Creating Multiple Streams of Passive Income Why It Is Vital to Your Financial Future
By: Germaine A Hoston

It starts from the day we open our doors as entrepreneurs: the struggle to maintain a reasonably consistent cash flow. First we struggle to obtain clients or customers, preferably those ready to spend on quality product.

If you're in a service business, as I am, next there is that worry about being paid--even agencies and direct clients that that have reputations for good payment practices can have their own cash flow crunches from time to time. Finally, there is the need to continue marketing, and managing the flow of work so that we don't endanger our health working too many hours, but do not risk losing future jobs by being unavailable when a favorite client calls for our services.

In addition to the challenge of balancing all these demands, there is the problem that many entrepreneurs face--"dry" periods during holidays or, if you are specialized in a sector that experiences seasonal surges, such as landscaping, times when there is simply less work to be done.

During these times, especially when we are awaiting payment from slow payers, it is amply evident that we need to find a way to not to 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 the "time for money" economy. We may be entrepreneurs, but basically, we work once and get paid once. That is in contrast to being in the "money 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 he calls a real business--one that operates, like the local McDonalds, whether you are physically there working or not--or are an investor, the money keeps flowing because you get certain results. You don't have to be there working the business.

This is an important distinction. Do you want to work for your money, or do you want to have your money working for you? You're in a much better position to do the latter if you have the work model that my friend multi-millionaire mentor Tom Antion recommends: work once and get paid . . again. . . and again . . . and again!

This is what generating passive and residual income is all about, and you are especially well positioned to start doing that once you have got up your business entities set up properly.

How can you begin to do this in your business? Here are a couple of ideas to get you started:

Think about how you can create passive streams of income out of what you are already doing in your business. As a translator, for example, I've noticed a lot of discussion on various translator discussion lists about the issue of copyright: Do you as the translator have any copyright to the translations you produce? The consensus is generally "no". However, if you work with CAT (computer aided translation) programs, as I do, you do indeed produce something in the course of your work that qualifies as intellectual property: your translation memories (TMs). Here are some ideas as to how this might work for you if you are in translation or in other service industries such as consulting, photography, or even manufacturing, in which you no doubt produce intellectual property.

Assert your rights by inserting a copyright notice, getting trade or service marks, or obtaining patents to protect the product of your work. You must protect the fruits of your labors by making it difficult for others to sell it or use it for their own profit

Charge a separate fee for your protected materials. Annoyingly enough, some agencies are starting to demand that you offer a discount for "fuzzy matches" and still more, that you submit your TM with the translation. This is something you should avoid doing if you possibly can. One agency for which I work regularly has started to claim the right to deduct 10 or 15% off your fee if you fail to submit your TM with the job, if they requested the TM at the time they offered you the job.

I believe that all translators should treat TMs as the valuable intellectual property that it is and charge such a fee in addition to the cost of the translation job itself. 100% or 200% of the job would be reasonable if you stand to lose even just 2 or 3 future jobs, but if you're afraid of losing clients, perhaps you could start with simply applying a licensing fee of 15 or 20 or even 30% of the job.

The same goes for other types of intellectual property. If you are a landscape architect and you design a magnificent sophisticated design for a property in a particular climate zone, that took you time, and you invested talent and imagination, as well as all that have learned from past experience in order to produce it. If you produce such a plan, you should be sure to charge a fee for using it (a licensing fee of a royalty if it is possible for such uses to be tracked) so that it will pay for the many times your same one-time effort is reused for profit by others.
Charge your company royalties on the use of your copyrighted material to generate sales. This brings me to my next point, on which will elaborate below: Once you have a TM and terminology database to which you keep adding, or a basic template that you use to generate an architectural or business plan, then each time you use it to produce another product or servicefor your business, you can charge your business a fee for the use of your intellectual property. If you charge your company 15% of the total job per use of your TM. This royalty or licensing income is taxed as ordinary income, but as passive income, it can be used to offset passive losses generated by other sideline activities such as real estate investing. Unless you are a "real estate professional" (spend at least 50% of your time doing real-estate related business), your passive losses in real estate can be used to offset salary/wage income only up to $25,000 (if you have earnings of $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 for your field and charge your company a licensing fee or royalties for publishing them on the internet or in trade publications. Have the company pay you royalties on sales of your articles or ebooks.
Spread the wealth. If you have a large volume of work that you cannot handle yourself, start generating some passive income by subcontracting to other professionals. The margin you make is compensation for your marketing, administration, and quality control efforts, and you increase the total volume of work you can handle.
Add an additional line of business.

Once you make sure that you're taking advantage of all possible deductions and advantages available to you in your primary line of business (see below), it's time to look afield and see what opportunities you might find to generate passive income in other lines of business.

You don't have to look very far given the plethora of opportunities that are now available on the internet. Once you know how to avoid the omnipresent scams (of which there are all too many, unfortunately), you can use your existing corporation or limited liability company--or start another one--to generate significant part time income that has a built-in passive and residual component to it.

An excellent place to start is to join an affiliate program related to your main area of expertise: You post links on your website and are paid commissions off the sales that are generated by your own site. For some recommendations and cautions as to what to avoid check the this and previous issues of this ezine for recommended products and our resources page on our website.

Copyright 2006 Azur Pacific Associates

Germaine A. Hoston, Ph.D., is President of Azur Pacific Associates, a consulting and translation firm.Experienced in operating successful businesses in Europe and the U.S. for twenty years, Dr. Hoston has had specialized training in structuring and managing business entities and consults regularly with leading authorities in business law and taxes to bring this expertise to readers of her eNewsletter. Receive a free special report when you subscribe to her free ezine for small business entrepreneurs at: http://www.wealthstrategies202.com.

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