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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 try to acquire customers or buyers, preferably those who are willing to spend on a quality product.
If you’re in a service business like I am, the next concern is payment – even agencies and direct clients with a reputation for good payment practices can have cash flow issues from time to time. Last but not least, marketing and workflow management must be continued so that we do not compromise our health by working too many hours, and at the same time we do not risk losing future jobs due to unavailability when a popular client calls for our services.
In addition to the challenge of balancing all these demands, there is a problem that many entrepreneurs face – the “dry” periods between the holidays or, if you specialize in a sector that experiences seasonal spikes like landscaping, times when there is simply less work .
In these times, especially when we are waiting for payment from slow payers, it is clear that we need to find a way to not be 100% dependent on income from current efforts.
You see, the problem with being an entrepreneur, especially in the service sector, is that we are in a “money time” economy. We can be entrepreneurs, but basically we work once and get paid once. This is in contrast to living in a “cash for results” economy of people who are in what Robert “Rich Dad” Kiyosaki calls the B (Business) or I (Investment) part of the cash flow quadrant. If you have what’s called a real business – one that works, like the local McDonalds, whether you’re physically there working or not – or you’re an investor, the money keeps flowing because you get certain results. You don’t have to be there and work in the company.
This is an important distinction. Do you want to work for your money or do you want your money to work for you? For the latter, you’re in a much better position if you have the work model recommended by my friend, multi-millionaire mentor Tom Antion: work once and get paid. . again. . . and again. . . and again!
This is what creates passive and residual income, and you are especially well placed to do this when you get your business entities right.
How can you start implementing this in your business? Here are some ideas to get you started:
- Think about how you can create passive income streams from what you’re already doing in your business. For example, as a translator, I have noticed many discussions on various translation discussion lists about the issue of copyright: As a translator, do you have any copyright for the translations you create? The consensus is generally “no”. However, if you work with CAT (computer-aided translation) programs like I do, you actually create something that is considered intellectual property during your work: your translation memories (TMs). Here are some ideas on how this might work for you if you are in translation or other service industries such as consulting, photography or even manufacturing where you are undoubtedly creating intellectual property.
- Claim your rights by filing a copyright notice, obtaining trademarks or service marks, or obtaining patents to protect the product of your work. You must protect the fruits of your labor by preventing others from selling or using it for their own profit
- Please charge a separate fee for your proprietary materials. It’s very annoying that some agencies have started asking you to offer a discount for “soft matches” and even more, to submit your TM with a translation. You should avoid this if you can. One agency I work for on a regular basis has started claiming the right to deduct 10 or 15% of your fee if you don’t submit your TM with the job, if they asked for the TM when you were offered the job. I believe that all translators should treat translation translations as the valuable intellectual property that they are and charge such a fee in addition to the cost of the translation business itself. 100% or 200% of the business would be reasonable if you could lose even just 2 or 3 future jobs, but if you are afraid of losing clients, maybe you could start by simply using a royalty of 15 or 20 or even 30% of the work. The same applies to other types of intellectual property. If you are a landscape architect planning a magnificent sophisticated design for a property in a certain climate zone, it has taken time, talent and imagination and everything you have learned from past experiences to create it. If you make such a plan, you must charge a fee for its use (a royalty in the form of a royalty if such uses can be traced) so that it will pay for your same one-time effort many times over when others reuse it for profit.
- Charge your company royalties for using your copyrighted material to generate sales. This brings me to my next point, which I’ll elaborate on below: When you have a database of memories and terminology that you’re constantly adding to, or a basic template that you use to create an architectural or business plan, every time you use it to create another product or service for your company, you can charge your company a fee for using your intellectual property. If you charge your company 15% of the total work for using your TM. This royalty or license income is taxed as ordinary income, but as passive income it can be used to offset passive losses incurred from other side activities such as real estate investing. Unless you are a “real estate professional” (spending at least 50% of your time in the real estate business), your passive real estate losses can be used to offset up to $25,000 of wage/salary income (if you earn $100,000 or less per year). Check with your tax accountant to verify exactly how and where you will report this royalty income on your return.
- Write specialized articles in your field and charge your company a royalty or royalties for publishing them on the Internet or in trade publications. Have the company pay you royalties for selling your articles or eBooks.
- Spread the wealth. If you have a large volume of work that you cannot do yourself, start generating some passive income by subcontracting to other professionals. The margin you make compensates for your efforts in marketing, administration and quality control, increasing the total amount of work you can do.
- Add an additional business line.
Once you’ve made sure you’re taking advantage of all the possible deductions and benefits available to you in your main business (see below), it’s time to look away and see what opportunities you could find to generate passive income in other businesses. business.
With the multitude of opportunities now available on the Internet, you don’t have to look far. Once you know how to avoid the ubiquitous scams (of which, unfortunately, there are too many), you can use your existing corporation or limited liability company—or start a new one—to generate substantial part-time income that has built-in passive and residual components.
A great place to start is to join an affiliate program related to your main area of expertise: post links on your site and receive commissions from sales your own site generates. For some recommendations and warnings about what to avoid, check this and previous issues of this e-zine for recommended products and our resources page on our website.
Copyright 2006 Azur Pacific Associates
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