Why You Need to Diversify Your Income When Starting a Business
by Startacus Admin
Why You Need to Diversify Your Income When Starting a Business
When starting a business, you need to diversify both your investments and your risk. Although you’ll likely want to invest all of your money into your business, this can be unwise.
Nobody wants their business to fail when it starts, but you have to realise that this is a realistic possibility and attempt to navigate the risk. By safeguarding the business against threats, you can minimise this risk. One way that you can do this is by diversifying your income.
In this post, we take a look at why you need to diversify your income and three ways that you can do just that.
Why You Need to Diversify Your Income
Put simply, diversifying your income means that your business stands less chance of failing. Plus, you have the additional upshot that, if it does fail, you won’t be as harmed by the process, as you will still be earning revenue by other streams.
This may seem like a negative outlook but, as The Telegraph reported, half of all start-ups fail within the first five years. So it’s simply a realistic way of assessing the situation. Plus, if you diversify your income and your business succeeds, you’ll have further revenue to grow your business.
There are hundreds of ways that you can diversify your income. However, here we focus on just three.
Investing Money in ISAs
If you’re looking for a higher returns savings account than a simple cash ISA, then a stocks and shares ISA is perfect. However, before you begin, it’s important to note that, for these higher returns, you’ll have to take some risks.
A stocks and shares ISA is a tax-efficient investment account that allows you to put your money into a range of different investments. This includes everything from government bonds to unit trusts.
Of course, the value of your investments could go up as well as down. So you have to be prepared to risk some of your savings. If you’re unsure, Which? have a great guide on understanding investment risk.
Acquire Smaller Companies
If you’re cash rich, then you can also invest some of your profits into other companies. Due to how hard it has become to get certain bank loans, many would be entrepreneurs like yourself will be looking for funding.
Make it clear to people that you’d be willing to invest if the right opportunity arose. However, you shouldn’t be too keen to invest in the first entrepreneur to cross your path. Wait for the right business. The whole idea here is that, should the worst case scenario happen and your business fails, you have a major stake in another company to fall back on. It’s still a risk, but if you’re confident in their business plan, it could be one worth taking.
Hire Out Your Own Skills
As an entrepreneur, you have a number of marketable skills, particularly your bravery and business acumen. As a result, as a successful SME owner, you should look to not only maximise your use of these skills in the workplace, but also earn money from them away from the business.
Many SME owners earn money on the side through network contacts. Then, they use these contacts to speak at events, earning handsome sums as guest speakers at conferences. These can be on a topic of your choosing, too. So you’re never pushed out of your comfort zone.
Elsewhere, you can sell your skills such as writing and design on freelancing sites, and it’s often a good idea to choose a site in which you can set your own rate so you can decide how much you earn per project, and choose how much time you want to invest in things other than your business.
To conclude, diversifying your income isn’t necessarily pessimistic, but could be viewed as realistic instead; especially considering the rate of start-up failures in the UK. Follow these helpful tips and you should have no problems navigating much of the associated risk.
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Published on: 9th August 2016
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