Eric Sheldon CPA, PC

8 Sources of Business Income

There are two main types of revenue streams in a business—active and passive. They are related to the product or service being offered and the method of payment. Some revenue streams can be classified as sales, whereas others are not. The type of revenue stream that is best for your business will depend on the products or services offered.

 

Active income is when you do some kind of work or provide a service and someone pays for it.

 

Passive income is one that doesn’t require much work from you. However, it does require work to generate revenue. For example, a website requires a lot of work. But once it gets traffic, people can buy the product; thus, a passive income stream.

 

7 Passive Income Streams

In addition to the main, two categories, there are several additional passive streams you can take advantage of, including:

  1. Earned income is gained generally through a job/employer.
  2. Profit income is generated when you sell a product or service for more than it costs.
  3. Interest income is produced from investing your business’s spare cash into an interest-baring account.
  4. Dividend income comes from buying shares in a company that generates dividends.
  5. Rental income from property investments requires substantial investment dollars initially and may not produce a return quickly.
  6. Capital gains income is based on buying and selling assets. However, the income generated from the sales could wipe out profits if you’re not careful.
  7. Royalty income is produced by designing, building, or making something unique and charging people and businesses to use it, i.e., royalties.

 

Monitoring income and expenses are essential for any size business, even small ones. If you need help, reach out to us. We’d be glad to help you set up software to help you manage cash flow and identify profits.

 

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About the Author

Eric Sheldon

Eric Sheldon

Eric Sheldon is a certified public accountant with more than 25 years of experience in a wide variety of industries. He's the owner/operator of Eric Sheldon CPA, PC, an accounting firm that specializes in providing tax strategy and preparation, accounting, and bookkeeping services to individuals and small business owners.

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