Changing the Character of Your Income

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Do you remember just a little over 2 years ago after the real estate market had plummeted and the stock market had teetered on the brink, how the economic outlook was pretty dire?

My businesses are considered B2B. In other words, my clients and customers are businesses and in this case, small business. In 2008, while the biggest of the big, the guys who were too big to fail, were getting government bail-outs, the small business owners were left to flounder on the side of the road.

There was a point where my businesses fell like I never thought they would. I remember thinking that I will never take being too busy for granted again. I swore I’d never complain again about ‘too much work.’

Boy, did I have to eat my words this past season, since about November 2010 when our business just exploded. Our passive income really hit its stride in August, when we started getting significant passive income checks enough to cover our monthly expenses.

And since November, I’ve had to really examine again the three types of income from a business. Tomorrow, I’m going to talk about the 3 (about to be 5) types of income from a business standpoint.

Those three types of business income are:

  1. Active income
  2. Leveraged income
  3. Passive income

Active Income: Money you work for. If you’re a service provider, you’re all too familiar with this income. You have to show up to get paid. It’s usually the quickest way to make money, especially when you’re just starting out. It’s also usually the highest income per hour you’ll make out of your business.

Leveraged Income: The first step from active income is creating leveraged income. Take a look at all you do in your business and start to assign tasks and steps in your process to other people. Now is the time to look at hiring a bookkeeper to handle part a task you don’t want to do or maybe you can break down what you do into steps like a Dr’s office would, having others handle steps that aren’t your highest and best use.

Passive Income: Passive income comes from income streams that don’t require any work, outside of management, to produce. Passive income is usually lower then active income, at least initially. But once the passive income starts, it continues to build by itself. That’s where the beauty of passive income comes in.

Some of the mistakes that entrepreneurs make in creating the three types of business income streams are:

  1. Going to passive income too soon. There is almost always a delay in receiving the cash flow stream. Don’t go broke in the meantime.
  2. Make sure you follow the three rules of systems for leveraged income: (1) Write out the system (2) Train the system (3) If someone doesn’t follow the system, don’t fix it for them, re-train and adjust as needed.
  3. Don’t get stuck with active income. Active income is a tar baby. The more you make, the more you want. It’s hard to let go of the active income to step away to create systems and passive income streams, but if you never let go, you’ll never have anything else.

Take a look at today’s special for Smart Business Stupid Business, your new guide to building the three types of income.

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