Author: Kim Preheim, Senior Advisor, Community Banking
Your side hustle might be a great way to make extra cash in your spare time, but have you ever thought about turning that part-time gig into a full-time business? You might not know it, but that’s how big businesses like Groupon and Udemy came to be.
However, before you leave your day job, there are some important things to consider.
Think Before You Leap
Side hustles are big business in America. According to a recent poll, 34 percent of working individuals report having an after-hours business to bring in extra income, and 24% of U.S. residents will start a side gig in 2021.
However, the numbers also paint a sobering picture for anyone thinking about turning their part-time hustle into a full-time business. While the average side gig income adds up to just over $1,000 a month, the median income is startlingly lower—just $200 a month.
Since most individuals with a side job contribute only 11-16 hours a week to their second business, you may be thinking that quitting your full-time job is the answer to increasing your earnings. After all, it would give you more time to grow your business, and 85 percent of people who spend at least 20 hours a week on their side gig are earning $5,000 a month.[i]
But owning and operating your own business isn’t always as easy or as profitable as new business owners think it will be. Sixty-six percent of small businesses face financial challenges and that’s after more than 80 percent have worked nights and weekends.
What to Consider Before You Go Full-Time
Before you take the leap from part-time solopreneur into full-time business owner, it’s important to consider a few things:
- Sustainability and Scalability: While you may be making a killing at your side-gig, is it really the type of business that will make you a living full-time? Second, is it scalable, meaning can you realistically grow your business without pricing yourself out of the market?
Crafting your own custom-sewn items, for example, is a great side hustle, but to meet the rising demand necessary to sustain a full-time operation, you’d likely need to add employees. Will you still be able to price your product competitively after doing so?
- Family Dynamics: How will leaving full-time employment impact your family’s financial situation? Can you afford the potential loss of a reliable paycheck every two weeks? For the financial security of your family, be sure you have enough savings to cover expenses for a few months if your business should stall.
- Work Life Balance: While working a full-time job, it was easy to prioritize your time, but your work hours are likely to change as you grow your business. Consider how the extra time spent on running your full-time endeavor may impact your family and personal relationships and how you will ensure balance.
- Business Expenses: While a full-time business has the higher potential to return bigger earnings, it can also incur larger expenses. If your spending becomes disproportionate to your income, you could be jeopardizing your business as well as your personal or family financial security. Understand where it is feasible to cut costs if necessary to protect your personal and business finances.
- Business Purchases: You may need to purchase tools, equipment, vehicles or make other expenditures to turn your side gig into a full-time operation. Before you make any purchases, compare renting versus buying as it relates to those needs.
If you are planning to buy, consider the expectation of repayment and the source of the financing as well as the repayment terms. A loan from a friend or family member may offer a little more flexibility compared to a traditional lender, and sometimes may be easier to obtain as revenues are developing.
- Taxes: As a full-time employee of a company, your federal, state and local taxes, as well as FICA contributions, are all withheld from your paychecks. As a full-time business owner, you’ll need to take care of this on your own and will likely need to pay quarterly on your estimated earnings. Given the complexity, most business owners hire an accountant or purchase software designed to track business expenses and earnings in order to calculate tax payments.
- Insurance: If you work for a large company, you may receive health, dental, vision and even life insurance at a very competitive rate. If you leave your full-time job, you’ll need to source insurance on your own, and those expenses can add up quickly.
- Emergency Preparedness: If 2020 taught us anything, it was how easily one unexpected event can disrupt business operations. As you consider taking your side gig into a full-time endeavor, plan ahead for how you will handle emergencies and the resulting consequences. These can include business interruptions, where incoming orders dwindle or cease, as well as the opposite turn of events, where business is booming. Think of how you will weather a change in circumstances and keep your business running.
If you’ve considered all of the points above and decide you’re ready to turn your side-hustle into a full-time career, there are some important steps to take before submitting your final notice.
First, prepare financial projections. How much can you expect to bring in and what will your expenditures be?
Next, it’s important to do some competitive research. When operating your business as a side gig, your competitors may be quite different than those you will encounter as you take your business full-time. It’s important to understand the market, who your competitors are, and how you will differentiate your business moving forward.
The projections you prepare, as well as the competitive research, can be used to help you prepare a business plan. A business plan is your road map for your business journey and will help you stay on track.
Last, don’t be afraid to utilize your support network of friends, family and professionals when you need advice. After all, they are rooting for your success and differing perspectives could help you broaden your horizons, improving your odds of creating a profitable business venture.
About the Author
Kim believes that small businesses are the life blood of the local economy, making him a perfect match for his role as a Senior Advisor of Community Banking and Business Banking at FNBO. In his position, he provides deposit and lending products to help fuel individual business growth, but his approach is far more personal. With each and every customer, Kim seeks to build long-term relationships that help him to proactively serve individual needs.