorship income
As I churn out content for my community, I am not only providing them valuable free resources to use when learning how to create wealth for themselves, but I am also opening myself to sponsorship income. Sponsorship is a great way to make money off the content you already put out.
3. Digital courses
It took some effort to create a suite of digital courses available for my clients to purchase, but now that the work is done, I enjoy the payments I receive when clients sign up for my digital courses. It’s a great way to offer a more cost-effective option for my clients to learn how to do a skill that is on evergreen.
I also find ways to get my money working for me in my personal finances. Here are some tips I share with you on personal finances:
1. Follow a tax-saving strategy
As a business owner, I have tax savings opportunities that I follow. All business expenses get claimed, and I find the best way to pay myself (I choose between dividends and payroll) to find the best tax-saving strategies while meeting my personal needs. I suggest you work with your tax accountant to devise the best strategy for you.
2. Own my own business
Owning my own business allows me to create an income through my business, and I am also building an asset that I own 100% of and plan on selling for much money years down the road. The work I am putting into She Means Profit™ now will also pay off in the long run. When you have a financial plan for your business and build your business with the idea of selling at some point, you have the potential to earn a lot more money.
3. Invest in stocks
My personal financial portfolio includes investing in the stock market through my investment portfolio. I take advantage of government programs, maximize those benefits, and ensure that I invest my money well.
4. Future plan of real estate investments
This is on the horizon where Jamie and I plan on investing in real estate to not only have rental income coming in monthly, but the property will increase in value for years to come.
These are just some ways I get my money working for me. It is a smart business move to set up some streams of income that you can make money from while you are actively generating business for your revenue.
My advice regarding your business is to not rely on one way of making money. Having several income streams and multiple clients will set your business up for financial success.
I knew a woman who had a consulting business and focused her entire business around one client, assuming this would always require her services. This turned out to be a mistake because when her client decided to go in a different direction, this woman was left with no income coming in and was scrambling to find new clients. You can avoid that struggle by setting up your business with different streams of income so that if a situation like that were to happen, you still have other streams of income coming in, and you’ll be protected.
The bottom line is that having various streams of income provide a layer of protection and mitigate the risk of depending on one sole source of income. You want to diversify your streams of income with both active and passive sources to help grow and scale your business revenue while protecting you from depending on one source of income.
Are you a business owner looking for the best ways to optimize profitability in your business? Do you want to learn how to create a business financial plan and plan out the growth for your business while remaining as profitable as you can be? I invite you to join us for the free Path to Profitability masterclass today!
