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.
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.