A majority of small business owners will tell you their business first started as a small side hustle, or maybe even just a hobby at the beginning. They enjoyed doing X, Y, and Z for others, made a decent income from it or knew they could, and decided the idea of freedom from being an employee for someone else sound like a great idea. But what they don’t explain is how to make that jump - from hobby to full-time. It’s a piece of the story that many, like me, wanted to hear from those who had done it successfully. I figured the more I knew, the less risk there would be, and I wanted to be as prepared as I could to avoid failure.
Over 50% of small businesses fail in the first four years. And not surprisingly, 82% off those that fail do so because of cash-flow problems (source). If you can’t stay in the green, it’s not going to work out. And I certainly did not want to spend time working hard and apply myself, and have all that time and effort to go to waste. So I took my time, planned it out, and although I’m only 9 months into my “side hustle”, I’d say so far I’ve been successful.
All my preparation, planning, and full transition are still fresh in my mind, and I’m able to take a wider look back with better perspective to give you insight in how to go full time.
It’s simple. Like NIKE, "Just Do It.” You can talk all you want about becoming a legit business, but talking isn’t going to help you get there. My biggest piece of advice for any one who wants to start their own business it to just start. Start by getting a free website. Start by finding your first clients or customers - maybe they’re family or friends. Start by making your first product to sell on Etsy. If you don’t start, you’re no better off than you were yesterday.
Whether you want to be an LLC or S-Corp (do some research on what’s best for you), you gotta get official with the government. Not only do you need to for tax purposes but it tells your clients and customers your professional. The process is pretty easy. I just Googled “Register A Business In Maryland” (where I reside) and found a Maryland government website that is for exactly that. There’s some small fees, but the process is pretty simple and all said and done was under $200, which includes your EIN number. You’ll need this to pay taxes.
Sure, maybe your Aunt Mildred knits gloves and only sells a few pairs at a Christmas Craft Fair, and doesn’t officially have to register as an actual business because she makes a such a small income on those few pairs each season. But you know what? She still has to pay the IRS taxes on any income she makes. Yes, there are plenty of people that run their self-made businesses off the books and don’t pay taxes, but it’s illegal, and it can catch up with you. Before you start bringing in the income, get legit.
Don’t Quit Your Day Job
It’s a very romantic notion to just pick up and quit your cushy full-time job and focus full time into your passion, with the goal of achieving greatness doing what you love. But it’s not realistic. There’s bills to be paid. And if you’re like me, a family to help support. You can’t tell what the future will hold, and starting from scratch before you’re bringing in cash from your new venture is a big gamble. Unless you have a large savings cushion it’s just not wise. And even then, why would you want to chance having to tap into your savings when there’s a smarter, safer way?
First piece of advice - keep your side-hustle just that, a side-hustle. A very busy, hard-working side-hustle. Work as much as you can in your “free-time”. Make that money in the evenings, weekends, and even lunchtime! Ask any small business owner and they’ll tell you that starting a business is hard work and take a lot of time. By keeping your day job you’ll still be bringing in a steady paycheck and making extra cash in your “free-time”. Work until your new business is doing so well that you’re over-loaded. Even then, it may be wise to hire help from a few employees before actually quitting your day-job and going full-time.
Do The Calculations
When it comes down to it, it’s all about the numbers.
So you’ve been doing this side hustle thing for a while, you’re “free time” hours are completely filled up with client work or production on products. You’re bringing in the cash and your business bank account is filling up. Now what? Get a piece of paper and your calculator out, and start running the numbers.
First, calculate how much you need to pay yourself to live the way you want to live. Maybe you don’t want to quit your day job until you side-hustle is bringing in the same amount, or maybe you’re able to take a little hit, and live on a tighter budget as long as you’re doing what you love. Make sure you take all your existing benefits into account (i.e. health, 401k, etc.) and plan ahead! If you’re lucky, maybe you can switch to your spouses insurance instead. Unfortunately, my health insurance was with my previous day-job, and my husband owns his own business too, so we had to get private health insurance - and it’s not cheap!
Also, just because you’re able to make say, $6000 in net revenue or net sales, doesn’t mean that’s how much you get to pay yourself. After you account for all your business expenses (supplies, bills, etc.), taxes (my accountant has suggested to save 50% to be safe), plus any you want to continue to invest back in your business, you’re left with net profit or net income. That’s how much you can pay yourself.
Yep - that’s the downfall of small business ownership. It’s expensive to own a business. But when you charge the right amount, and when it’s calculated and budgeted right, you can grow, invest back in your company, and get to reap the benefits of small business ownership.
Make The Jump
So you know how much you need to make, you’re pulling the money, everything’s going great, but you just don’t have enough hours in the day to grow. So now what?
It’s time to make the jump to full-time small business ownership!
First, it’s probably a good idea to have a cushion on money in you bank account, just in case your 40-hours a week doesn’t quite fill up - with client hours, or products selling - right away. And if you can book those hours in advance, or have sales prior to making them, that’s great too!
Now it’s time to put in your 2-week notice with your job, schedule your new health insurance starting, and get to work! It’s scary, but one of the best things you can do is talk to someone who’s been successful in doing it. Not only will they be able to help you with any questions you may have, but knowing they’re been successful in making the jump should give you motivation to do it too.
So, are you just thinking about starting a side hustle? Are you considering making the jump to full-time soon, or have you done it successfully? Share your story in the comments! The more small business owners help other small business owners, the more chance we can all become successful!