I’ll be the first to admit that I usually leave an automated business out of most of my passive income discussions. For the most part, I write about rents, royalties, and dividends because they are the sexiest passive income sources.
For example, my article “Mailbox Money: The Power of Rents, Royalties, and Dividends” is a perfect example. However, I did write an article focusing on the two types of business income called “Royalties vs. Automation.”
There is no particular reason I tend to forget about an automated business; it is just more nuanced than the others. You see, most people who create a company end up making themselves a job. This should be the opposite of what we try to accomplish with a business—a passive business.
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So today, I am proud to welcome an Automated Business to my Magic Of series of articles. Find the other by following these links: The Magic of Dividends, The Magic of Royalties, The Magic of Rents, The Magic of a Roth IRA, The Magic of a Military Pension, and The Magic of Passive Income.
First, I want to spin everyone up on what precisely an automated business is and how we can plan to automate our future business from the beginning. I highly recommend two books before you start any business, “The 4-Hour Work Week” and “Company of One.” The books will help convert your mindset from that of a “hard worker” to that of a “smart worker.”
The most important questions you need to ask yourself are “How would this business run without me involved?” or “How do I remove myself from the functions of this business?” You need to ask these questions when the idea of a business just sprouts into your head.
For example, if I want to start a liquor store business, I need to remove myself from the company’s equation before starting. I then can look at the price of hiring a store manager and the employees. That total cost of employees, plus other expenses, is the minimum I need to make before I decide to open the business. I may make a considerably smaller profit with a manager on-site, but the money is passive.
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Too often, people include themselves as the store manager to save a ton of money on employees. But if you pay yourself as a store manager, you exchange time for money. The question is, what else can you do with your time as someone else runs your business?
Can you create a franchise of liquor stores? Can you build an online course so others can follow in your footsteps on opening a physical location? Can you write a book or blog about your business? I read a book on how to start a microbrewery called “How to Start a Microbrewery.” It was eye-opening to see all the details that go into opening a physical store or location.
But I digress. Let’s start from the beginning with the question, “How do you automate your business?” There are three main ways to automate your business, and you need to learn about each to prepare your business to run smoothly without you. The three ways are automation, out-sourcing, and management.
Automation. I usually depict automation with a picture of robots because that’s how I envision having a computer or machine do things for me. In actuality, automation is more like computer routines, programs, apps, and other forms of control. “The 4-Hour Work Week” goes into great detail about automation.
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An example of automation would be building an email list. You would display links for people to join your email list on your website. When they join, they will receive a welcome aboard email, followed by 3-4 emails over a month.
If they make a purchase, you can tailor the emails to react differently over time. It can become very intricate, but you would only have to set it up once. Then you could tinker with it over time. The point is, the computers are tracking the person throughout the email process, not you.
You can do this across many parts of your business, such as customer service, client relations, and payroll management. If you plan on working your business alone, then automation will become one of your best friends.
Out-sourcing. Out-sourcing is the act of hiring someone else to accomplish specific tasks for your business. You can either out-source by hiring a remote virtual assistant, contractor, free-lancer, or employee.
They each have particular reasons that you would want to hire them. I will go more in-depth about the various reasons to employ each worker in a different article. However, I will say that the better organized you are, the better they can perform tasks for you.
Let’s take my situation as an example. I attempt to publish a book every day on Amazon. If I want a virtual assistant to handle this for me, I would need to give them a step-by-step guide on how to perform the tasks. I can’t just expect them to follow the order “publish a book on Amazon.”
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The better notes, standard operating procedures, and rulesets I give them, the further I can remove myself from the business. Again, this is something you want to prepare for before you start your business. That’s why I always say, “Become an Entrepreneur Before You Start a Business” and “Read These 10 Books Before You Start a Business.”
Management. When you hire a manager, you are hiring a miniature version of yourself. You should not look at a manager as an employee; they should be capable of handling 90%-95% of what you can handle. The main difference is that they may not have the complete vision of your business because, well, it’s your business.
Hiring a manager will be expensive, but again, what can you achieve with the free time they allow you to have? That is the central question that you need to ask yourself.
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Entrepreneurs make more money as they serve more people. If you open one liquor store, you can only help so many people. If you open ten liquor stores, you are now serving more people. When you hire managers, this allows you to think of more ways to monetize your businesses.
As a liquor store owner, maybe you decide to hire a food truck to go from location to location. People usually buy food before a night of drinking. Whatever the case is, you need to become a top-level, top-down thinker.
How to Start Your Automated Business. The best advice I can give you is to start small. In the book “Before You Quit Your Job,” my favorite author Robert Kiyosaki says to keep your day job until your business takes off.
If you are starting an online business, start with automation procedures. Learn the ins and outs of the company. Once you feel comfortable, you can hire a virtual assistant to complete some menial or repetitive tasks. Being able to scale your business is excellent, but you need to know how the company operates first.
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When you start any business, you want to keep your overhead as low as possible. That doesn’t mean being a cheap douchebag; it means being thoughtful about your purchases. The book on opening a Microbrewery suggests finding used equipment or rentals until you get a product that is making you money. Again, I highly recommend reading a few books before you even attempt to start anything.
My automated business. I am in the process of starting an automated business. Yep, right now, I am writing books to build royalties and passive income. But eventually, I will convert this into a full-blown business.
You see, my books will become assets over time. I plan to write 1,000 books (currently at 146) and start focusing on building out a business. There are many directions I can take my business, including YouTube, a writer’s academy, online courses, or book creation seminars.
However, first I need to grind for 3-4 years to learn everything about the process myself, and also so I can prove to others that the plan works. Who wants to listen to someone who hasn’t accomplished it themselves?
When I begin to build out my business, I can have automation and outsourcing handle much of the tasks. Then, I can ask my sons to help with the management. That is the power of having assets and why I want to create 1,000 books. I look at each book as a dividend-paying stock that I create from thin air.
Conclusion. The magic of an automated business is that it frees you up to make more money across different ventures. Do not create yourself a job; create yourself a company that others can run.
What is your vision for the future? I know that I want to be on the beach with my family, making passive income from dividends, royalties, rents, and an automated business. I look at my plan for the future and create systems NOW that will allow me to be on the beach. It’s called planning.
Do you have a vision of an automated business? I know that it is a different mindset than most people carry, but that makes you unique. Enjoy and Happy Investing.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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