Whether out of passion or frustration, the pandemic has seen more people than ever get serious about their side hustle. In fact, according to recent figures from the U.S. Census Bureau, there was a 53% increase in new business filings in 2021 compared to 2019.
However, whether it’s interior design or decorative cakemaking, wedding photography or dog walking, how do you go about turning your side hustle into a real, viable business? Here are five steps to take in order to make the transition as smooth and successful as possible.
1. Set up the proper legal form of ownership.
Remaining a sole proprietorship might mean less admin in the short term, but it also creates a lot more risk in the long term! That’s because any credit, legal or liability risk falls on the individual owner. However, by giving yourself the shield of legal ownership, you’ll ensure the buck stops with your business rather than with you.
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Being an official legal entity also gives you more credibility with lenders when it comes to borrowing money or raising capital. You can consult with Score, the nation’s largest network of volunteer, expert business mentors or with a local attorney to select the right form of ownership for you and your business.
2. Write a business plan.
When you’re running a business responsible for most, if not all, of your income, having a clear strategy is vital, which is where writing a business plan comes in. Doing so will help you identify your vision for the company, decide what differentiates you from competitors and figure out how much you need to earn to produce enough cash to not just survive, but thrive from your side hustle.
If you’re not sure how to go about writing a business plan, don’t worry! There are loads of great resources and advice out there, including from the U.S. Small Business Administration.
3. Plan to hire.
As a side hustler, you’re the accountant, the receptionist, the salesperson, the marketer and more. But becoming a business means deciding when you can afford to bring in extra support to cope with (hopefully!) rising demands on your time. Say your goal is to make a six-figure income every year. If the average full-time working year is 1,900 hours, that means you’re aiming for every hour you work to be worth around $50 to $55 ($100,000 divided by 1,900 hours).
Anytime you perform a function with a typical hourly rate below that – for example, administrative tasks like processing the mail or answering the phones, which tend to pay around $10 to $15 per hour – you’re reducing your ability to earn your desired $50 to $55. In which case, hiring someone to do it instead makes sense, both financially and to help you avoid burning out trying to do everything.
4. Let go to grow.
As you seek to grow, it’s important you have the bandwidth to focus on the elements of the business you’re uniquely good at while letting go of the rest. If you’re a cakemaker, for example, you’re far more valuable meeting customers and creating products than you are sending invoices or responding to emails.
A good rule of thumb is if someone can perform a task at least 70% or 80% as well as you, delegate it. That might be via a part- or full-time hire or through one of the country’s many small-business incubators. These provide expert support on everything from accounting and legal services to HR and capital investment. Along with benefiting from additional expertise, letting go of some operational tasks will mean your time is spent working on the business rather than in it.
5. Equip yourself for big contracts.
Most side hustles start with stuff like selling to friends of friends, posting your products on Pinterest or making one-off sales at farmers’ markets. But as your business expands, you may wish to go after bigger contracts with larger customers. This means you’ll need to establish certain infrastructure to ensure they’re comfortable working with you. Set up proper cybersecurity and data protection, for example, and arm yourself with property-casualty insurance, too. That way, if something goes wrong or gets damaged while you’re working for them, everyone knows you have the necessary protection in place.
Along with the steps above, there’s perhaps one other key consideration for anyone planning to move from part-time side hustler to full-time entrepreneur: Go into it with your eyes open. Running a business is hard, multifaceted work. And usually it comes with the added pressure of needing to make enough money to support you and your family.
Yet, at the same time, picture this: Every day you go to work, you’re doing something you’re good at. Something you feel passionate about. Something that’s truly yours. If you’re ready to accept the ups and downs and put in the time and energy required to make it a success, turning your side hustle into a business may well be the most rewarding decision you ever make.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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