Why is income diversification so important and why should it be a fundamental component of your business strategy?

As seen most recently as a result of the COVID-19 global pandemic, the war in Ukraine and trade restrictions, and also previously during the global financial crisis of 2008, businesses across multiple sectors can have their income streams unexpectedly reduced or annihilated almost over night.

This places businesses and not-for-profits at significant risk of employment losses, downsizing, diminished growth, long-term financial stress, foreclosure and even bankruptcy.

Other Risks

But these risks are not isolated to major global crisis but can result from ‘softer’ influences such as:

• Changes in consumer behaviour, demand & sentiment
• Competitors encroaching on your market share
• Changes to funding contracts & availability
• Policy & compliance changes
• Employee, workforce & skills shortages
• Supply challenges
• Changes in logistics, transportation & leasing arrangements
• Contract renewals
• Interest rate increases
• Commodities price reductions
• Natural disasters (drought, flood, cyclones etc.)
• And, many others

What is Income Diversity?

Income diversification is fairly straightforward whether it is personally or across a business or enterprise. Basically it is multiple revenue streams that are independent of each other.

But why is it important?

Resilience & Redundancy

Income diversification is not a new concept to farming enterprises who often weather the fluctuations of market prices and weather conditions as part of their everyday operations.  This is often displayed in what is commonly referred to as ‘mixed farming enterprises’. Which allows a buffer for farming business if commodity prices or weather conditions are unfavourable for one product than another product will still allow for a continuation of income until conditions improve.

However, for many other businesses strategizing revenue diversity is often not prioritised until it absolutely necessary.  Which is often too late. Multiple income streams may not insure you against impact altogether, but it will significantly minimise your risk and increase the sustainability of your business during unforeseen fluctuations.

What is Sustainability?

The indicators of sustainability can be simply defined as “the ability to sustain” or “the capacity to endure”.

Theses are also key elements for resilience against natural disasters as outlined in Australian Business Roundtable for Disaster Resilience and Safer Communities report “Building Resilience to Natural Disasters in our States and Territories” (Deloitte Access Economics, 2017) and are fundamental to concepts underpinning business sustainability regardless of operations or size.

The Role of Government Grants

No viable business or not-for-profit should rely entirely on government grants. But it does have a place.

Grant and funding opportunities offer the prospect of getting a step up, financing a special project, improving one off capital affordability, supporting social and community initiatives (among others) where it may not be otherwise possible.