The Smart Passive Income Blog » My Company

A Typical Monthly Expense Report

Pat — Fri, 23 Jul 2010 07:17:36 +0000

This is something a little different…So far, I’ve published 20 monthly income reports, and 1 annual income report. However, I’ve never posted anything in detail about my expenses, until today.

I don’t know exactly why I have never included them in my reports. Maybe it’s because when I first started doing these reports there were virtually no expenses to take into account. That being said, I do know that many of you are curious to see what a typical month looks like, so here it is.

The following is my expense report for June of 2010.

Standard / Flat Monthly Fees For Doing Business Online

These are fees that I incur each and every month, independent of how much I actually earn, or how many items I sell.

Hosting & Domain Fees: about $20/month

Using the hosting and domain services from Bluehost, I have a couple of accounts under the $6.95/month plan, and a number of sub and add-on domains that don’t even work out to a buck a month ($10/year, or $0.83/month).

Email / Autoresponder Fees: $66.15/month

A 12-month package from Aweber costs me $193.80, which comes to about $16/month. An extra $50.00 a month is added on because I have email lists that total between 5,000 and 10,000 people.

Shopping Cart Fees: $35/month

These fees are flat monthly fees for the tools I use to make automatic transactions happen with my eBook at greenexamacademy.com. E-junkie costs me $5.00/month, and Paypal’s Website Payments Pro is $30/month.

Side note regarding Paypal’s Website Payments Pro: I do understand that I could instead use the standard paypal checkout method for absolutely free. That will allow me to accept credit cards as payment for my e-goods, however, there are two major problems with the standard checkout method:

When customers click on “Pay Now” or “Buy Now” (or whatever call to action you use), they are taken to Paypal’s website. Here, they can log into their Paypal account, or pay with a credit card. The thing is, the link to pay with a credit card is tiny and almost hidden, which forces a lot of people to think they need a Paypal account to purchase the product. Those who don’t have a Paypal account are more than likely to leave. Not cool.
Secondly, the transaction happens off of your site. The customer actually leaves your site and is taken to Paypal’s payment processor. E-junkie allows the transaction to stay ON your site and include a little bit of branding during the checkout process at the same time, which is very nice. The more you zig and zag your customer around to different sites, the more chances there are of that person leaving with an incomplete purchase. Not cool either.

Online Media Storage Fees: $12.00/month

I use Libsyn to host my media files online, such as my podcast, my webinar replay, and actually my eBook as well. This ensures that my blog server won’t crash if there’s a sudden rush to download certain pieces of media, which I hear often happens, especially when new podcast episodes or new videos are published on the blog.

I looked at Amazon S3 for an online storage solution, but I felt more comfortable dealing with the flat rate from Libsyn, then with fractions of a cent per gig of bandwith transfer with S3. it’s much easier to budget for.

TOTAL FLAT MONTHLY EXPENSES: $133.15

And just as an aside, if you’re just starting out, you don’t need all of these things right from the beginning. You can host your media files on your own site, and if you’re worried because you want to do a lot of videos, host them on YouTube instead. It’s free, and you can get search engine traffic off of YouTube as well.

Also, you don’t need the shopping cart fees either. Like I said, there is the option to go the free route with Paypal, and really if you’re just starting out, you should worry about your content and building an audience, rather than how to make a buck from an audience you don’t have yet.

All this being said, it only takes a couple of eBook sales, or just one affiliate commission on some certain products to make up the entire flat monthly expense.

Standard / Flat Fees For Business Improvement (In General)

The following fees are all fees associated with things that can help my business even further. You don’t have to spend money on any of these things, this is just what I do – which you’ll see why below.

Bookkeeping Fees: $50.00/month

When I started to make good money online, I hired a bookkeeper to help keep track of all of my monthly income and expenses, and input them into Quickbooks. This is probably the best $50.00 I spend every month for my business.

Why?

Because my bookkeeper makes my life SO much easier. All I have to do is send her my files from my business checking account, my business credit card, and my paypal and shopping cart – and she does the rest. I spend about 5 minutes a month doing this, and I have numbers every month I can look at in Quickbooks to see how my business is doing. Oh, and this makes tax season seem like a walk in the park.

Because I have a ton of different income streams, it would seriously drive me insane to try and do all of this myself.

Certified Public Accountant: about $35/month

My CPA helps me with all things financial, including where to put my money as well. I’ve saved a lot of money thanks to my CPA, so the cost of such a service is definitely made up in the savings.

Internet Business Mastery Academy: $97/month

I joined the IBM Academy nearly 2 years ago, and I continue to pay my dues because I still continue to learn from it.

Other Fees

I have other fees in addition to the services mentioned in the previous sections. These fees, however, vary each month, but I just wanted to list them here so you know what I could be paying for. The fees that you see next to the item was how much I spent in June of 2010.

The cost of hiring virtual assistants: $149.90
The cost of developing iPhone applications: $700.00
The cost of a piece of software for my business: $0.00
The cost of new equipment that I can use for my business: $0.00
The cost of memberships for something that I can use for my business: $103.00
The cost of utilities because I do business from home: $23.54
Paypal fees (they take a certain % of total cost of each product sold): $103.90
Google Checkout fees (same as Paypal): $8.65
Payouts to Affiliates: $450.00

I may have missed a few things, but I think I have most everything here.

In total, the expenses I incurred for June was about $1,853.24.

It’s kind of weird to look at my expenses, because $1,873.24 is a lot of money, and when I first started out I would never have fathomed spending that much on my own business in a single month. But, my experience over the past 2 years tells me that this is money well spent, and you can’t just look at the expenses alone without understanding why these expenses exist.

Also, you have to consider that I grossed about $13k in June and many of these expenses exist because I am making this kind of money. For example, the Paypal and Google Checkout fees, as well as the payouts to the affiliates – if I didn’t make any money, these fees would not exist.

Additionally, as I mentioned earlier, a lot of these expenses are not mandatory in order to run a successful online business, so don’t be scared of the total expense. I choose to pay developers to create new iPhone apps and I choose to pay for memberships that may help my business, because they are investments that will pay off for me in the future.

I hope you enjoyed this post and it helpful as you got an even closer look at what goes on in my businesses.

Lastly, if you haven’t already done so, please check out my podcast which is now live in iTunes! Ratings and reviews help the rankings, so thank you in advance!

Have a great weekend everyone!

Cheers!

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A Typical Monthly Expense Report

Here’s Why I Don’t Have a Full-Time Virtual Assistant

Pat — Wed, 03 Mar 2010 09:40:35 +0000

Virtual Assistants, or “VAs” for short, are helping people get more things done each and every day. If you’ve read the 4-Hour Work Week, then you know that Mr. Timothy Ferriss is a huge fan of using VAs for all of the clutter and “the things that I don’t want to waste my time doing in my life” type of stuff. Like many internet marketers and other lifestyle design artists, I’m sure he has several full-time VAs working for him at this very moment.

I, on the other hand, don’t have any full-time VAs. I only hire providers and pay them on a per project basis. I’ll tell you why in a second, but there’s one thing I need to address first.

The topic of hiring VAs is a touchy subject for many, especially when it comes to outsourcing overseas. There are obviously two sides to the argument: on one side, hiring for cheap virtual labor overseas takes potential jobs away from those in the U.S. (or your respective homeland), who may be in need of work. Additionally, the labor can be very inexpensive, almost to the point of being ridiculous and unfair to the eyes of many.

On the other hand, some businesses could not survive with hiring people in the U.S. to do similar tasks that cost much less to accomplish overseas. And at the same time, the low wages that are being offered are actually competitive and comparable to wages in that particular country.

There’s much more to the argument than that, but before I go on, let me just say that this post is not a debate between whether or not hiring virtual assistants, overseas or not, is a good or a bad thing. To tell you the truth, I’ve hired designers and developers here in the U.S., and I’ve hired people overseas as well. I’m just hoping not to start a debate in the comment section of this particular post, but if you must, by all means.

Anyways, back to why I hire VAs only on a per project basis.

There are two mains reasons I do this:

I don’t want to manage a full-time VA.
I want to hire the best VA for the specific job I want accomplished.

Managing a Full-Time VA

I know a lot of internet marketers and entrepreneurs who have full time VAs working for them, and they love it. I also know a lot of internet marketers and entrepreneurs who have full time VAs and are struggling to keep them busy.

Managing a full-time VA is tough. If you can get to the point where you’ve setup systems and procedures and your VAs automatically know what to do, then that’s awesome. That will help your business become more passive. Getting there, however, does take a lot of work.

I’ve witnessed many VAs be let go just because the person who hired him or her couldn’t keep up, or simply didn’t have the time to keep them busy. You don’t want to replace the tasks that your have your VA doing with time spent managing your VAs.

For me, I’d rather focus on exactly what I need to focus on, and nothing else. If I have a project that needs to get done (website design, SEO, iphone apps, etc.), then I’ll hire a VA just for that specific project. Once the job is finished (website design is done, I’ve reached a certain ranking in Google, the iPhone apps are finished), then my time with that particular VA is finished as well, and those are terms that are understood by all parties from the beginning.

Yes, I know I could benefit from hiring a full-time VA do “continuous” jobs for me, like article writing, SEO, and things of that nature, but again I’d have to spend time continuously managing their tasks to make sure they are done correctly and on time, as well as spend time managing the finances of the relationship as well. Maybe I could hire someone to manage the VAs, but then who would manage that person?

Specialty VAs

With a Full-Time VA, you’ll often find yourself teaching the VA what you want him or her to do. It can be time consuming, and the fact is that in this case, you’ll rarely find that the VA will go above and beyond what you taught.

When hiring on a per project basis, I know (based on the qualifications, feedback, recommendations and portfolio of the person I hired) that my VA is nearly perfect for the job, and someone who already knows what to do. I’ll obviously have to give that person a scope of work, but I’ve never found myself having to teach someone I hired how to do the thing I hired them to do. That just wouldn’t make sense!

Furthermore, for almost every project I’ve outsourced, the specialty VA I hired has gone above and beyond the scope of work. For example, my website designers for The Smart Passive Income Blog (the incredible team at BlazerSix) did much more than I had originally asked for, especially when it came to the backend of the blog and making my life as the admin for this site much easier for me to handle.

Hiring a VA for a project doesn’t mean you cannot hire them again. If you love what they did for you, there’s no reason why you shouldn’t go back for them, or at least ask if they are available. In many cases, these one-time hires will become your “on-call” business helpers, because they live from project to project and would love to establish a long-lasting business relationship with you.

Before I finish up, I just wanted to remind you that there is no right or wrong way here. Again, this is just how I decided to work with VAs. How you plan to work with VAs is totally up to you.

How do you work with VAs? Have you had good experiences with who you’ve hired?

Thanks for your support. Cheers!

p.s. If you’d like to get automatic updates of new material here on The Smart Passive Income Blog, you can simply subscribe to the RSS feed!

The Details Behind Starting an LLC For Your Small Business – Part 2

Pat — Fri, 19 Feb 2010 08:46:30 +0000

This is the second part to my two post series about starting an LLC. In part 1, I talked about the pros and cons of starting your own business. Part 2 will walk you through exactly what you need to know before you apply.

Here’s that disclaimer again: I am not a lawyer, CPA or any kind of professional. I simply share my own experiences about how I did things, and the actions you take based on what I say is not my responsibility. As always, you should seek advice from a trusted professional before making these types of decisions. Thanks!

Let’s get right into it.

Before you apply for any kind of business structure, whether it’s an LLC or a Corporation, you’re going to need a physical business address.

You should not use your home address.

Why?

Because you want to keep your business and personal activities as separate as possible. There could be consequences involved by mixing the two together. This is exactly the reason why you should also create a business banking account after you receive your paperwork from the state.

So what can you do?

You basically have two options:

Lease a physical office with an address.
Get a mailbox at a local UPS Store (or equivalent).

#1 is not really an option for most of us who are just working from home on the internet. The best thing you can do to get your business address is to rent a mailbox from a local UPS Store, or any other type of place that has mailboxes, except the Post Office.

When submitting your application for your business, you’re not allowed to use a P.O. Box number. However, when you rent from a UPS Store, you can simply turn your mailbox number into a “Suite” number, and the address will totally fly. In fact, that’s what was recommended to me by the person working at the UPS Store.

So, if I ended up getting mailbox #111 from a UPS Store on 222 Main Street, my physical business address might look like this:

222 Main Street, Suite 111

Alternatively, you could use #111, Unit 111, STE 111 – it’s up to you. I like to use Suite because it sounds pretty awesome.

Renting out the smallest mailbox for 6 months will cost you about $147.00. You could get a better deal (per month) if you go with a longer contract.

Also, make sure to bring two forms of identification, which is required to get a mailbox – at least from the UPS Store.

What You Need to Know for Your LLC

In this section, I’ll take you through the kinds of questions you’re going to have to answer as you sign up for your LLC, specifically through LegalZoom, however you’ll need to know these things anyways if you decide to file on your own or hire a lawyer to do it for you.

The Name of Your Company

First, you’ll have to come up with a name for your company. The name is totally up to you, however there are a few restrictions that I’ll quickly note for you here:

The name of our company must end with “limited liability company”, “LLC” or “L.L.C”. (Mine is Flynndustries, LLC).
It must not contain the words “bank,” “trust,” “trustee,”"incorporated,” “inc.,” corporation,” or “corp.,” or “insurer” or “insurance company” or any other words suggesting that it is in the business of issuing policies of insurance and assuming insurance risks.
It cannot be the same (or almost the same) as any other reserved or registered LLC.

That last one is a biggy. In order to see if the name of your company (or one similar to it) has already been used, you’ll have to check with your Secretary of State records. To do this, simply type in the following into a Google Search field:

“name of state” secretary of state business name search

Example:

Conveniently, if you file through LegalZoom, they will do this check for you. You can enter 2 alternate business names just in case your first choice has already been taken or looks similar to an existing business name.

The Federal Tax Identification Number

The Federal Tax ID Number, also known as an EIN (Employer Identification Number), is basically the equivalent of a social security number for your business. You’ll be asked by Legalzoom whether or not you would like them to help your LLC apply for an EIN.

You absolutely need the EIN in order to create your business, obtain your business banking account, and get paid. You have the option of having Legalzoom apply for one for you (for a fee), or simply have them prepare the IRS forms for you (for a smaller fee), so you can send them off yourself.

Update: You can also apply for your EIN online through the IRS website. It’s relatively simple and you get your EIN almost immediately.

Thanks to Jay Thrash, a commenter below for this helpful tip.

Who Will Be Your Registered Agent?

Most states require that any business entity must designate and maintain a “Registered Agent“.

A registered agent is the person designated to accept official documentation if the LLC is “served” with a lawsuit.

The agent must either be:

an adult living in the same state that you formed your business in (although again P.O. boxes are not acceptable); or
a company registered with the Secretary of State in the same state that you formed your business in.

If you form your LLC in your home state, any one of it’s members could become the registered agent for the company. That being said, there are some advantages to having another person or company act as your registered agent:

First, it adds an extra layer of privacy, (since the registered agent’s name and contact information are publicly available), and;
Secondly, this ensures if your LLC is named in a lawsuit, no one will surprise you at home on a Sunday night with court papers, which would totally suck.

I understand that much of this is probably new to you and it’s a lot to think about, but that’s why I’m here. There’s more, so lets keep going!

How Will Your LLC Be Run?

Before we move any further, understand this terminology related to LLCs: A “member” is the same as an owner of the LLC. There may be more than one.

If the LLC is managed by it’s members, then it’s owners are responsible for running the company.

If the LLC has a specific manager, then the appointed manager (who doesn’t necessarily have to be a member), is responsible for running the company, not the members.

For those of you who are going at it alone, you’ll simple have one member (you), and the company will be managed by it’s single member (you again).

If you’re confused by any of this, don’t worry. Again, LegalZoom does a great job of explaining everything (which is how I learned all of this by going through it several times myself!), and personally it justified the slightly higher fees than simply filing for the LLC on your own.

Capital Contribution and Percentage of Ownership

If you’re a single member LLC, this part is easy. You simply enter how much you’re going to initially contribute to the company, as well as the percentage of ownership, which is 100%.

If you have other members, then this becomes a little more difficult. Hopefully, you and your partner(s) have spent time talking about percentages of ownership and how much each of you are contributing to the company.

This will have an impact on how you share your profits, so if you haven’t already done so, be sure to work things out (civilly) with your business partners before you get to this point.

How Do You Want Your LLC to Be Taxed

You have two options here.

You can be taxed as a pass-through entity such as a partnership or sole proprietorship, or, you can be taxed as a corporation.

If you choose to be taxed as a partnership (for multi member LLCs) or sole proprietorship (for single member LLCs), then the LLC itself does not pay taxes and does not have a tax return. The LLC owner(s) report business losses or profits on their personal tax returns.

If you elect to be taxed as a corporation, then you may go through what’s called “double taxation”, meaning the profits of your corporate first get taxed at the corporate level, and then again on your personal tax returns.

There is some additional paperwork needed to fill out (provided by Legalzoom), if you do choose to be taxed as a corporation.

How Long Will You Have to Wait Before You Actually Become a Business Entity?

After you answer a few other questions and submit your application to LegalZoom, who will then process the information you provide to the State, you’re looking at an average of 20-35 days before you get any type of paperwork back from the state, which includes your EIN, your Articles of Organization and Operating Agreement, which are all required by most banks in order to get a business bank account.

When I helped my friend start his own business the other day, LegalZoom said that the Secretary of the State (this is in California), was actually back logged with new business applications, so there would be a bit of a delay. I don’t know if that’s a good thing (because new businesses are starting up), or a bad thing (because there just isn’t enough personnel or effort into helping Californians start their own business), but either way, it’s going to take awhile before we hear back. Wait time will obviously vary between States, but it won’t happen overnight.

How Much Will it Cost You?

Well, the answer depends on which options you choose on LegalZoom.

LegalZoom has three different packages: the Economy Package, the Standard Package, and the Express Gold. You can view exactly what is included with each package here, but all you really need to officially start your business is the cheapest package, the Economy Package, which costs $149.00 + any state fees.

When I started my first company, I was really excited so I decided to go all out and purchase the Express Gold package. It was pretty cool because I got a nice looking folder with my company name embossed on it, a seal stamp (like the one shown on the picture at the top of this post), and a CD-rom with a bunch of business and legal forms, but honestly none of that stuff is required, and I’ve never used most of that stuff.

With the Economy package, the Federal Tax ID number, the Registered Agent service, and fees for the state of California, the total comes to just over $500.00.

No, that’s not cheap. And yes, you could probably get it done for less money by doing it on your own. However, I feel that the price is fair because of the education I received while I was filling out the application, as well as the excellent customer service and help that LegalZoom provides for us new business owners.

That’s just me though, and exactly how you proceed is totally up to you. I’m just simply sharing my own experiences hoping that you’ll learn from them in one way or another. As always, you should seek professional advice before making any business decisions regarding the formation of your company.

I hope this 2 post series about forming an LLC has helped some of you as you begin to take what you do online to a whole new level in 2010.

Lastly, to all of you non-U.S. readers, I know these last two posts do not really apply to you, but hopefully you can get a glimpse as to how these kinds of things work in the U.S. If any of you have any similar posts or resources for starting businesses in other countries, please feel free to share, as I’m sure other people are as curious as me.

Thanks everyone, and I’m wishing you all the best. Have a great weekend!

Cheers!

The Details Behind Starting an LLC For Your Small Business – Part 1

Pat — Wed, 17 Feb 2010 07:05:18 +0000

Did you know that February is National Start a Business Month?

Neither did I.

But, in light of the fact, I decided it might be nice to do a detailed post of some of the benefits behind starting a company and exactly what it entails.

I am a small business owner myself. In fact, I’m the owner of two companies: Flynndustries, which is my company that heads the websites that I create (including this one), and LOLer Apps, which is my iPhone app company. Additionally, I just helped a friend start his own company the other day, so the process is still fresh in my mind. I just wanted to make sure I could share as much as I could remember with you today.

In the past, starting a company was no easy task. Usually involving a lawyer, the process took much longer and was far more expensive. You can still hire a lawyer to setup a business for your today, but luckily for us, there are online services such as LegalZoom that can take care of everything in less than 30 minutes.

Before I go on, I must first write this quick disclaimer: I’m not a lawyer or a certified public accountant of any kind. Nothing I say or write should be held against me or my companies, and this information shouldn’t be taken as legal advice. If you’re looking for professional advice, I recommend consulting with a lawyer or CPA on your own.

Thanks!

Why Would You Want to Start Your Own Company in the First Place?

Great question!

There several different reasons why you might want to create your own business entity. For me, starting a business was a dream of mine ever since I was little, so there was some personal fulfillment involved in my decision, among other things.

Here are some other reasons why you may want to start a company:

Freedom: Probably the number one reason why people start companies is to break away from the rat race and the 9 to 5 lifestyle. By starting a company, you become your own boss and can finally make your own decisions.
Professionalism: In my experience, having my own company has made what I do online seem much more professional. It may not make a difference to you or even my customers, but it definitely makes a difference to other companies that I’ve worked and dealt with. Most established companies are far more comfortable and more willing to work with other companies, instead of just individual people.
Protection: Many people start companies for protection against their personal assets. If a company (not a sole proprietorship or general partnership, which I’ll talk about later), get’s sued or finds itself in debt, the owners’ personal assets would not be liable.
Tax Advantages: By starting a company, you grant yourself the ability to write off certain business expenses, which can save you a lot of money. As to what exactly you can write off, I recommend discussing this with your CPA / Accountant.

Why Would You NOT Want to Start Your Own Company?

As I always do here on this blog, I try to look at both sides of the equation.

The truth is, starting a business is not for everyone. Some of you may be comfortable in your 9 to 5 jobs, and for others, there are these things to think about:

It’s ALL You: As cool as it is to be your own boss, there’s a lot more to think about. Working a 9 to 5 job, you just have to worry only about the job you’re assigned to, and that’s it. As a business owner, you have to worry about every single aspect of the company, including financial, legal and all that jazz. For some, this can be too much.
Schedules are virtually non-existent: As much as I don’t like the 9 to 5 lifestyle, at least you know that by 5pm, you’re done. When you’re your own boss, it’s hard to keep steady hours because it just seems like there’s always more you can do to improve the business. It’s hard to turn off that switch, trust me.
Benefits: When you start your own company, you don’t automatically have access to a 401k plan, a health or dental insurance plan. You have to figure all of that stuff out on your own, and it sucks! Not only do you see exactly how expensive it is to really get insured (we don’t see really how much our employers are paying for us while at our 9 to 5 jobs), but we get to see exactly how cruddy the whole system is.

That being said, I still don’t ever regret going down the path that I’m on as a small business(es) owner, and if you’re still interested in possibly setting up your own company one day, I invite you to keep reading.

The Different Types of Business Structures

Before you start a business, you must first decide on which type of business structure you would like to form. I’ll briefly summarize the different types for you below, but I definitely recommend reading more about each type here on the IRS website.

Sole Proprietorship

A sole proprietorship is a business that is owned by a single individual, and it’s definitely the easiest and cheapest to create. No paperwork needs to be filed with the state, and all you basically have to do is register for a DBA (which stands for “Doing Business As”) so you can run your business under a name different from your own.

Unfortunately, the major downfall of a sole proprietorship is that the business owner is personally liable for any debts that the business incurs. Additionally, it can be very difficult to get funding (loans from banks or investment capital) as a sole proprietor.

General Partnership

A general partnership is basically the same thing as a sole proprietorship, except it involves two or more people. A little bit more work needs to be done as far as dividing who is responsible for what and the percentages of ownership between all of the owners involved, but again – no paperwork needs to be filed with the state.

The scary thing about partnerships is that you are personally liable for any one of your partners’ wrongdoings. If one of your partners decides that it’s a good idea to drink and drive in a company car, if he gets into an accident, you could end up paying for the damages and medical bills that come as a result.

For both sole proprietorships and general partnerships, all income and expenses are simply reported on the individual’s personal tax returns.

Corporations

A corporation is a business entity that is recognized as a totally separate legal entity from its owners. Think of a corporation as a whole different person, with it’s own ability to conduct business, sue or be sued.

Corporations are far more complicated to setup and understand than the previous two business structures. There are shareholders involved, officers, board of directors, etc., most of which is stuff I honestly don’t know much about. There are “C” corporations, “S” corporations, Professional Corporations, and non-Profit corporations to consider, not to mention all of the paperwork that is required.

The primary advantage, again, is the limited liability that the corporation grants it’s members and shareholders. Additionally, a corporation can implement benefit and profit sharing programs for it’s employees.

Lastly, because it is a separate legal entity, it’s taxed as a separate entity as well, which can make things a bit complicated for those of us who are just starting out or doing small time business online.

Limited Liability Company (LLC)

The LLC is a fairly new type of business structure that takes the best of each of the above.

An LLC is not a corporation, but it can still provide that corporate-like protection that is important for many business owners. Also, an LLC can elect to be taxed as a Sole Proprietorship, Partnership, S Corporation or C Corporation, and income and expenses can simply be passed through to the members’ individual tax returns.

All of my companies are LLCs, and there is very little as far as extra paperwork that needs to be done. I’m quite happy with my decision to go with an LLC, however there are a few things to consider:

Because the LLC is so new, some states may not view a LLC as a separate entity and may end up treating it more like a sole proprietorship or partnership, which defeats the whole purpose of having an LLC in the first place. An owner of an LLC should do everything in his/her power to separate business from personal, especially when it comes to finances, in order to keep that separation and protection as best as possible.
Many states require a franchise tax in order to have an LLC. This tax is essentially the “fee” the LLC pays for the benefit of limited liability. In California, for example, I owe $800 per LLC each year, and this doesn’t include any taxation on my income.
Lastly, many investors still have mixed feelings about LLCs, so it may prove to be more difficult to raise any capital investments for your business if you have an LLC. That being said, since we work online, not very much money is needed to do what you want to do. I started my LEED exam website for less than $8 a month (domain and hosting).

Since this post is much longer than I had oroginally anticipated, I’ll be finishing up the details about starting an LLC in my next post. In it, I’ll go over, in detail, the process of setting up an LLC, including what you need to know before you begin, how much it will cost you, and what to expect after you setup your business.

Are any of you thinking about starting your own legal business entities, or have you already? What was your experience like when setting it up, and are you glad you did what you did?

I’d love to hear from you. Cheers!

Passive Income Streams 101

Pat — Tue, 20 Oct 2009 22:08:41 +0000

Creating multiple passive income streams is everyone’s dream. In order to make this happen, you have to understand exactly what the passive income business model looks like, which I’m going to share with you today. This is the business model that allows me to work just two hours a week, yet pull in a full time, CEO-sized income.

Before we get into it, I just wanted to mention that this isn’t the only business model out there. Obviously, there are a million things you can do online and offline to generate a decent income, but this is the business model that I choose to use because:

It’s relatively cheap and easy to setup…
It’s low risk (what have you got to lose?)…
After it’s setup properly, it runs on auto-pilot, which means you don’t have to be present in order to complete a transaction…
You can implement this business model “on the side” for an extra income in addition to your 9 to 5…
You can make money at any time of the day, from anywhere in the world…
It’s easy to implement tests and business strategies to try and improve results…
Once it gets going, you can try and duplicate your results in other markets and create multiple passive income streams…
If all goes well, you’ll have the freedom and time to do what ever it is you want.

Hmm…cheap, easy, low-risk and high-reward? Sounds like a winning business plan to me.

In the video below, I outline exactly how my passive income business model works. Also, for you beginners out there who may not have information products to sell just yet, I’ve included a Bonus Adsense Tip, which I used to quadruple my Adsense earnings, back before I was really focusing on information product creation.

If you cannot view the video, please watch Passive Income Streams 101 on YouTube here.

I hope you’ve enjoyed the presentation. Please leave a comment for me below. I’d really appreciate it! Thanks!

P.S. If you liked this video, you can subscribe to The Smart Passive Income Blog on YouTube for more videos just like it! Check out my “4-minute blog”, a blog that I created in less than 4 minutes from scratch, including it’s first blog post with an embedded picture. Now you don’t have any excuse to not get started earning money online!

My Top 5 Profit Leeching Online Business Mistakes

Pat — Sun, 04 Oct 2009 22:25:27 +0000

Part of my mission here at The Smart Passive Income Blog is to teach you not only how to succeed online, but also how not to make the same mistakes as me. I’m not happy when I’ve learned I made a mistake, but I am happy to share them with you.

Every businessperson and blogger will have their own stories, here are mine. I hope you find them useful.

1. Not Starting Earlier

I’ve said this before and I’ll say it again: every day you don’t have something online for sale is a day of potential profits lost. This may seem obvious, but what isn’t obvious is how much money that could actually be.

I started selling my eBook study guide on my exam prep blog in October of 2008. In my first month, I had earned a total of $7,906.55. Now, please understand that I had this blog up and running for a number of months beforehand, which enabled my site to rank high in the search engines, as well as help build a community of loyal followers.

Anyways, my income kept growing each and every month since the launch. It went from $7,906.55, to $9,782.89 in November, and even peaked in March of 2009, which alone earned me a total of $30,328.48. I felt very lucky to have landed on a great niche and create a product that proudly and honestly served it’s consumers. However, let’s rewind for a second and get into my head.

I had launched my eBook in October of 2008, but it was an idea I had in my head for over 6 months. As soon as I knew traffic was coming into my blog, I knew that I had the potential to write and sell a book for this market – but I didn’t. I waited 6 months to finally do it, and it took 5 of my blog readers to tell me they would pay for a study guide if I wrote one myself. 5 people had to tell me!!! No one should of had to convince me. I should of convinced myself.

Here’s a screenshot of some of those generous comments:

If I had launched that eBook just 2 months earlier, I would potentially have earned $50k to $100k more, just from those two months! Maybe instead of peaking at $30k, I would have peaked at $50k or even $75k in March of 2009.

It’s hard to understand exactly how much more I would have made, so let’s take a look at similar scenario that can provide us with some concrete numbers: compound interest and saving for retirement.

If you’re 25 years old, and you make $50,000/year and contribute 10% ($5,000) a year to a 401k plan that earns 9% interest, you’d have $2.3 million in your account by the time you’re 65.

If you wait just 5 years (what’s 5 years going to do, right?), and contribute the same amount each year getting the same rates, you’d only have $1.4 million by the time you’re 65. That’s almost a million dollars less, just from starting 5 years later.

That’s $456 a day!

If You Haven’t Started Yet – Don’t Worry!

Although I wish I had started earlier, I’m glad I didn’t start later.

The truth is, we can’t go back in time and there’s no use in beating ourselves up over not starting earlier, no matter what it is we wish we did. You are here now, and you have the option to do whatever it is you want.

“The only too late, is tomorrow.”

2. Under-pricing

When my first eBook was completed, I had a hard time trying to decide how much I should sell it for. I was scared of pricing my guide too high because I didn’t want people to be turned off by a higher price point. So, I began selling my guide for $19.99.

There were other guides in the market (all hardcopies), which were anywhere between $50 and $125, so I thought this was an excellent price that would definitely catch people’s attention. Plus, since my guide was an eBook instead of a hardcopy, I figured they wouldn’t be willing to pay as much as a hardcopy anyways. As a side note, I didn’t sell physical products because I wanted to keep my business model as passive as possible. Printing, packing and shipping products definitely is not a part of that model.

I was selling a decent amount of eBooks, but then I received an email from one of my customers saying that he thought my guide was priced way to low for what it was worth. He emailed me to thank me for making the guide virtually free, but he also added that if he were in my shoes he would sell it for more. Again, it took another one of my readers or customers to get me to take action. I immediately updated my ad copy and sold the book for 33% more, for $29.95.

Within the same time span, I didn’t sell the same amount of eBooks – I had sold about 30% more! The higher price attracted more customers, which was a weird thing to me, but it make sense. When people shop, they immediately conceive some kind of value in their head about a product just based on the price alone. If you went shopping for furniture and saw a dresser for $5.00, you’d probably think something was wrong with it, or maybe it was cursed or something. Well, when I raised the price of my eBook, it was seen as having more value.

Pricing is always a difficult subject for people, especially for electronic products that are often free to make. Most physical products are priced based on production costs, materials, labor, overhead, etc., so it’s hard to come up with a price point for something like an eBook. Looking back, I probably lost out on a few thousand dollars before I switched the price. The crazy thing is, I probably could have raised the price even higher, and potentially have earned much much more.

Don’t sell yourself short.

3. Taking the Lowest Bid

Back in late 2008, after my exam prep business was doing really well, my buddy and I decided to go into the iPhone app business together. We had a lot of novel ideas and decided to outsource the development of the applications via elance.com.

We received about 15 bids for our first application, iPopit, which ranged from $3500 to $6000. We looked at all of the individual bidders and read each and every one of their profiles and reviews from other clients. To our amaze, the one with the best reviews and the most feedback was the profile that bid $3500.

After a short interview with the company’s owner, it seemed like we had a great match, so we awarded that company the project. We were so excited to get started.

After a couple of weeks we checked to see how the app was coming along, and it seemed like everything was going well. We saw a video of what it looked like, and it wasn’t close to being finished, but we were totally satisfied at this point. We couldn’t wait to get the final product into the app store for sale as soon as possible.

A month later, we received a completed “beta” version to test out, but it didn’t really meet our standards. We sent the developer a list of features that seemed to be missing and the changes that needed to be made.

Two weeks later – ” still working on it.”

One month later – “we’re almost done, still working on it.”

Another month later – “it will be finished tomorrow.”

Then tomorrow came – “give us one more week please.”

We were so upset! An application was supposed to be in our hands and in the app store 2 or 3 months ago at this point! All I could think about was: every day you don’t have something online for sale is a day of potential profits lost.

Apparently, they weren’t good at going back and fixing things they already coded. It was more complicated than starting over, and I wouldn’t be surprised if that’s what they ended up doing, considering how long it took them to finally get us the application we had specified. We went though a couple more rounds of revisions, but better managed our developer this time, and we were finally able to get a completed app that we were satisfied with – 5 months after awarding the project. Ridiculous.

We learned a a valuable lesson here: You get what you pay for.

If we had awarded the project to one of the higher bidding profiles, the application would have probably been done a lot faster and the end product may have been even better too. Although the team we picked had a lot of raving reviews, after closer investigation, they never completed an application that was quite like ours, with animations, use of the accelerometer, and timed scores. Their low bid came as a result of really wanting to try a more complicated application. Unfortunately, this was at our expense.

If you’re taking bids on websites such as elance.com, rentacoder.com, or odesk.com, be aware of the lower bids. They are low for a reason.

4. Not Testing as Much as I Should

I think I’ve dedicated 4 or 5 posts on this blog just to testing and how important it is. I’m not going to go into detail about testing because I think you get the main idea: in order to optimize your online business or blog, you should be running split tests 24 hours a day, 365 days a year. Just a half a percent difference in sales or lead conversions can add up to hundreds of thousands of dollars over time.

5. Not Adding More Products

This one is huge.

Going back to my exam prep website, you already know I launched a successful eBook. A few months later, I also added an audio guide, which I sold separately and in a package with the eBook at a discounted rate. It was a hit, and it’s exactly what skyrocketed my monthly income to averaging nearly $25,000 the months prior to the new version of the exam coming out.

Looking back, I could have earned so much more if I created videos to go along with my existing products. It would have been really easy too. I could have even used the audio I already had and sync that with a power point presentation, for example. I sold nearly 2000 eBook + Audio guide packages at $44.95. Imagine adding video in there and selling it at $69.95.

Hmm…$90k vs. $140k.

Or how about selling it at $99.95 (to go along with mistake #2)?

Hmm…$90k vs. $200k.

And then adding a webinar and two teleconferences at $149.99?

Hmm…downpayment vs. buying a house without needing a loan.

Get the picture?

There are a couple of important things to know that go long with this:

First, people who buy from you once are more than likely to buy from you again. You can add products to your arsenal, shoot an email out to your existing customers, and you’ve got yourself some sales, for sure.

The second thing is that bundles sell. Combine two or more products together, offer that at a discounted price, and immediately your potential customers turn into actual customers because they notice something is “on sale.”

Not adding more products was a costly mistake.

Mistakes Are A Part of Life

Your business or blog grows with you over time, and as it grows you’re going to make some mistakes, just like me. If you can follow these three rules, you will be successful no matter how many mistakes you make:

Learn from others so you can avoid making the same mistakes as them.
Put away your pride and admit to yourself when you do make a mistake.
Learn from your mistakes so you’ll never repeat them again.

If you would like to share any of your own mistakes that you have made as an entrepreneur or blogger, I’m sure the rest of the community would be grateful to learn from your experiences. Just leave a comment if you wish.

Have a great week everyone!

p.s. if you like this post and wouldn’t mind sharing it with your twitter followers, please click the retweet button at the top! Thanks! Here’s to your online success!

The Smart Passive Income Brand and Plans for the Future

Pat — Tue, 22 Sep 2009 08:35:57 +0000

I started this blog almost exactly one year ago. I was employed at that time and was planning on writing about how to make a decent side income while still working the 9 to 5, a job which I was actually enjoying despite 4 hours of travel each day (from San Diego to Irvine via train – yes, I was crazy).

I was making a few bucks on the side blogging about the LEED exam when I was hit with a layoff, like so many other people around the world. Instead of panicking or immediately searching for a new job, I took what I was doing somewhat successfully online and made it “what I do.” A year later, I can honestly say that my layoff was the best thing that has ever happened to me. I’ve been documenting what I’ve learned about internet business and passive income ever since on this blog for you.

I’ve recently noticed a lot of similarities between the Smart Passive Income Blog and my other blog before it became a cash cow. The website traffic is nearly the same, I’m ranking high in keywords that are important to the topic, the underlying purpose to help people is there, and also people are personally emailing me for help or advice nearly every day. All of these factors, in addition to possibly losing a major portion of my online income from my other blog due to recent changes in the industry, give me reason to take the Smart Passive Income brand to the next level. I’m excited to share with you my plans for the future with this blog below:

A Website Facelift

If you’re a long time follower, you may remember I had redesigned The Smart Passive Income Blog just a few months ago. It was a decent redesign in my opinion, which finally monetized the blog via affiliate links and referrals, but it’s time for optimization. I think you would probably agree that there’s a LOT more that could be done as far as spacing, navigation, the archives and search areas, and even the colors and the overall scheme. It’s time, my friends, for a major redesign. Yay!

The eBook Wealth Walkthrough

This is the title of a brand new eBook that I’m working on that will be available to anyone who comes to this blog. It will basically be a step by step walkthrough of exactly what I did to create a blog and make sell a six-figure eBook from it. Of course, I can’t guarantee that it will do the same for you, but it will definitely give you a roadmap for success with all of the techniques, programs, tips and tricks that I used to get to where I’m at today.

How much will it cost? It will be absolutely free. I’m not sure about the title just yet – eBook Wealth Walkthrough- but it kind of has a ring to it. What do you think?

MultiMedia

I will be doing a LOT more than just posting blog posts for the Smart Passive Income blog. I want to turn Smart Passive Income into a brand, which means venturing out into other forms of media. To be specific, I will be hosting a Podcast and submitting some helpful related instructional videos to YouTube as well.

A Podcast is something I’ve always wanted to do. I’m super stoked to be working with some of the best in the business in order to make that happen for me right away. I already have a few shows outlined, potential interviews lined up, and much more. I can’t wait! Can I count on you to listen to at least one episode?

A Coaching Course or Membership Website

My ultimate goal for all of this is to eventually have all of the branding, marketing, podcasting, free eBooks – everything, help build a trust and relationship with people who may be interesting in learning EXACTLY (and I mean exactly) how to create quality information products fast, in a step-by-step manner with videos, audio, action guides, check lists, tools, software, etc. and exactly how to market them and use them too for their online business and/or blog.

The end product may be a coaching course, it may be a membership website, or maybe even private coaching – I’m not sure yet, but I do know that people have already asked for something like this from me, and it’s definitely something I would be passionate about and excited to do.

When this will materialize, I’m not sure. It kind of depends on how everything else goes first.

Why Am I Sharing This With You?

Well, for a couple of reasons. First, from an internet marketing perspective, I want to show you exactly how this whole “branding” thing works. So many of us restrict our information to just one platform, such as a blog, that it really limits our potential. With YouTube and a podcast in the mix, among other things, it should definitely increase the number of subscribers, readership, traffic, and trust. If it works, you’ll know exactly what to do.

Secondly, if you follow me as I reach my ultimate goal, which is the coaching program or membership website, you’ll know exactly what was put into it. If you like it, you’ll be more than happy to be an affiliate for the product and earn a recurring monthly income from it too. Then, if someone ever asks you something like, “how do you create an eBook like that?” you’ll probably send them over to me, and we’ll both earn some cash.

Hopefully this excites you as much as it does for me. Thanks for being a part of all of this with me, and if you’re not already subscribed to the blog and would like to follow me and my journey, please subscribe by clicking here.

Cheers!

My Journey to Find a Publisher Begins

Pat — Tue, 14 Jul 2009 10:49:03 +0000

That’s right! I’m looking for a publisher for an idea I have for a book, which I would love to turn into a series if all goes according to plan my dreams.

Although I’ve always stated that publishing an electronic book is the way to go (because of the fact that they are easy to create, easy to automate and very cost-effective), one of my life long goals is to see a book on the shelves of a major bookstore with my name on the front cover. With an idea in my head and my motivation levels high (as always), I think now is the time to start pursuing this goal.

I’m not going to tell you exactly what my idea is (I’m sorry!), but I can tell you it does involve the internet, social networking, and possibly you! Now I bet you’re really wondering what it is…but don’t worry, I will tell you eventually.

Right now, however, I will tell you about my trials and errors with this journey.

My First Task

After doing a bit of initial research, I found out that the first thing to do is find a publisher who is interested in working with me and my idea. All of this happens before I complete a manuscript because if I write the whole thing first and no publishers are interested, I will have wasted my time.

Now, I can’t just submit my idea to any publisher. Different publishers are interested in different topics, so I’m going to have to go to the bookstore into the section I hope my book will be placed someday, and check out the books there and find out who the publishers are. I already have a list of a few that I found via Amazon.com that I plan to submit a submission package to.

What’s in a Submission Package?

Let’s take one of the publishers I plan on submitting to, HCIBooks.com. Their submission package requires the following (directly from the HCI submission webpage):

Book Proposal Guidelines

In order to consider publishing a book, we need a book proposal consisting of the elements outlined below. Please do not send a complete manuscript unless asked to do so. All submissions are evaluated on the basis of content, author credentials and marketability. Submissions that do not conform to these guidelines are rejected.

I. AUTHOR INFORMATION
Send us your bio or curriculum vitae. Include information on professional credentials, current occupation, previously published works, any public speaking or promotional experience you have, and any television or radio appearances you have made.

II. MARKETING DATA
Supply detailed information on the marketability of your book, including:

Target audience
Market size, description and demographics
How do you intend to promote the book?
Book summary and purpose
Book’s unique content and characteristic
Competing titles and sales figures
Specific information not provided by comparable titles

III. MANUSCRIPT SAMPLE
Please DO NOT submit bound or two-sided copies of your manuscript. Please send no more or less than the following:

A. Detailed outline of the book (please do not send spiral bound manuscripts)
B. Table of contents.
C. Introduction.
D. Two sample chapters.

Manuscript Format Requirements
In preparing the manuscript sample, please observe our format requirements (these also apply if you are asked to send a complete manuscript):

Manuscript Paper: Use standard (8″ x 11), good-quality white typing paper. Do not use erasable bond. Type only on one side of the paper.

Print Quality: Use letter-quality type. Make type as clean and legible as possible.

Spacing and Type Size: All text, tables and caption material must be double-spaced. Allow at least one-inch margins on both sides, top and bottom. Use at least 12-point type.

Chapter and Section Titles: All words in these titles should be upper- and lowercase.

Spelling: Use the first spelling listed in the most recent edition of Webster’s New International Dictionary or Webster’s Collegiate Dictionary.

Punctuation and Style: Do not use the serial comma. Refer to the most recent edition of The Chicago Manual of Style regarding numbers and any other points of style.

Pagination (applies to complete manuscript only): Pages should be numbered continuously throughout a manuscript, not chapter by chapter.

IV. SASE
Send a self-addressed, stamped (not metered) envelope of suitable size and with sufficient postage to return your proposal. Materials received without an appropriate SASE will not be returned.

That’s a lot of things, but I’m sure they only want serious inquiries and want to know as much about the person and his/her project as possible before even considering working with them. Definitely understandable.

No Matter What Happens…

I think this will be a great learning experience. It may be a lost cause, or it may be the greatest experience ever. I won’t know unless I give it a shot, and I believe I have the business experience and the motivation to make this happen for me.

More details coming soon…I gotta get my submission package in order. Wish me luck!

The New Site is Up!

Pat — Mon, 08 Jun 2009 01:00:01 +0000

As you can see, the new Smart Passive Income Blog Design is live! I’m really happy with it, and so far, the response has been mostly positive. I think my VA did a great job of implementing ad spaces and a new updated look, while still keeping the feel of my old design. Here’s a comparison between the two:

Old Design

New Design

New Changes

Here is a list of changes and updates, in case you’re wondering:

I’ve put in some ads, hoping to not have the ads take over the website.
New logo design.
Rearranged widgets for better navigation.
Subscriber area with both twitter and rss links and counters.
New items in the navigation area:
- A page dedicated to just my monthly income reports. These seem to generate the most buzz on my website, so I decided to compile them into one easy to access link.
- A resources link, which holds all of the passive income tools that I’ve used or heard of that are worthy.
- A blog news page, which has some press articles, interviews and other features around the web.
Updated fonts throughout the website.
Dynamic flickr picture rotator.

I’m adding a few more features in the next week or so, but I’m at a point where I could launch the updated design – so here it is!

I’d be curious to hear what you think, or any recommendations you have to make it better. Thanks everyone for your patience and support!

My Status: Working on New Material

Pat — Tue, 26 May 2009 10:19:04 +0000

For the next week or so, my posts will be shorter than usual. The reason is because I’m currently working on new material for the LEED exam, and it will take me quite a bit of time to get it produced. I want to get it done as soon as possible, because as I’ve stated before, “each day you don’t have something out there for sale is a day of potential profits lost”, and that is my motivation factor at the moment.

So if you could do me one favor, I would really appreciate it: just bear with my shorter posts, and leave me any words of encouragement. I’ve been typing for 16 hours in the last 2 days – so my brain hurts a little. Thanks everyone!

I hope you had a wonderful holiday weekend! Cheers!

…and now I sleep.

So What Projects Are You Working On?

Pat — Sat, 09 May 2009 07:54:17 +0000

Today I made a list. It’s a list of things I’m currently working on and projects that I could potentially work on in the future to earn more money. As you know, I have my LEED exam prep website, my iPhone app company, the Smart Passive Income Blog, and 5 other things that I’ve mapped out and have actually done some research on how much I would have to invest to execute them. I have 8 things on my plate that could potentially help me get to retirement sooner.

It’s tough to think about all 8 “projects” at the same time – I think that’s the problem I’ve had ever since middle school when we were first introduced to attending more than one class per day. I knew I had homework for Math, Science, English and Band, so I had difficultly choosing which one to work on and when. Yes, I would get everything done, but not one at a time. Usually, it was by working little by little on each.

Now that I’m a “grown-up” (I guess…) I understand that in order to succeed while working on your own ventures is to put all of your hard work and effort into one or two things at a time, instead of spreading yourself thin on multiple projects. I still have a problem with this, but I’m getting better at realizing what my priorities are and focusing on just a few things. I have 8 things, yes – but I’m only focusing on a few right now. The others are “back up plans” or “things to do when the other things are on auto-pilot”.

I think about my family, money, savings, time, and personal fulfillment when prioritizing all of these things. It’s different for each person, so you’ll have to take a moment to think about what’s important to you and what potential hardships, experiences and outcomes (good and bad) that may result from each of your projects.

But wait…what if you don’t have any projects?

Then…I guess you’re not giving yourself a chance for something better to happen, better than where you’re at. If you’re happy with where you’re at – then I envy you. I’m on my way.

Like I always say…the harder you work, the luckier you become.

So what projects are you working on?

The Latest Going-Ons and What’s Ahead for The Smart Passive Income Blog

Pat — Thu, 19 Feb 2009 20:07:00 +0000

Another page in my life is about to turn. As you probably know, I’m getting married soon. VERY soon. Two days in fact, and so the last week has been one of the craziest weeks in my life. I’m really lucky to be earning passive income as my fiancee and I get programs printed, work on our party favors, glue place cards together, etc. I can’t really imagine how we’d get everything done if we were both working 9 to 5 jobs. If you got married while both you and your life partner were working full time jobs, I commend you – I really do.

I’ll be in Hawaii next week as well (woo hoo!) on our Honeymoon. I’ll definitely show you some photos once I get back. Thusly, my traditional “monthly income reports” may be a few days late, and I apologize in advance for that. I think you understand.

So, this post is simply here to let you know that I will be very busy the next couple of weeks, so if you contact me and expect an answer – I will get you one eventually, just not anytime soon. Thanks for understanding.

Guest Posts

Today, I’m very fortunate to be featured on a guest post on another great blog, Passive Family Income. Feel free to check it out. The owner is on vacation, which made me think that it would be a great idea to have some guest posts of my own on SPI. The blog will stay updated, I won’t have to worry while I’m on my honeymoon, and some of your blogs may get some traffic and exposure.

So, I’m asking you for help. If you have a blog and you think you can write something that has to do with passive income, write a guest post for me and I’ll feature it one day while I’m on vacation. You don’t have to be earning a passive income for me to accept your inquiry, just write about any topic that has to do with it. Maybe it’s about lifestyle design, organization (sarah?), your dreams and goals, something you need help with and would like everyone to respond to, I don’t know – it’s up to you.

So, if you want to jump on this opportunity, please contact me using the contact form, and give me your idea. I’ll send you an email address to send your post to, and I’ll choose a day while I’m on vacation to publish it for you. You have until February 24th, so start thinking!

Thanks!

Lastly, I’d just like to thank each and every one of you for being so supportive of my blog and what I do. Your kind words in messages and comments really do inspire me to keep writing and produce more helpful content, which I hope helps you toward your journey towards a passive income lifestyle.

Wish me luck!

Why You Need A Business Banking Account, And How To Get One

Pat — Fri, 06 Feb 2009 08:00:25 +0000

After being all excited and getting over the fact that I could actually say “I, Pat Flynn, own my own business” (I can’t wait for my 10 year reunion), I soon realized that this is really serious stuff. There’s much more to it than just filing papers with the Secretary of State and having a really cool stamp thingy that has my company name on it.

Last week, I met with a CPA to help me with the finances of my business. I learned so much in that hour, but the most important thing I learned was that in order for a business to function properly, AND in order to maintain the protection of my personal assets (which is the main point of starting my LLC), I must separate my business finances from my personal finances.

Before I go on, I’d like to mention once again that…

Everything you read on The Smart Passive Income Blog, including this post, is just reflection on my personal experiences with making money online and owning a business. I am not a lawyer or financial advisor, and I’m simply just trying to make your job a little easier through my own experiences. I cannot guarantee anything and will not be held liable for any of the information I post on this website. Please remember that everything I write and comment about is my own formed personal opinion about the subject matter. You should always form your own conclusions and perform your own actions based on those conclusions.

Ok, back to “business”.

The Bad Financial Model for Running a Small Business

Here is a chart of what’s been happening since I started making money online, before I started my company (yay for charts!):

It may seem that this is the easiest way to do things – I mean, you just pull out money from the giant bank account that you and your business add to, but this is not good. An article I found on about.com by Darrell Zahorsky outlines 5 reasons why you should never mix personal and business banking:

The Business Deduction Rule: The law says only businesses can deduct business expenses. Let me say that again: Only businesses can deduct business expenses. If you have a business that runs out of your personal bank account, you’re going to have a very hard time convincing the government that you are indeed running a business. To them, it might just look like a hobby.
Tax Time Woes: When you file taxes for yourself and for your business, all of the transactions for each must be separated. If you don’t have separate accounts, going though each transaction is going to suck big time.
The Audit Trail: Note that it’s not a requirement to have a separate bank account for you and your business. The only thing that is required is that “all records be accurate, complete, permanent and show a clear record of income and deductions.” If you’re audited, your separate business statement and record provides a “clear audit trail” and will make your life much much easier.
Missed Deductions: With a giant bank account with both business and personal transactions, it’s going to be very easy to miss deductions that you can write off. Messiness equals wasted time and money.
Lack of Professionalism: If you were doing business with someone and they paid you with a personal check, you’d think they were a little unprofessional, or not even a real company – right?

The Good Financial Model for Running a Small Business

Below is a chart of what my business and personal finances should look like:

As you can see, the business is kind of like another person. It makes it’s own money, has it’s own bank account and it’s own expenses too. The only interaction between the two sides is when you get paid from your business. This can be hard to understand, but it’s like you’re working for your business – i.e. you’re an employee and you get paid. Money that goes to you gets recorded as a transaction and this again is really important to keep track of for both you and your business’ financial health.

There’s still a lot for me to learn, but I just wanted to break this down for you because I now understand the importance of separating business and personal finances – and it is all accomplished by first opening a business bank account…

My Experience Getting a Business Bank Account

As you know, I filed for my Limited Liability Company (LLC) with legalzoom.com. One thing I got in return was a federal tax ID number from the IRS (also known as an EIN, or employer identification number). Remember how I said your business is kind of like another person? Well, your EIN is pretty much the social security number of your business. Keep this in mind.

Anyways, I chose to get my business banking account for Flynndustries, LLC at Bank of America. You can get one at pretty much any bank, but I do personal banking with them, and I’m really used to their online banking system.

Just so you know, there are going to be fees involved wherever you go, but the costs are far less than the benefits to your business. At B of A, their fees for the account are waived if you use their check card (which is attached to the business checking account) at least once each month. If not, you get a $7.00 hit each month you don’t use it. I recur a $15.00 fee for one of my services which help me automate my business, so this will not be a problem.

Sole Proprietor or LLC?

At the bank, the first thing I was asked was if I was doing business as a sole proprietor, as an LLC, or a corporation. Of course, I said LLC, but you don’t need to be an LLC to get your own business banking account.

Sole Proprietor

You can be an individual person, or a sole proprietor who just wants your own separate business banking account for your business. That being said, you’ll need to provide two things:

YOUR social security number, and…
a DBA

Regarding the first item, please know that although you’ll have a separate bank account for your business as a sole proprietor, you’re not really protecting your own personal assets since your the one on the account, instead of a separate business entity, like an LLC or corporation. If your business were to be sued for whatever reason, both your business and personal assets would be in jeopardy. Again, this is why I started an LLC.

Now, what’s a DBA? You need a DBA, as a sole proprietor, in order to open a business bank account. Without it, it’s a no-go. DBA stands for “doing business as” and it’s a formal way to legally operate a business under a different name than your own. So, if your name was John Smith and you sell cucumbers, after you file a DBA you could legally do business as “Cool Cucumbers”. Legalzoom can also help you file a DBA for you for about $100. More info about DBAs can be found here.

LLC

As an LLC, I had to provide the following in order to get a bank account with B of A. They kept copies of each:

The LLC’s EIN (aka. Federal Tax ID) – The IRS provides you with a form with the EIN on it. They need to see this.
The “Articles of Organization” – this is a form that comes from the Secretary of the State that is signed and stamped and basically proves that you are indeed an LLC. It has a really long number in the upper right hand corner which they need.
The Operating Agreement (if you have one) – this is basically a formal statement about your company and it’s members.

It was a fairly simple process, and they just asked a few questions about what my business was about.

They set me up with an online ID so I could easily access my account online. I was also given a temporary checkbook which has the correct routing number and account number. This is important because I can immediately begin to connect my paypal account and other forms of business income to it.

Lastly, in order to open the account, I needed to deposit at least $25.00. I deposited $100 for good luck.

And that was that. I’ll be getting a check card in the mail in a few days, and I was actually approved for a business credit card as well, which will help my company begin to form a credit history, which is important if I ever want to take out any loans or lines of credit in the future.

In Conslusion

I apologize for the length of this post, but I believe it has some good information for you, even if you don’t plan on starting your own business anytime soon.

The most important thing to realize here, beyond the fact that you should separate business and personal finances, is that you should perform good business habits right from the start. Like a golf swing, if you start out with bad habits, it’s very hard to start over and get to where you really want to be.

What I Learned From My First Meeting With a CPA

Pat — Sat, 31 Jan 2009 08:00:17 +0000

Today I had my first meeting with a Certified Public Accountant. For those of you who aren’t too sure, a CPA is a person who has passed the Uniform Certified Public Accountant Examination whose primary function is to provide assurance services, or public accounting. In addition, they can help with business consulting, financial and estate planning, tax prep, and so on.

I had a financial planner once before who was actually very helpful in educating me about my future relating to retirement and larger purchases in my near future, such as a car and a house. However today, the CPA (let’s call him Dave) was pretty much focused on Flynndustries, LLC (my business), and my personal income with regards to taxes – something I am pretty clueless about. Remember, this is a learning process for me and if I tried to know and understand everything before diving into it, I would never have started my business in the first place.

Going Into The Meeting

I didn’t really know what to expect, but I did gather a whole lot of information before going into the meeting, which I’m thankful for. If you do ever meet with a CPA for the first time, for your personal or business affairs, I recommend bringing anything and everything you have that relates to your tax filing from the previous and current year, including your W-2s, any 1099s, expense reports, etc. and also any documentation relating to your new business. Dave examined a lot of the documents I brought and it helped him to understand my current situation a little better.

I walked into Dave’s office, was guided into a conference room, and sat down only to notice he had a folder with my company name on it with the emails we’ve been exchanging inside. Sweet.

Important Things I Learned

I won’t give you a play-by-play of everything that we discussed, but we did hit some important topics that I would love to tell you about.

For background, Dave understood beforehand that I work from home and run my own business after recently being laid off. I accept payments through paypal from my website which sells an eBook and an audio guide, and I also sell advertising space on my website too. Lastly, I made sure he did his best to educate me about anything and everything possible instead of just telling me to do this or do that.

As a disclaimer, this is my interpretation of what Dave told me, and you should take this advice as you may knowing that it may or may not be the best advice for you and your own situation.

Starting My Own LLC to Protect Myself was SMART

Dave immediately told me that if I hadn’t started my own LLC already, he would have told me to – especially now that I’m getting married and I want to protect my personal assets from any debts my business may happen to incur.

I told him that I was pretty clueless about how to handle money with regards to my business, and so far nothing has changed from before I started my company up until now. Dave said this was okay and meeting with him was the first step in the right direction to make sure my business runs smoothly and financial matters are kept in tact, since I’m a newbie.

First Things First: Keep Your Business and Your Personal Assets Separate

The first thing I must do is separate my business from my personal accounts. Guess what…the IRS requires it. Right now it’s all mixed up, which happened because I was running my website as a sole proprietor before starting the business.

I have to open a business checking account, which can be done at any of the nearby banks. Since I received an EIN (employer identification number) from the IRS, which was done automatically for me by LegalZoom, this shouldn’t be too hard.

Any payments I make should be through this checking account, either by writing a check on an online transaction. This will ensure that all money coming out of my business really did come out of my business accounts. Dave advised me that I can make payments for my business using my personal accounts, but I would have to then reimburse myself and literally pay myself back with my company’s money. It sounds kinda funny, but this again ensures that all transactions for my business are kept in record on my business accounts, which will help when tax season rolls around.

Any money that I earn from selling anything online, or any payments from eHow or Google must be brought into my business checking account. Right now, it’s all in my Paypal account. The Paypal account can still accept payments, but I must forward any income into the business checking account.

Track Everything I Do

An important thing I learned is that as long as I keep track of every major decision I make regarding my business, and every piece of income and expense is kept track of neatly in software such as QuickBooks, I will provide myself with maximum protection.

If I write something on paper and date it, such as a decision to partner with someone, if I were to be audited or sued later on, the fact that it is on paper will help tremendously. If I just say “Oh yeah, we partnered on this date…”, it won’t really fly.

Dave also recommended that I get really involved with QuickBooks to track my income and my expenses for the company and also for my personal finances as well. I have to discipline myself to spend a few hours each week to enter transactions into Quickbooks to make sure that I have a record of each and every thing I do. This way, I can make sure I save the maximum amount of money on tax write-offs and also if I ever wanted to sell any part of my business, having easy to read QB files, rather than shoeboxes full of receipts is much more professional.

Dave said this to me:

“Start your company off with good habits. You are the owner, the CEO, and how your company is run from the inside will reflect how it performs on the outside.”

Nice.

Doing Business As

One last thing I learned in today’s meeting was that I can have my own company, Flynndustries, LLC, and have other entities or “projects” that work under it that do business under a different name. For instance, my intheleed.com website is now Flynndustries, LLC “doing business as” intheleed.com. It’s still the same company, just a different “face” for a different “project”.

This isn’t just said – it must be done formally depending on your state. Here is a helpful website that explains how to do this in the state you are doing business in.

Very Pleased

Overall, I was very well pleased with my initial meeting and I told Dave I would love to have him be my CPA for my business and for my family. He mentioned that he was definitely interested to work with me because it excited him that my company is brand new and he wants to help it grow just as much as I do. I will report to you the next time I meet with him if I learn anything new and helpful.

Free Consultation

This was a free consultation, and as you can see – I learned quite a bit. Most CPAs will do a free consultation and help you figure out what you’re supposed to do or where you may need help and can use their services. I recommend that if you need to straighten out your finances at home, or you just started your own business – to find a CPA or accountant of your own.

I found Dave online after searching for “San Diego CPA” in Google. I read some reviews and heard some good things about Dave, which is why I emailed him for a consultation.

On Deck

Well, it’s the end of the month, which means my monthly reports are coming up. My next post will be my January Income Report, and I’ll have another eHow report for you eHow writers too, don’t worry.

I also wanted to get into more of the details behind how I automated my business and how I handle purchases, transactions, and delivery of my eBook and audio guide. This will be highlighted in some of the February posts.

Cheers to all!

How To Start a Company in 30 Minutes

Pat — Fri, 16 Jan 2009 23:27:34 +0000

In my last post, I discussed exactly why I started my own company, Flynndustries, LLC – but here I’ll tell you exactly how it was accomplished in only 30 minutes.

Traditionally, if you wanted to start your own company it took quite a bit of work. First, you’d have to fill out your state’s “Articles of Organization form” after first determining if your business name is available, then mail that to the Secretary of State Office, get an employer identification number (EIN), and fax that to the IRS. Then you wait until your papers are approved, and get lawyers to do some more paper work and blah blah blah. My point is – it took a long time.

Luckily, you can do pretty much anything on the internet these days, including starting your own business. I used LegalZoom, which was relatively inexpensive, and their customer service is superb.

Here are the 3 basic steps involved with forming an LLC with LegalZoom:

Step 1: The Questionnaire

Here, you’ll answer a number of questions which will help them determine the best package for you, as well as the pricing in the end. Here are some things that you should research before you proceed:

Would you like help from LegalZoom to apply for a federal tax identification number (this is the same as the employer identification number)? You can have them just fill out the form for you to send to the IRS yourself, or they can send it to them automatically for you.
What State would you like to file in? This could be the state that you reside in, but it doesn’t have to be. A number of companies file for their LLCs specifically in Nevada or Delaware because those states have different policies, laws and fees that may benefit the business owner. There are a lot of things that a business needs in order to file for a business in a state they are not located in, such as a registered agent in that state (which is a physical address in that state where any documentation would be sent to if the company were to be sued), but I can see the benefit. I decided to file for my LLC in the same state I reside in, which is California. Here is a helpful article that explains more.
The Name of Your LLC (and some backups): You’ll need to know what you want to call your business, and LegalZoom will check to see if that business name is already taken. You should also have 2 alternative names that can be used just in case your initial name for your business is already taken. Note that you can usually do a check yourself on your state’s website. Here is California’s website as an example.
Your LLC’s Business Address: This was an issue for me at first. I was living with my parents while I was doing business from home, so I didn’t want to put in my parent’s address. Even if I were living and working in my own home, I still would not want to enter my personal address. Why? Because your business address should be separate from your personal address. Then I thought, how about a P.O.Box number? Unfortunately, that doesn’t work either. The Secretary of State office will not accept P.O.Box numbers. So, what can you do? You can get a real physical address at a mailbox place other than the post office, like at a mailboxes etc. or UPS store. I got mine at a UPS store and it was only 100 bucks to have my own business address that qualifies as a real business address. Your mailbox number becomes your suite number, and it looks much nicer on your letterheads and any documentation that you need to fill out for your business.
How Will Your Business Handle Ownership? You’ll need to know who will manage the company (a single member, all members, or a manager), the number of members in your LLC, and the name, capital contribution and percentage ownership of each member to the company.
How Will Your LLC be Taxed? You have the choice of a pass-through entity such as a partnership or sole proprietor (remember how I said that your LLC can just be taxed through the owner’s personal income tax in my last post), or as a corporation. Most people (92%) choose the first option.
Will The LLC Operate Under a Different Name? A lot of companies operate their services and businesses under different names than their legal name that they filed with.

You’ll have a chance to review all of your answers in your questionnaire before you submit and process a payment. You’ll have a choice of 3 different packages that you can buy: the Economy Package, the Standard Package, and the Gold Package. The prices range from $150.00 to $350.00, plus any additional items and services that you may want from them, which you can review if you get to this point. I went for the Gold Package, hehe!

Step 2: Sit Back and Relax

After you submit and pay, LegalZoom will do all of the filing and mailing of the required paperwork for you. It was really easy, and it doesn’t take very long, only about 7-10 days.

One thing to note here, which I was EXTREMELY pleased about and thankful for, is that LegalZoom’s customer service is wonderful. I received emails every once and a while with updates on the status of my LLC, and they even helped me save $800 dollars!

Here’s what happened…I filed for my LLC in mid-November. The State of California has an LLC fee of $800 annually for all LLC’s in the state. That’s pretty high compared to other states, but I was willing to pay that to get the benefits of an LLC in my home state of California. Anyways, LegalZoom emailed me and said that if I were to wait to file until after December 17th, I would avoid paying the $800 for an LLC for 2008 and only have to pay next year (now this year) in 2009. Of course I waited the 20 or so days, and was extremely pleased at their careful attention to detail and making sure I was saving my money. Awesome. After December 17th, I got another email saying they had finally sent the forms over to the Secretary of State Office.

Step 3: Get Your Stuff

So, a little over a month later (it would have been sooner but I waited it out to save the $800), I received a package in the mail. This is what I got:

A binder/folder with the name of my company:

Here’s what’s inside. Included is a CD with business forms, some helpful instructions, and also that black pouch:

Inside the pouch was this! A company stamping tool to make documentation official. Sweet:

Tabbed Sections (Certificate of Organization, Operating Agreements, Minutes, Certificates, Membership Ledger, and Miscellaneous Forms/Permits):

Membership Cerfiticates:

All this stuff is pretty cool, but I know that just filing on LegalZoom and getting cool official looking items is just the beginning. There’s still a lot of things I need to do and learn.

I’m Still a Noob

I am the CEO of my own company, but I’m still a little in the dark of what exactly I should do and how exactly to handle everything. Some of you may think this is a stupid move, but I beg to differ.

Doing it this way forces me to learn everything I need to know. Also, I know that jumping into the deep end and “just doing it” is what needs to happen in order to get things done sometimes and that increases the chances of me getting to where I want to be. That’s how I became successful making money online, and that is how I plan to become a successful business owner too.

I plan on posting a lot about what I learn, and I think this opens up a lot of topics that many people have questions about that I will hopefully shed some light on, for them and for myself.

I know I’m going to need help, which I am already in the process of finding. You can be sure I’ll keep you posted on what I do, how I do it, and how you can do it better too.

DISCLAMER:

Everything you read on The Smart Passive Income Blog, including this post, is just reflection on my personal experiences with making money online and owning a business. I am not a lawyer, and I’m simply just trying to make your job a little easier. I cannot guarantee anything and will not be held liable for any of the information I post on this website. Please remember that everything I write and comment about is my own formed personal opinion about the subject matter. You should always form your own conclusions and perform your own actions based on those conclusions.

For those of you who own your own business already, do you have any helpful websites or resources that you could point myself and the SPI readers to? Please feel free to offer your advice and comments below.

If you plan on starting your own business soon, please note that there are other websites besides LegalZoom to incorporate with. However, if you do choose to go the LegalZoom route, I would very much appreciate if you used the link below to do so. I am an affiliate and will earn a small commission thanks to you.

Click Here to Start Your Own Business with LegalZoom like I Did

Why I Started My Own Company

Pat — Wed, 14 Jan 2009 08:28:27 +0000

So it’s official. I am now the proud owner of my very own business – and I have to say, it feels wonderful! It’s always been my life long dream to own my own business, so it’s nice to say that I was able to achieve this at the age of 26. But looking back at what I had envisioned my own business to be, this is not what I had in mind.

Before, I had imagined having my own office and leading a team of people to do a certain job – maybe an architecture firm, since I studied architecture in college. My company would be named Flynn Architecture or something of that nature, and I’d go all around the world Networking with people and examining all of the buildings my company had designed. Well, my company is not Flynn Architecture, and I don’t have an office. I don’t even have people under me. It’s just me and my company, Flynndustries, LLC.

Why Did I Start My Own Company?

Ahh, I’m remembering the one and only business class I took in College all of a sudden. Anyways…when you’re doing any kind of business, you have a choice – you can stay a sole proprietor, or you can incorporate.

The Sole Proprietor

A sole proprietor is a type of business entity which legally does not have any separate existence from its owner. If you make money online and don’t own your own company, you’re a sole proprietor. This is the most common business entity by which people make money online.

There are some disadvantages, however, by doing business as a sole proprietor.

In a sense, a business is seemed to be more legitimate if it is not run as a sole proprietorship.
It’s much harder, if not impossible, to raise capital in ways that a limited liability company or corporation can. I.e. bank loans and selling shares.
It’s much more difficult to hire employees if the business requires them.
As soon as the owner decides not to have the business anymore (or the owner dies), the business ceases to exist.
It’s nearly impossible to sell a business as a sole proprietorship. It’s difficult because the owner’s personal assets and the business’s assets are one in the same.
Along the lines of the last statement, and the real kicker and reason why I decided to form an LLC is because a sole proprietor will have unlimited liability. If the business is sued, the proprietor is personally liable.

There are, however, some advantages of doing business as a sole proprietor:

A sole proprietorship does not have to pay corporate taxes.
The person who owns the business will simply put their profits into their own personal income taxes, which makes accounting much easier.
If the person who owns the business decides to do business under a separate name, it’s as easy as filling out a “Doing Business As” form, which will then allow the owner to open bank accounts for their company.

Although a sole proprietor is what I was for a good amount of time, now that I’m taking in more money, I’m also taking in more risk. I would hate to be sued or held liable for something and have my personal savings, my house, and my entire life be affected by it. Again, this is why I decided to form an LLC, or a Limited Liability Company, which gives me the risk protection that I’m looking for, but some of the benefits that a sole proprietor has as well.

The Limited Liability Company

A limited liability company, as I just mentioned, is a legal entity that offers limited liability to its owners. This entity is the one that is most suitable for companies with a single owner, like myself.

Here are some of the major advantages in forming an LLC:

Of course, the limited liability. The owners cannot be held personally liable for company debts.
Profits or losses pass directly through the owner’s personal income tax returns. In other words, the LLC itself does not have to pay taxes and you’re avoiding the double taxation that happens with you own a corporation.
The tax structure is very flexible, meaning that the owner can choose the business to be taxed as a sole proprietor, a partnership or corporation.
Distribution of money to employees, including the owner, is as simple as an online payment or writing a check.
It’s much easier to raise capital and create accounts at bank institutions.
It’s much easier to sell the business or a part of it.
There’s far less paperwork involved when compared to a corporation.
The credit history of the owner does not matter when it comes to the credit standing of the company.

All that being said, there are some disadvantages to forming an LLC:

The LLC business entity is fairly new, and therefore some states do not treat LLCs in the same manner as corporations.
Many states will require a tax just for LLCs. This is basically the “fee” that the company pays the state in order to have the benefits of the LLC.

So, with some careful thinking and planning for the future, I decided to go the LLC route. I wanted to personally thank a friend of mine for helping me get started and pointing me in the right direction: Ian Gordon who runs StartUpDaddy.com. His website has wonderful information about starting a business, and he even has a podcast running on his blog too. Please check him out if you have the time.

To Conclude…

I’ve gone over how it was my dream of to start my own company and also why I chose to form an LLC. I still have yet to tell you the underlying reasons why I really wanted to start my own company, which is what I’ll share with you now.

The reason I started my own company is because I want freedom. I want the freedom to make my own decisions and control my own destiny. Never more will a boss or anyone tell me how I should be creative. Never more will I sit at a desk for 8 hours a day with NO BREAKS. I will create my own schedules and if I fail, that is my own fault.

I want the freedom from worrying about finances. I want to earn infinite amounts of money proportional to how much work I put into my cash generating methods. I will NEVER earn less than I deserve.

Lastly, I want the freedom of time. I never want to HAVE to do anything or HAVE to be anywhere. Anything I do or anywhere I go will be a choice that I make in the best interest of myself and my family. I never want my work to hold me back from spending time with those who I love.

Thanks for taking the time to read that – it means a lot to me to share it with you and I hope you don’t see it as being corny or fake.

In my next post, I’ll talk about exactly HOW I formed my brand new company, Flynndustries, LLC and what I learned about the entire process.

Here’s to you.

The One Thing You Must Know About Passive Income, or Else!

Pat — Fri, 05 Dec 2008 10:09:16 +0000

If you don’t master this one thing, you will fail in earning a passive income online. What am I talking about? It’s something called automation. I like to say that automation is Passive Income’s best friend. Without automation, there is no real passive income. Let me give you some examples:

You work for a company. You work X hours, and you get paid X dollars. Are you earning a passive income? Obviously not. Next…

You own a small store at the mall. Customers come into your doors, find an item they like, pay your employed cashier, and leave happy. Are you earning a passive income? No. You’re still working and probably putting in a certain amount of hours each day. As a “brick and mortar” store owner, you may be working less in your store, but you’re working hard making sure your products are stocked, employees are paid, books are kept, managing your employees, etc. Next…

You sell figurines on Ebay. You start an auction, people find your figurines and place bids. The winners pay you automatically each time through Paypal. Are you earning a passive income? Nope. Once you get paid, you have to manually package and ship the item at the post office. Then, hopefully it gets there in one piece. Next…

You own a website online that sells toys. You don’t have any inventory as the toys are drop-shipped to customers by the manufacturer. Customers find your website, purchase toys with an online billing form and payments are automatically processed and the money gets placed into your business bank account. You tell the manufacturer the addresses of the customers and their orders, and the manufacturer ships the items out for you. Are you earning a passive income? Not yet. You are still needed in order for transactions to be completed.

None of these example are examples of an automatic business model.

An Example of Automation

Here is a true life basic example of how an entire transaction process is fully automated to provide a passive income. Below, you’ll see a flow chart of how I make money on my blog at greenexamacademy.com. Notice where I am in the equation:

I am NO WHERE within the equation in any part of the transaction.In the wise words of Timothy Ferriss of The 4-Hour Workweek:

“I am not a tollbooth through which anything needs to pass. I am more like a police officer on the side of the road who can step in if need be…”

-Timothy Ferriss, pg. 187

This work flow is truly automated because I could do anything I want and sales would keep going through.

I still answer emails from customers, and if one part of the cycle brakes down or stopped working for some reason, I’d have to step in and work around it. But the fact is, I’m not needed to complete the transaction and earn money.

(I could hire someone to manage all customer service emails as well as make sure everything was still working correctly, but I’m not at that stage yet. Still – I wake up each morning with sales, and it’s because of this business model.)

Note that membership websites also fit this business model.

Scalability

Another way to find out if a business model is truly automated and earning a passive income is to see if it’s scalable. That means if I sell 10 items in one day or 100,000 items in one day (which would be sweet), I wouldn’t be any more involved either way.

Take a look at my flow chart. If 100,000 customers came through and bought my eBook, I wouldn’t have any problem handling that kind of influx. Now thinking back to the examples at the beginning of this post, you would not be able to handle that many customers at once. Passive income and automation is scalable.

Is Writing on eHow an Example of Automation?

In my thoughts, the actual act of writing on eHow.com is a step toward creating an automatic passive income generator. Having articles already written on eHow is somewhat synonymous to having my eBook already written and on sale.

Here is a flow chart for you eHow writers out there:

As you can very well see, YOU are out of the “transaction” equation as well. As long as you have articles written on eHow, everything is automatic and you are earning a passive income.

Other Assessments that Can Be Made

First, let’s look at this flow chart. It’s the same flow chart as my eBook example from above, but instead with YOU in it, (because this is really all about how you can improve your earnings and lifestyle). This is what you should aim for:

I will eventually give you the details about each part of this chart, but for now, let’s analyze how we can increase your earnings with this business model:

Increase the amount of customers: The more customers you have, the more people see your webpage and ultimately buy your product. This can be done by advertising, promotion, testing content, publicity, luck, etc.
Increase how much money comes out of your sales page: To do this, you can either increase the price of your current product, or create an entirely new product to sell along with it. If it’s an eBook, why not create an audio guide too? That’s my plan…
Duplicate the entire equation: Since you’re not involved within the transaction, you can start a whole new project and do the same thing in another niche. Then you’ll have 2, 3, 4 or more of these all running at once, and you can continue to sit back and relax (or go to Fiji with all the new money you’re making. And while you’re there, you’re still making money…awesome).

To The Readers

I hope this has shown you the power of automation and how it is the basis for all passive income that is made online. More automation equals more passive, and less YOU. This way, you can earn money while spending more time doing things that you want to do. The technology and services are out there to make your life a lot easier – why not use them?

If you have an online business already, try and draw a flow chart and see where you fit into your own business model. How often are YOU “a part of the equation”?

If you aren’t at this point yet, I’d like to know what you think. Does it all make sense to you and can you see the benefits of implementing such a business model? Is it something you’d like to do in the future? There’s no right or wrong answer here. Some people like to be on the front lines and in the trenches while running their businesses.

I hope you enjoyed this post. Until next time!

The Smart Passive Income Blog » My Company

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