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Financial Tips for Your Side Hustle

Here is the final installment in our “financial tips for” different industries—Financial Tips for Your Side Hustle. This article is for anyone building a business on the side of a full-time job or on the side of another business.  Creating a side business and growing it to allow you to replace your 9-5 and go full time into entrepreneurship is an exciting journey. Here are a few financial tips to help you make that happen.

 

Financial Tips for Your Side Hustle

 

 

Start Your Separate Personal Financial Identity immediately

 

From day one, treat your business as a business. Separate your banking, get a debit card for business expenses, and have all income from all sources deposited into the account. Just point your PayPal, Stripe, Square, or whatever you use to the business account.  Pay your expenses from that account. You will file a different tax schedule when you own a business. Keep receipts and treat it like the real business it is right from the start.

 

 

 

Have a Pricing Strategy That Gets You Into Profit Quickly

 

Many times, when entrepreneurs begin side businesses they start off with pricing that is often too low to make much of a profit. This can be because there is the feeling that the venture is for “extra money,” so making even just a little bit is “fine.” Yet, the best strategy is to be priced correctly from the beginning, so you aren’t just breaking even or worse, losing money with your side hustle.  You are in business to make money, and that means pricing yourself to include your real costs, your paycheck, and some profit to make sure you have capital for growth.  Follow this link (Mastering Your Cash Flow (kartra.com)) for my free three part pricing formula.

 

You don’t have to lose money the first few years in business. See this blog post (5 Tips for Maximizing Business Profits (entremoneycoach.com)) more tips to maximize your profits.

 

 

Set up for your Self-Employment Taxes and pay them at least quarterly

 

Part of treating your business like a business right away is to set yourself up to file your taxes as a business. In the U.S. if you are a sole proprietor that means a schedule C.  When you file that report of self-employment you will need to pay your self-employment taxes. Make it a habit from the start, and you will always be in compliance with the IRS. I learned this lesson the hard way, and ended up owing over $27k in self-employment taxes back the year of my husband’s accident when we lost our consulting business.  We did not set ourselves up, and taxes were an afterthought. Oops.

 

It’s easy to set up to pay your taxes online, visit https://eftps.gov and register. They have to snail mail you a PIN so it takes a few days to set up, but once you are enrolled you can easily make online deposits into your “tax account.” You should deposit 20-30% to start, based on your other job, tax bracket, etc. Visit your accountant to figure out exactly what is best for your situation. But just do it. I withhold when I take a paycheck, I don’t even wait for quarterly anymore!

 

 

If you are going to scale and leave your 9-5 have a plan

 

As you are scaling and building your side hustle to become your full-time gig, I always recommend having a plan. It won’t be perfect, and it will probably change, but you should know your numbers, have some money squirrelled away, and keep debt down so that the payments, if any, are manageable on your new entrepreneurial salary. Plan your income and profit each quarter, knowing how much you need to make to pay everything, including yourself.

 

And know that sometimes businesses take off faster than expected, sometimes they take longer.  Have a real conversation with yourself around what the minimum number of sales or clients you have to consistently have to make a move. It doesn’t always have to be a calendar date! Make your plan around events that happen inside your side hustle and celebrate every milestone.

Financial Tips for Coaches and Consultants

This article is relevant for all service providers, but I’m focusing on coaches and consultants who use the online space to make sales and provide services. Here are a few financial tips for coaches and consultants to make the finances easier, and better, for service providers!

Financial Tips for Coaches and Consultants

 

FINANCIAL TIPS FOR COACHES AND CONSULTANTS

Have a financial structure for money management and taxes right away

 

I see service providers frequently live out of their own personal accounts for a while. It’s so important to set up your business bank account and to create a system for withholding taxes and paying yourself as soon as you can.  Typically profit margins can be larger in the online space, because the cost of doing business is minimal, and I see many entrepreneurs make the mistake of treating their revenue as, “it’s all my money anyway.” This co-mingling makes it difficult to hire contractors, such as a social media manager, because you shouldn’t pay business expenses from a personal account. This can create a tax nightmare.

 

You must pay self-employment taxes on your own paycheck, and if you are using the money in that account, even for business purposes, it be your own personal money. Create a separate financial identity from the start. Get a business bank account. Set up your online deposit with the Internal Revenue Service or your home tax agency and make sure you are withholding and depositing your taxes. Pay yourself every two weeks and let the rest of the money sit in the bank until you get paid again or must pay bills.

 

Calculate everything in your pricing, and know your numbers and your margins

 

My next tip is one that I get some pushback on, I want you to calculate your numbers and know your margins. The reason I get pushback is because people frequently want to “feel” into their pricing, which isn’t a bad thing, but just make sure your feelings are profitable. 

 

I worked with an entrepreneur who was losing money on her most expensive package. By the time we calculated the hours, the services and additional bonuses and things provided, her $1500.00 package had a net LOSS of $80.00 per client. OUCH. In fact, her most profitable package was $195.00. It was extremely hard for her to hear, but it was the truth. Her lower cost packages were covering her losses. She was very frustrated in business, and that was why.

 

You need to know how much you need to make, how much you are legitimately profiting, how many things you need to sell, and at what price, to grow your business strategically and sustainably. Please get your numbers.

 

Stop feast or famine with payment plans and signature offers

 

Coaching and consulting can be feast or famine, and the income can be very unpredictable, especially when you are starting out and haven’t built up your client base. To stabilize your income quickly, please have payment plans available for anything you offer over a certain dollar amount. You get to decide, but I have a client that offers at least 2 payments for anything over $299.00. I have another client that starts at $500.00 and still another that starts at $1,000.00

 

When you offer payment plans you are giving people access to your programs and services at a price point, they can more easily afford, and you get to project income out into the future. Just make sure you cover any additional interchange fees, the fees charged by the bank for running the card each time, in your pricing. Based on the dollar amount, that may be just a few dollars. Again, this is your decision.

 

I know there are some people who do not recommend extending payment plans beyond the length of the program or service the client is buying.  I understand that there is a risk that they will get the service and not pay the remainder. But, while there is a little risk that someone will not honor their payments, generally people follow through, and if you have good policies and procedures surrounding payments (discussed below), you can protect yourself from these instances.

 

Have policies to protect you from chargebacks and from giving refunds if you do not offer them

 

Do not accept anything without a payment agreement. I have a podcast episode, “Get it in Writing” that talks through the basics of what should be in an agreement. I want to talk here specifically around payments. Protect yourself from chargebacks. That is where someone complains to the credit card company or payment portal, and the company gives them the money back- straight from your account. If you do not have anything in writing that says, “no refunds” or “all sales are final” then you will not win against the payment vendor.

 

Make sure that your terms and conditions are required for EVERY sale you make. Take the time to draft them or have an attorney help you and post them inside the sales process. For longer programs or bigger ticket items, send a follow-up agreement in writing to clients. There are a few people in the world that will try to take advantage, and having good, clear, and acknowledged policies surrounding payments will protect your income and your business.

 

Coaches and consultants need to protect themselves financially. I have a special place in my heart for this group of entrepreneurs, because it’s where Mike and I started with UNEQ Consulting in 2011, and I wish I would have had these tips, and had taken this advice back then.

 

 

Author’s Note:

If you enjoyed this blog about Financial Tips for Coaches and Consultants, feel free to visit my other blogs and resources

Creative Business

There are many, many handmade creative product businesses. Whether you make jewelry, paint pictures, created wooden or porcelain gifts, or make something else, you are a creative product business. I have clients who make soaps and lotions and clients who make artwork and gifts. I find there are a few key areas where creative product businesses lose money, and I have a few tips to help your business stay profitable.

 

Creative Business

 

 

 

Tips for Creative Product Businesses

 

 

 

 

Know your actual costs to create your product and include your labor

 

  • Include all the items it takes to create your product, paint, paper, beads, yarn, wood, labels, shipping boxes, lotion bottles, etc. and your operational costs. For my easy formula for pricing anything guide visit:  https://entremoneycoach.kartra.com/page.pricing .

 

  • Calculate how long it REALLY takes you to create each product, and then calculate your labor cost, per piece, that you want to recover in your pricing. Don’t shortchange yourself, the number is the number. Make sure you have the true costs so you can make pricing decisions that reflect your actual time spent.

 

  • Make sure to also include your shipping materials, tissue paper, bubble wrap, stickers, boxes, and any other items you use to ship your items above actual postage. A flat handling charge may be a good, transparent way to do this, or if shipping is included, add it into the price.

 

  • Finally, know your fees for Etsy, Shopify, eBay, etc. if you use any of these selling sites. These can take a pretty significant chunk of profits if you use all their features and advertising offerings. Think also about the table at the fair or the farmer’s market booth. You must consider the cost to sell your product in your pricing.

 

 

 

 

Have a custom option available for customers and charge appropriately

 

One way to increase the price of an item is to have a custom option available. I’ve worked with clients who personalize items, and clients who create custom items for occasions such as weddings. Having some sort of customization available for people to buy can increase your revenues and margins. This can also be a way to resell to customers who need your custom item again in the future, such as for gifts.

 

You need to charge more for the extra time to tailor the product to your client’s specific wishes. Anytime you veer from a standard item, you need to have a charge. Whenever someone orders something custom, please get a deposit. It doesn’t have to be half, it can be a smaller percentage, but get some financial commitment from the buyer before you start creating your one-of-a-kind work.

 

 

 

 

Watch your discounts, coupons, and bonuses

 

I see creative entrepreneurs constantly markdown items, which cuts into the profits.  A coupon for signing up for the email list, then free shipping, then a bonus trial size, then some other thing, and all the sudden you lose money on the sale. I know that many, many people try to compete on price in the creative space, but what you create is unique because you create it.

 

I don’t recommend discounting items often, or buyers will expect them and just wait to purchase until you markdown again. Offering a 10% off coupon with a newsletter signup may be ok, or even a free shipping option on a minimum purchase. Just make sure you have the margin to offer them. I worked with a client one time who barely broke even after offering her discount coupon, after the Etsy fees and advertising costs.

 

 

 

 

Have policies on product changes, returns, and refunds, and stick to them

 

Things can happen in shipping, the item ordered may not be exactly what the customer expected, or there may be another reason for items to need replacing or returning. Protect yourself with clear policies on shipping and tracking shipments, how long you will accept a return, and when an item will be replaced at no or little charge.  Create a policy that all sales are FINAL on custom items.

 

When people order products online, they have several guarantees offered by payment vendors such as PayPal. They can begin a chargeback or complaint and receive their money back- from your account.  Unless you have clear, understandable policies in place, you probably will lose any dispute and be out however much your item cost plus the additional vendor fees. 

 

There is always a demand for beautiful handmade items for gifts or for any occasion.  I know someone who buys a great pair of new handmade clay earrings every other week. She just loves them. Too many creatives under charge for their items and lose money in their business. Following the tips above will help you stay in profit and have the money to keep on creating what you love. Do you have a specific question related to your own business? Reach out and let’s chat!

calculating profit margin

Marcus Lemonis loves to remind business owners that “If you don’t know your numbers, you don’t know your business.” And those numbers he refers to include “margin” as in the profit margin, expressed as a percentage, on every product and service you sell. To make things a little more fun, for our conversation “margin” can be expressed after production costs (gross margin) and after operating costs (net margin). It’s important to recognize the difference to ensure we are looking at the right numbers to make decisions.

 

 

 

Profit Margin: Gross Margin

 

Gross Profit Margin is calculated by subtracting what it costs to produce something from how much it is sold for. For example, it costs you $5.00 to produce a widget (labor and all materials) and you sell it for $10.00. You have a 50% gross profit margin.  This is only half the story though because you have other business costs (operating costs) that also have to be paid from the gross profit.

 

To figure out our net profit we need to further subtract the operating costs from the item. If each $10.00 item actually incurs $1.00 of operating costs, the net profit isn’t $5.00, it’s $4.00.  That’s the number we want to work with for managing pricing and expenses. In our example, this $10.00 item has a 40% net profit margin.

 

Anything that affects that $4.00 net dollar amount affects the margin of the item. If costs go up or down, that $4.00 can get bigger or smaller. Let’s say that materials go up in cost $.50, so that costs are now, $5.50 to produce, the net margin goes down from $4.00 to $3.50. From 40% to 35%. Make sense?

 

 

 

 

If you don’t know your margins, you need to take a little time to figure them out. The amount of margin that’s considered “good” or “healthy” varies by industry. Restaurants typically have lower margins than retail and retail is typically lower than many service provider businesses. Online businesses have lower operating expenses and often higher margins than businesses with physical locations.

 

 

 

 

PROFIT MARGIN: WHAT AFFECTS IT?

 

This article is about the things that affect your margins, and margins can be the difference between struggling and thriving. And those things are many. Changes in any costs can affect your margins and require you to address your pricing to maintain your profits. Any cost. Utilities, service providers, suppliers, and other expenses can go up in cost at any time unless you are under a contract.

 

As margins go down, there is less and less money left over, and it can affect your growth and your ability to weather any unexpected events. This is why I encourage entrepreneurs to check their expenses through the Breakthrough Number process once a quarter. You can use these resources to figure yours.  Keeping your eyes on the margin can help you head off issues that can affect the health of your business. Set aside the time to learn your numbers.

 

 

 

AUTHOR’S NOTES:

If you want to walk through a step-by-step method to manage your margins, your income, and profitability, join me for the next Quarterly Intensive. Visit https://entremoneycoach.kartra.com/page/quarterlyintensive to learn more.

Recurring revenue creates business stability through renewable products and services.

 

Do you know why memberships, subscription boxes, and automatic renewals are so popular? Because people love to be a part of something and to receive new things regularly.

 

And where there is predictable RR the business owner can relax a little bit because a certain amount of money will be flowing in each month without their having to make any more sales.  This is also the reason payment plans are so popular for entrepreneurs as well. Yes, there is a risk someone won’t meet their obligation, but most of the time people do. As a result, recurring revenue streams can be a great way to grow your business and have “guaranteed” income each month and I recommend having at least one offer to many of my clients.  

 

 

How to Set Up Your Recurring Revenue:

 

1. Create an offer that people want every month.

Many people join memberships and subscriptions because the offer has something new each cycle. I belong to a few memberships where each month has new trainings that I love.  There may be a members-only masterclass, new members-only bonus, some accountability, or other “new” perk that keeps the subscription fresh.

If you don’t already have something that would support a regular renewal, create one. Start with the outcome. What is the client going to receive with this offer? Sales support? A Product box? A new course or masterclass? Why would they choose to work with you each month, what are you giving them?

 

2. For subscriptions, use membership software to minimize your tasks.

 

There are a lot of different kinds of membership software available that will automatically “renew” your members each month and keep your client’s payment information secure.  I don’t recommend manually invoicing or running cards for small payments in a membership. It is labor-intensive and there is a risk of making a mistake, double charging, invoices not being sent, etc.

Invest in a membership portal or software to automate the billing tasks.  I have personally used a single purchase of Memberpress for my WordPress website linked to PayPal for my monthly recurring membership for non-traditional law students. I know that there are other platforms and software products available for you to explore.

 

 

 

A note on payment plans.

You can still have recurring revenue with payment plans for your products and services.  You can decide how many payments you want to receive for each offer. I don’t recommend stretching the payments too far out past the end of your program or service. And I always recommend adding to the monthly payment enough to cover your additional fees and to reduce the risk of someone not paying.

For example, I have an offer that is $697.00. I have a plan for two payments at $365, or $730, and three payments at $250.00, or $750.  The little bit extra in each payment offsets both the increased interchange fees and the risks that someone won’t make all of the payments. Payment plans can be a great way to have a regular income for a few months on a single sale.

 

There are steps all across your business processes that have the potential to create or reduce profit for your business.

Profit is the key to growing your business and it is the money left over after everything is paid.

Remember, business isn’t about breaking even, because breaking even keeps you small. The more profit you generate, the more you will have growth to create an impact in the world.

 

Here are 5 tips to maximize your profit and avoid losing it.

 

1. Manage your time

 

Your time has value. The longer you spend on things that aren’t revenue generating, the more profit you can use every day.

If you have a process to make widgets, for example, but you are interrupted every 15 minutes to answer emails or to take calls, the time it takes you to produce the product is longer, but you aren’t getting more money for the widget!

The time interruption takes you off task, and actually costs you real profit!

Make a list of everything you have to do and decide what is actually going towards making money. Use time blocking to manage your schedule and prioritize those things that make your company money.

Delegate the things that aren’t generating revenue and are not in your zone of genius.

 

2. Manage your costs

 

Every time you pay for something you don’t need or will not use you are taking money from your profit.

Perhaps it’s a subscription that you are no longer using or maybe you haven’t looked at your suppliers in a few and their prices have creeped up or you have gotten into a groove and haven’t looked at your expenses in a while.

It is important to be as “lean” as possible in business to keep as much profit as possible.  Every unused subscription at $12.95 a month adds up!

Review your processes at least once a year and check your providers for new or different capabilities and packages.

Are there places to streamline to one provider, or to change providers that allow you to be more efficient in your process?

 

3. Manage your delivery process for your products and services

 

When you coach clients, do you typically go over time? Do you run to the post office every day to mail orders?

Is your process clunky in returning emails to customers who have questions or problems? Do you have a client flow process from onboarding to completing your service or product delivery? 

Your delivery process for your products and services can directly impact your profits.

If the processes are not clear and there are inefficiencies anywhere along the line you will eat into the profits you are creating. Keeping your process as simple as possible while giving legendary service is crucial.

 

4. Watch the “flash sales” and cutting prices too often, it can look like desperation

 

When sales slow, it can be an immediate instinct to cut prices and try to make money on volume. Every time you cut your prices, you cut profit.

I know holding sales can be great for business but do it with a plan. If you get desperate every month and hold a flash sale the last week, your customers will get smart, and wait until then to order.

Plan your sales and tie them back to some business purpose. Are you holding a sale to add customers to your list? Or maybe for a product or service launch? An early bird?

Cutting prices early and often is a recipe to eat your business profit.

 

5. There is more money in your follow up.

 

I recently read that over 80% of sales is in the follow up, after 5 contacts. So have a follow up process.

Whether it’s an email newsletter or email nurture sequence, a plan for phone call contact, the follow up is critical to the sales, and therefore the profit your business makes.

Additionally, it is easier to keep a client than to acquire a new one. You can resell products and services to your existing clients with less effort than gaining new ones.

As I’ve moved to more online business, I’ve realized that I’m actually pretty bad at this one and have been working hard to create a good system for myself. I know it is critically important.

If you are here it’s because you are trying to maximize the profits in your business, right? You want more growth and impact.

You can grab a spot on my calendar for a free 30-minute call by visiting https://dawnkennedy.as.me/support and we can talk to see how I can help you and if we are a good fit to work together in your business.

One of my favorite programs is called, “The Profit” which airs on CNBC. In this show the CEO and multimillionaire Marcus Lemonis helps struggling entrepreneurs by injecting his expertise and own money to invest in these businesses and make them profitable.

One thing I hear in the show over and over is, “this business generated $4.2 Million last year but had a loss of $30,000”.

And that tells me that many, many entrepreneurs do not know the difference between generating revenue and cash and making a real profit in their business.

 

It isn’t the money you make, it’s the money you keep

 

How can a multi-million-dollar business post losses? Because having sales doesn’t mean you will have anything left after all of your liabilities.  Just because they sold millions doesn’t mean there will be anything left over after they pay salaries and expenses and service any debt the business may hold.  This is why I am so passionate about making sure your pricing, expenses, and offers are right to make and keep money. More profit means more growth, more impact, and more service.

 

Business revenue and cash

 

Sales generated for your products and services are revenue and the money you collect is business cash. If you receive ongoing payments for services or reorders, those are revenue that we can project for the month they are due.  Basically, every dollar that comes into the business is business cash. The more you bring in every month, the more sales you are making. That is the first half of the equation.

The key is to have profit, that amount of money left over every month.

 

“Gross Profit” and “Net Profit”

 

Gross profit is the difference between your cost to create your offer, product or service and your retail price you sold it for. For example, your widget costs $7.00 to make for materials and labor, and you sell it for $15.00. Your gross profit is $8.00 per widget. This is the number many entrepreneurs rely on for pricing and for expenses. But it’s the wrong one.

What’s missing in this number is the amount of the “hidden” expenses, such as all of your operating expenses of rent and utilities, plus taxes. 

Let’s say your operating expenses add an additional $2.00 to the cost of each widget, your net profit is really $6.00 each. That $6.00 is the one we want to know, and it is the one to work with when we look at growing the business.

 

Start by ensuring every product or service is profitable

 

Do the quick math and make sure that everything you sell is generating a profit, an amount left over after everything. Remember that your profits don’t have to be equal, one offer can be 10% profitable and another offer $25%, but each one must be profitable on their own.

You will be well on your way to a profitable and thriving business!