A few weeks ago I had the opportunity to join Kayla Sullivan from Fox 59 to discuss side hustles and what entrepreneurs should consider when setting getting their side hustle off the ground. Getting a chance to be on the local media is always a lot of fun, but they typically are only able to use a very small portion of the conversation. In this segment, I was able to share one of the most important steps entrepreneurs should take when they start a business–make sure it is registered as a business and formed as the right classification (LLS, S Corp, etc.).
But that’s not all aspiring entrepreneurs need do. Here are a few other important steps that should be taken when launching a side hustle:
- Write a business plan If you are going to take your side hustle seriously in hopes that it will one day bring meaningful additional income or maybe even become your full-time job, you’ll need a business plan. How else will you know where you’re heading? A business plan doesn’t need to be complicated…here’s a book that’s less than 100 pages that will help you get started. Keep it simple, address the important aspects of your business, and stick with it.
- Open a business checking account Keep your side hustle’s finances separate from your personal finances. Yes, ultimately some of the money in your business account will find its ways into your personal accounts, but it is best to keep them separate until you are ready to pay yourself. This will make managing your business expenses, keeping track of profits and losses, taxes, and payroll much easier. Having a business relationship with a bank has also proven to be valuable lately–businesses eligible for forgivable PPP loans during the COVID-19 pandemic were more successful obtaining the loans if they had a working relationship with a bank; hopefully, future PPP programs will not be necessary, but it proved to be a good reason for many small businesses to have business accounts.
- Set aside money for taxes Speaking of taxes: make sure you are setting aside the appropriate amount of taxes–set up a saving account to keep these funds separate from your operating funds. You’ll be excited to see your business’s accounts growing, but remember, unlike your full-time job, taxes are most likely not being withheld with each deposit into your business checking account. Uncle Sam is going to what his share of your business’s success and you don’t want to cut him out. Work with a CPA (see below) to determine how much should be set aside for taxes, whether or not you should make quarterly estimated tax payments, and to see if there are ways to minimize the amount of taxes your business will need to pay. Please do not set your business on a path to failure because of the IRS.
- Hire a CPA or use accounting software to manage the books from Day One Unless you are a CPA or really enjoy keeping up with the tax code, you should begin working with a good CPA in the early days of your business. A good CPA will easily pay for herself and make your life easier.
- Obtain the proper liability insurance This may not be necessary for all side hustles, but depending on the nature of your business, you will want to protect it from liabilities related to an accident or upset customers.
- Hire a financial advisor to help manage personal and business planning You knew this would be on the list. As you start your business, a financial advisor can help you determine how much to invest in your side hustle, the most efficient way to fund your business’s growth, when your side hustle might be able to replace your 9-5 job, act as a sounding board, and make sure you are pursuing your goals.
I’m an advocate for side hustles; I love seeing people taking action to improve their financial situation or chase their dreams. Starting and running a business is a rewarding endeavor, but it is not without its challenges and as an aspiring entrepreneur, and I hope you avoid some of those unnecessary challenges by setting your side hustle up with solid foundation—the six steps above will give you a good start.
The anthem for those with side hustles:
Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.