The Financial Terminology that could make or break your business

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When it comes to finances and business many people think that terms like passive income, residual income, recurring income, semi passive income, and all the rest… are the same thing. Well, I need to make something super clear; if you’re planning on creating a successful business AND you plan on implementing additional multiple income streams, you need to fully understand that those things are not the same.

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the financial terminology that could make or break your business

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Now, I’m not claiming to be an Accountant or Bookkeeper or to be fair, anybody who knows much about money and money management. I’m about creating wealth, not managing it; hey, I outsource everything unless it’s in my zone of genius! But, despite this, what I can tell you: when it comes to adding multiple income streams into your business, knowing and understanding the different pots of money that are available to you, what they’re called and how they work is super important.

The reason why these things are so important is simple; by having a fuller and greater understanding of the terminology of the different income streams, you can ensure that the wealth that you are creating for yourself and your business is the best it can be, consistent and maintainable. And also, it means you won’t get befuddled by promises of big things that you don’t quite understand.

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Income Ceilings

An income ceiling is the maximum amount of money you can make or earn and is usually imposed as a result of exchanging time for money. There are only so many hours in the day, so without additional income streams, it’s impossible to earn more than you already do.

Let’s take an example:

You’re employed in a position where you’re paid a minimum wage per hour. You can work so many hours and be paid, plus overtime where you can be paid some more. But there’s only so much capacity you have to work, to exchange energy plus, the old mention of only so many hours available per week.

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Even if that job was commission based, and you earned more for every sale you made, you would still have a cap placed on the amount you can earn because you’re only ever going to be able to make so many sales in the limited time you have. Make sense? I hope so…

 

Passive Income Streams

 

Passive income is the generation of money through sales or receipt of money on a regular basis from something that you have created or invested time and effort into, just once. There’s a myth that passive income takes no work, but that isn’t true; it’s just the work is condensed into a small period of time or is reduced massively in comparison to the financial returns. Passive income would be the creation or purchase of an asset can be sold multiple times or produces a return on an initial investment.

So, for example, a digital product like a course or eBook that can be created once and sold multiple times without any further effort on your part would be the creation of an asset. Property purchase would be the purchase of an asset that, when rented out or sold for profit, produces a return on your investment.

Passive income is the future of business and finance and the reason for that is that investing effort once and reaping the rewards multiple times with little effort is where you can stop the exchange of time for money, and remove the income ceiling that you’re pressed against.

There are multiple ways of implementing passive income streams into your life or business. But I’m not going to go into those today. However, what needs to be clear is that passive income is something that is possible, but it’s something that takes work in the first instance, after which point you can reap the rewards time and time again.

 

 

Residual Income Streams

 

In a nutshell, residual income is the money you have left in your bank account after you’ve paid your bills and all the essential stuff you need to pay each month. It’s the leftovers. Officially, according to Investopedia; “Residual income is not actually a type of income, but rather a calculation that determines how much discretionary money an individual or entity has available to spend after financial obligations or bills are paid”.

So, in super-basic-business-terms, it’s your profit, and obviously the more profit you have the better, and the more successful your business will be. There’s something that can be said here about profit and loss, turnover and lots of other financial-type words, but that’s not my area of expertise, so I’m just keeping schtum on those. What it means is a nice pot of money that you can dip into as a result of your labour and the work that you’re doing.

Many business owners mistake residual income for passive income and recurring income (see below). But it’s important to remember that residual income is what’s left at the end of the month and can also be known as surplus or discretionary income.

 

Recurring Income Streams

 

Recurring income is something that you receive on a weekly, monthly annual or biannual basis that comes into your bank account, every single time, guaranteed. You can generate recurring income from property investment, which also falls into the passive income category, but also through the development of membership or subscription model products. There’s loads of ways to develop recurring income in your existing business, and the thing about recurring income is that it’s beneficial because you’ve got a guaranteed pot of money coming in every single month that boosts your residual income without extra effort.

It’s also a scalable model, so it doesn’t matter if the information you’re providing through your model serves ten or ten thousand customers, it’s the same.

At the end of the day, it means that you’ve got substantially more profit for the same work, especially if that recurring income is based on a passive income generation model like a membership or subscription service.

 

So What?

 

It’s important to make the definition clear that all of these terms are different, and each can benefit your business in their own way. Ideally, you should be looking to implement passive and recurring income models into your business to allow you to build the residual income you have and get past that income ceiling.

By having a full understanding of these terms, you can ensure that you have money coming into every single part of your business model. Whether it’s recurring income that comes into your business every single month, guaranteed, or whether it’s passive income where you’ve created an asset that delivers returns for you, time and time again; they all add up to smash through that income ceiling and give you more residual income into your bank account each month.

And if you want the ideas, strategy, support and accountability to get that done in your business right now, then join us over in the Passive Business Academy today.

 

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