How to create a passive income from my business
“If you do not find a way to make money while you sleep, you will work until you die.” - Warren Buffet
Along with selling your business for a substantial profit, earning a passive income from your business is the holy grail that most entrepreneurs are endlessly searching for in their journey to build wealth. And why not? After all, you have invested time, money, emotional energy and sacrificed other opportunities in pursuit of business success.
Create the business that gives you the life you’ve always dreamed of…
“Money makes money. And the money that money makes, makes money.” – Benjamin Franklin
But what is passive income and how do we achieve it? Passive income is a term used to describe a stream of income which, once established, takes little to no active management to generate funds. Simply put, passive income is income that you or your business can earn without your active involvement. If that sounds a little too good to be true, there is a bit more to it.
The key to achieving passive income is to truly ‘finish’ your business. That doesn’t mean regularly achieving profit targets or having elevated levels of customer satisfaction and retention – although those things are indeed critical to business success. Ask yourself ‘can I decide to take a six-month spiritual retreat at a Tibetan monastery and when I return the business will be more profitable and successful than when I left?’ If the answer is ‘No’ then you still have a job in a company that you own, and it is therefore not finished!
Here are six key considerations when building a passive income from your business:
How much passive income do you desire?
This may sound like a simple question, but often when we ask this there is no clear response. This like ‘enough to retire comfortably’ or ‘enough to give me a good lifestyle’ are all great ideas, but not specific enough to create a cohesive plan around.
If you want to buy more property, take multiple vacations each year and start investing in other businesses, calculate exactly how much income would be required to fund these activities over a specified timeframe with clearly defined milestones against which to benchmark performance.
Be crystal clear on your start point
With your destination clearly identified and the milestones mapped out along the way, now is the time to get really clear on the reality of your current situation. Be brutally honest with yourself on this, avoid sentiment and resist the temptation to look through ‘rose tinted glasses.’
Analyse, review and reflect on all areas of business mastery – finance, time, team, delivery, and operations. Without solid foundations and effective systems in place, the temple that is your business will topple and fall in your absence. Remember, in the words of Marshall Goldsmith ‘what got you here, won’t get you there…’
Know your numbers - and make sure your team do too
In most successful businesses, the owner has a good grasp of their financials – after all, these are the truth of your business. That said, there are still many areas that rely on the knowledge and experience of the owner to ‘sense’ the business and anticipate potential issues.
Can you recall asking a simple, obvious question about a line in your accounts that ‘just didn’t look right’ and found a glaring omission? What would have happened if you were not there? There are many highly effective financial management, forecasting and reporting tools to help create real clarity. Work with your coach and accountant to ensure all areas of financial mastery are in place and help your team to harness the power of numbers.
Get over yourself
This process can be as easy or as difficult as you choose to make it. Most business owners we work with start with the belief that only they can do certain things to the level and standard they expect. They grasp hold of what are often trivial tasks and make a real meal out of completing them ineffectively and inefficiently.
The key to successful business exit is harnessing the power of team productivity and delegation. I promise you, there is someone out there that is better at doing the tasks you are currently choosing to undertake in your business than you are – faster, quicker, and more efficiently. If this is not true, you will never be able to let go. Accept this, embrace this, and move on.
Design yourself out of the business – permanently
Now we have solid foundations in place, clarity around our current and future numbers, an audit of where the business is now and accepted that our job is to leave the business in better hands than our own, we are ready to begin the process of constructing your exit so that you can enjoy your passive income and explore the choices you desire.
Create an organisational chart that shows the future structure of the organisation that needs to exist to enable you to leave. You will likely see your own name in many of those boxes right now. Create position contracts for each role and start the process of recruiting into those positions to manage the systems and processes you have created.
Work with a coach who can guide you through the process
Creating a passive income from your business can be challenging emotionally, operationally, and culturally. There are many potential blind-spots and dead-ends you would prefer to avoid that could prove costly or undermine your efforts to finish and exit your business.
An experienced business coach will be able to guide you through the process of finishing and exiting your business, creating a passive income and the confidence to pass on the reins to a highly skilled, fully committed, and incentivised professional team. Like most things in life and business, ‘you don’t yet know what you don’t yet know’ and it is in these areas that your real future success lies.
The bottom line
At the end of the day, generating passive income does require a bit of effort, a lot of self-reflection and unwavering commitment from you to pull it off. As with all good things in life, the more effort you are willing to put in, the more sustainable income you are likely to generate. Visualise yourself lying on a sun-kissed beach listening to the waves lap the shore checking your KPI dashboard as the numbers are steadily ticking upward and then tell me if the investment was worth it in the long term!
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