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Creating Multiple Streams of Passive Income: Why It Is Vital to Your Financial Future
It starts the day we open our doors as entrepreneurs: the struggle to maintain a reasonably consistent cash flow. First we struggle to get the customer or customers, who are willing to spend on a quality product preferably.
If you’re in a service business, as I am, there’s a concern about getting paid up front–even agencies with reputations for good payment practices and direct clients can run short of their own cash flow from time to time. Finally, there is a need to continue marketing and manage work flow so that we don’t jeopardize our health by working long hours, but risk losing future jobs by being unavailable when a favorite client calls for our services.
Along with the challenge of balancing all these demands, there’s a problem many entrepreneurs face–the “dry” period during the holidays or, if you specialize in a field that experiences seasonal growth like landscaping. working less.
During these times, especially when we are waiting for payments from slow payers, it is clear that we need to find a way to not be 100% dependent on income from our current efforts.
You see, the problem with being an entrepreneur, especially in the service sector, is that we are in a “time for money” economy. We may be entrepreneurs, but basically we work only once and get paid only once. That’s the opposite of what Robert “Rich Dad” Kiyosaki calls part of the B(Business) or I(Investment) cash flow quadrant of people in the “pay for results” economy. If you own a real business–one that runs like a local McDonald’s, whether you actually work there or not–or are an investor, the money keeps flowing because you get tangible results. You don’t have to be there for business.
This is an important distinction. Do you want your money to work or your money to work for you? You’re in a better position to do the latter if you have the work model recommended by my friend millionaire guru Tom Anshan: Work once and get paid. . again . And again. . . And again!
That’s what generating passive and residual income is all about, and you’re in a particularly good position to do it once you’ve properly established your business organization.
How can you start this in your business? Here are some ideas to get you started:
- Think about how you can create passive income streams from what you already do in your business. As a translator, for example, I have seen a lot of discussion on various translator discussion lists on the issue of copyright: Do you, as a translator, own the copyright to the translations you create? The consensus is usually “no”. However, if you work with CAT (Computer Aided Translation) programs, as I do, you will create something during your work that qualifies as intellectual property: your translation memories (TMs). Here are some ideas of how this could work for you if you are in translation or other service industries such as consulting, photography or even manufacturing, where you will undoubtedly be creating intellectual property.
- Claim your rights by filing a copyright notice, obtaining a trade or service mark, or obtaining a patent to protect your work product. You must protect the fruits of your labor by making it difficult for others to sell them or use them for their own benefit
- Charge separately for your protected content. Annoyingly, some agencies are starting to demand that you discount for “vague matches” and still, submit your TM with a translation. You should avoid doing this if possible. An agency I work for regularly has started claiming a 10 or 15% deduction from your fee if you fail to submit your TM with the job if they request a TM when they offer you a job. I believe that all translators should treat TMs as valuable intellectual property and charge them as such in addition to the cost of the translation work. A 100% or 200% job is reasonable if you only lose 2 or 3 future jobs, but if you fear losing clients, maybe you can start with just 15 or 20, or even a license fee. 30% employment. The same goes for other types of intellectual property. If you are a landscape architect and you have created a grand sophisticated design for a property in a particular climate zone, you have invested time and talent and imagination, as well as everything you have learned from past experience in creating it. If you create such a plan, you should charge for its use (a license fee of royalties if such uses can be tracked) so that it pays for multiples of your single time. Efforts are reused by others for profit.
- Charge your company royalties on the use of your copyrighted content to generate sales. This brings me to my next point, which will be elaborated on below: Once you have a TM and terminology database that you keep adding to, or a basic template that you use to create an architecture or business plan, you use it every time. Create another product or service for your business, you can charge your business for the use of your intellectual property. If you charge your company 15% of the total job used by your TM. This royalty or license income is taxed as ordinary income, but as passive income, it can be used to offset passive losses generated by other side activities such as real estate investments. Unless you are a “real estate professional” (spending at least 50% of your time doing real-estate-related business), your passive losses in real estate can only be used to offset up to $25,000 of salary/wage income ($100,000 or less per year if you have earnings). . Check with your tax accountant to verify exactly how and where you should report this royalty income on your return.
- Write articles specific to your field and charge licensing fees or royalties for your company to publish on the Internet or in trade publications. The company should pay you royalties on sales of your articles or e-books.
- Spread the wealth. If you have a large amount of work that you can’t handle yourself, start earning some passive income by subcontracting it to other professionals. The margin you make compensates for your marketing, administration and quality control efforts and increases the overall volume of work you can handle.
- Add an additional line of business.
Once you’ve made sure you’re taking advantage of all the possible deductions and benefits available to you in your primary line of business (see below), it’s time to look further afield and see what opportunities you can find to generate passive income in other lines. Business
With the many opportunities available on the Internet now, you don’t have to look far. By knowing how to avoid the ubiquitous scams (of which there are many, unfortunately), you can use your existing corporation or limited liability company–or start another–to generate meaningful part-time income—with a passive and residual component.
An excellent place to start is to join an affiliate program related to your niche: you post a link on your website and you are paid a commission from the sales generated by your own site. Check this and previous issues of this ezine for recommended products and our resources page on our website for some recommendations and precautions on what to avoid.
Copyright 2006 Azur Pacific Associates
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