Imagine waking up tomorrow to find your only source of income has vanished. It’s a nightmare scenario that many of us never prepare for. Whether it’s a job loss, a downturn in business, or an unforeseen life event, having all your financial eggs in one basket can leave you vulnerable. Think it wouldn’t happen to you? Think again. After all, COVID-19 is a salient reminder that stuff can literally change overnight.
So what can we do instead?
Here is why diversifying your income is essential and how to build a more secure future.
The danger of relying on one source of income
No job or business is entirely immune to change. As we’ve seen in recent years, entire industries have been disrupted by technological advancements, economic downturns, and global events like the pandemic. Therefore, diversification is a powerful tool for all business types.
Take Apple and Amazon, for example. These giants have thrived by expanding beyond their original markets. Apple, once known only for computers, now dominates in phones, tablets, and services. And Amazon – can you believe it started as an online bookstore? Now it leads in everything from cloud computing to groceries. Of course, you are not a multinational business, but you can learn from them.
Long story short, they didn’t put all their eggs in one basket, and neither should you.
Why should you diversify your income?
Minimise financial risk
Diversifying income streams spreads your financial risk. If one source falters, others can keep you afloat. It’s a way to hedge against the unpredictability of life.
Enhance financial security
Multiple income sources provide a cushion against unexpected financial shocks, from sudden job losses to emergency expenses. This approach gives you control over your financial destiny rather than being at the mercy of a single employer or market trend.
Unlock new avenues
Additional income streams can open doors to new opportunities, hobbies, or even passions that turn profitable. It can also lead to personal growth as you learn new skills and expand your network.
Build long-term resilience
Having diverse income sources helps you stay agile and ready to adapt to life’s inevitable twists and turns. It’s not just about surviving during tough times. It’s about thriving and setting yourself up for long-term success.
Types of diversification strategies
Here are the three main types of diversification:
- Concentric diversification
This strategy involves expanding into related industries, using existing skills and resources. For example, a cafe may start selling coffee beans through an online store rather than just through their actual cafe.
- Horizontal diversification
This approach sees businesses entering unrelated but complementary markets. A shoe company, for instance, might start producing clothing, using spare capacity to explore new opportunities.
- Conglomerate diversification
This most risky yet potentially rewarding strategy involves branching into entirely unrelated industries. A good example of this was when Tesco decided to enter the financial services market and set up Tesco Bank, which offered credit cards, banking, loans and insurance products. Funnily enough, Tesco Bank is now fully owned by Barclays Bank. It just goes to show that this is the riskiest diversification strategy.
Diversify today so you can thrive tomorrow
Betting everything on a single income source is a risk you can’t afford to take, so consider diversifying. After all, diversification isn’t just about protection; it’s a strategy for opening up new opportunities and securing your financial future. Think of it as building a basket with many golden eggs that will provide you with a solid financial future regardless of the winds of fortune.
If you are like many of our clients, having ideas on what to sell may not be the problem. Actually deciding how to diversify and what you diversify is actually the problem. We can help you analyse your business to see what is worth investing in and, if you need to pivot the business, what would be a safer strategy to do so.
Need help? In addition to diversifying your revenue streams, we can help you streamline operations and automate processes, giving you more time to focus on what truly matters. Get in touch to find out how we can support your growth.
