We are often told to “diversify our assets.”  What we’re not often told, however, is to take this thought to its natural conclusion: we need to Diversify Everything We Can When it Comes to Money.

That means diversifying income streams, if possible.  That means diversifying within sub-asset groups within your portfolio.  It means diversifying where you invest your money or maintain your financial assets.  Diversifying your retirement accounts. Everything.  Here’s why….

BECAUSE EVERYTHING IS ALWAYS CHANGING!  And because the past does not predict the future.

Here’s why else….

BECAUSE JUST BECAUSE SOMETHING WAS ALWAYS ONE WAY, DOESN’T MEAN IT CAN’T CHANGE AT THE BLINK OF AN EYE.

For example:

In Mexico in 1943, a farmer and his son stumbled upon a tiny crack in the Earth’s service.  This tiny crack was the birth of a new volcano.  The Paricutin Volcano, measured 1000 feet in height after only four months, and destroyed all of the surrounding towns and villages.

Can you imagine a volcano appearing in your backyard, without any prior warning, and eventually being more than 1000 feet high?  If not, then why can’t you imagine the total collapse of the U.S. dollar?  Or banks going bankrupt and the government not being able to give you the federally insured money you’re owed?

I’m not trying to be a doomsayer, I just want to point out that the unexpected can happen–and when it does it will often occur in the blink of an eye.  Think about how you felt when the banks were about to go under and not pay the money market funds due their customers?

Amazon Affiliates Story

It’s not quite as fascinating as the Paricutin Volcano, but a lot of people are dealing with the death or near-death of their businesses in a way that was, even a few months ago, thought entirely impossible.  What I’m talking about is the recent Amazon Affiliates scandal.

State governments have been desperate to raise money in any way they can.  A few states, such as California or New York, have passed laws that require a sales tax on Amazon items.  In order to argue that the company lacks “minimum contacts” (as any law student would call it, the International Shoe Case Issue”) with the state–and thus lacks jurisdiction over the company, Amazon has dumped every affiliate in those states.

What if your entire business was based on generating Amazon affiliate monies?

For example, what if you had a gift suggestion website, and the links largely went to Amazon?  There are many businesses like this (I actually have one–although my state hasn’t been affected as yet), that are now finding overnight that a trustworthy and legitimate source of income–that was there for many years—has now suddenly disappeared.

Diversify Your Income as Well As Your Assets

Being married and having two incomes is a form of income diversification.  Generating dividend or other passive income is another way to diversify your income stream.  Starting side businesses, online or off, are great methods for creating more income streams.  This way, if you should ever lose your job, you will hopefully be able to get by and endure through a prolonged job loss.

In todays world of little employer loyalty and ongoing tough financial times, this has become more essential than ever.

Dividend Investing

Dividend investing can be a great way to earn a passive income that will hopefully help you survive the lean times.

Savings

Having sufficient and diversified savings will also assist you in surviving job loss, sickness, divorce, or other rare and major problems that may arise.

Conclusion

Assumptions can be dangerous–and just because the sun has always risen each day doesn’t guarantee it will tomorrow.  Protect yourself and your family by diversifying everything you can when it comes to money.

How do you diversify your assets and income?

We are coming to the end of this series about making a Start Up Business Plan. If you have missed any articles, you can find them here:

Start Up Business Plan Day #1: Define your mision

Start Up Business Plan Day #2: Use SMART

Start Up Business Plan Day #3: What is going to work

Start Up Business Plan Day #4: What is NOT going to work

Now that you have a pretty good idea of what your business idea is and what you are going to do with it, it’s important to give yourself the right business structure. Since you are starting up a business, you may not want to invest too much in your business setup. Here are a few tricks for what you can do.

Legal Structure: Corporation or Self–Employed?

This is probably the first question that comes to mind when we discuss the “structure” of a business. Do you need to create a corporation right away? The simple answer is no. However, the corporation can have several advantages (laws differ from one state to another so I’d rather leave you find out about everything you can or can’t do with a corporation).

The corporation will enable you to create a “second” entity as the corporation stands as a separate individual. Therefore, it earns its own income and has its own expenses. If you think you will grow your business into a serious venture, you should consider incorporation up front. The major downside of creating a corporation is the fees attached to it (registering, accounting, etc.).

If you are not too sure about whether you want to spend money creating a corporation, you might as well go with the self-employed route. This is quite simple as you collect revenues and bill expenses under your own name. Therefore, any income earned from your side business will be added to your personal income.

Who’s going to work with you?

The other point that is very important to consider is to determine who will work with you. Will you need an accountant? A lawyer? A part time employee? A virtual assistant?

At first,  I suggest you try to do most things on your own. You will learn the ropes while saving cash. Then, you can take a pause to determine what are “added value” activities and what you can outsource to a third party. Accounting and admin work seem to be the easiest tasks to outsource. You can actually find great resources through a virtual assistant. I personally use ODesk a lot.  This is a place where you can post your jobs and hire the right individual for what needs to be done.

Make it as simple as possible

What is really cool about start ups is that they are quite simple.  Keep your business structure as simple as you can so it remains flexible. Flexibility is definitely one of the key points you are looking for when creating a small business. If you have any questions about creating a start up business, feel free to send me an email at thefinancialblogger at gmail dot com.

Last week, we looked at what could work well with your new start up. I guess this step was easy as you should be all excited about developing your Start up Business idea. When we first sit down and start thinking of all the potential for success, our heads start spinning and are slowly become convinced that we will soon become the millionaire next door. Unfortunately, this doesn’t happen for 99% of new entrepreneurs. Why? There are tons of reasons why your start up could go wrong. This is why it is important to account for them in your business plan!

What is Not Going To Work

If you have in your mind that everything is going to run smoothly and that everybody needs your start up; you are wrong. Most individuals will probably tell you it’s a good idea but will never do business with you. It’s weird, but that’s how it is. When it is the time to shoot the breeze, everybody is willing to help and tell you that it’s an amazing idea. However, when it comes to taking real action, this is when you will see who was sincere or not ;-).

So I guess the first thing to do in your Day #4 is to remove most of your friends and allies that *could* help you out with your start up. Unless they get paid, most people won’t do anything. At best, they will talk about it to a few friends so don’t expect miracles from your entourage.

Look for what is on the market

Another way to prevent any downfall is to look what is being offered to your future market. You have to look at your competitors and understand why people are working with them. It’s easy to think about their flaws since you are convinced that you are better than them. Instead, try to find their strengths, the reasons why they exist and people do business with them. Chances are that their strengths compensate for their flaws and that they are more important to their clients than what is missing in their business model. This is how you will be able to upgrade yours at the same time.

What if you don’t make a sale in 6 months?

Some start ups take more time, energy and patience to develop than others. What if you are part of this crowd? If you can’t generate revenues for the first 6 months, can you survive? Do you have the ability to work part time or keep your day job while you are developing your start up aside? What is your financial capacity? Do you have any investors willing to share the risk with you? These questions must be answered in this part of your start up business plan.

If it doesn’t work, what is my plan B?

I’m a big fan of having a plan B. I think that as strong as your plan A may be, your plan B is even more important. Your plan B is not about quitting your start up and going back to your old life. Your plan B should include different avenues (products/services/business structures) that you can explore and what you have learned from your Start up business.

For the very first time of your adventure, this day should be considered as a very pessimistic one. You should see everything in black and look at all the bad things that could happen. Should you be discouraged after it? If you are, it means that you are not made to build a start up business. If you are motivated by these challenges, you are on the right path ;-).

In Day #5 of your Start up Business Plan, we will look at the possible structure of your company.

If you have followed me over the past couple of weeks, you know that I am currently writing a series on how to write a start up business plan. The first article was about getting a start up business idea. Then I discussed how to use the SMART method to build your start up business plan. Now that you have a clear idea of what your start up business will look like, it is time to go deeper into the plan to look at the positive side of things. Today we are going to work on What is Going to Work in your Start up.

Start with your strengths

Your business will have some assets; the biggest of all will definitely be: YOU. Therefore, it is important to make a list of all your strengths that will help you succeed with your new business. Among these strengths, you will find:

– Your knowledge

– Your talent/abilities/management skills

– Your qualities as an entrepreneur

– Your network

– Your financial means

Making a list is a good thing, but then, you need to write down how each strength can help you to make more money with your business. This will give you an idea of how much you can expect to sell/generate in the upcoming year. This part of your business plan is very important especially if you need financing. Banks love to see what you are going to do and that your start up is well organized. They see too many start ups failing because the owner had a good idea hampered by poor planning/management.

Who will be your first clients?

If all things go well, who will be the first people to contact in order to make a sale? This is another important part of your plan; define who needs your product/service. By determining your segments, you will be in a better position to assess how much sales revenue you can generate within your first year of operation.

Think of all the opportunities, groups of influence and leaders that may be interested in your business. Think of special ways to reach each segment you are targeting. If you think that your product/service is for everyone, think again. Go deeper in your market analysis and target people that are more likely to deal with you upfront.

While knowing your potential clients is pretty useful to draw your first financial plan, it will also help you in setting smart goals. In this part of the plan, don’t be shy to enter optimistic numbers. The goal of this part of your start up business plan is to do away with your mental barriers and aim for the stars, you can do it!

The next thing to do when you are building your start up business plan is to consider each one of your goals in order to make them achievable. A start up business idea is a good start, but it’s far from being enough if you want to succeed in creating a side line income. You might have heard of the method I am presenting today as it is clearly one of the buzz words in the management field. This buzz word is “SMART”.

Use SMART

This is a simple method to define each of your goals. In order to explain it, we will take the example of someone who would like to start repairing and selling computers on the side.

S for Specific

Offering a good quality service in computer reparation is not a specific goal. A specific goal would be to repair computers along with providing an analysis of the computer’s performance and offering a delivery service. This is what I call “good quality service” ;-) .

M for Measurable

“leave me your computer and it will be repaired and ready shortly”… WRONG! Instead, use “leave me your computer and you will receive a call within 48 hours to get the analysis. Instead of making useless promises (as repairing all computers within 48 hours), just commit yourself to completing the analysis. Don’t forget that repair times can depend on new hardware orders ;-).

A for Achievable

You can’t beat Walmart in terms of price. Don’t try to be the cheapest computer reseller around. However, you can set an achievable goal of growing your monthly sales to $400 within your first 6 months. While this is a challenging goal, it is achievable.

R for Relevant

When you establish your goals, they must help you to earn more money. Don’t try to have the best logo or business card. Concentrate on value creating goals such as quality service, repair time commitments and additional services that can increase your revenue (by providing a performance analysis, you may be able to sell more hardware or software to  improve the computer).

T for Time-bound

If you want to make $400/month with your computer repairing business, you better set a timeframe. An ultimate date will set the feeling of urgency inside of you. Therefore, you will be more likely to take action towards this goal.

So as you are building up your start up business plan, you have to use the SMART method for each of your goals. You will then become more efficient and work on what creates value. I guess this is the most important point of having a start up; make sure your effort amounts to something. I have seen too many people working very hard… but on the wrong things.