Side businesses come in all shapes and sizes — from a hobby you’re spinning into a little extra cash to something you’re hoping to turn into a full-time job. In the US, 16% of full-time employees have held a side job to earn more money, according to a study from freelancing site Elance-oDesk.com. In the UK, 44% of part-time business owners started their companies for the extra income, according to insurance provider Aviva.
The internet makes it easy to start a business in your off hours without a lot of capital or inventory. “You can get started in an afternoon with less than $50,” said Susan Solovic, a small business expert in the US and author of It’s Your Biz. “There are web design templates. You can set up a Facebook page … [and] a Twitter account. You don’t have to be a technology genius.”
But before you start counting the cash you’ll make from a little moonlighting, you should know what you’re getting into. “You need to figure out exactly how this is going to work in the world you’re envisioning, and that will help you determine the decisions you’re going to make,” said Julia Chung, a financial and estate planner with Facet Advisors in Langley, British Columbia, in Canada.
Here are some guidelines:
What it will take: A great deal of self-motivation, organisation and a willingness to work much more than the standard 40-hour work week. “Money is a really nice thing, but it doesn’t come in when somebody does a bad job,” Chung said.
How long you need to prepare: You may need a few days or a few months. “If someone is just taking on a contract for Saturday afternoons, they probably don’t need that much time to put it together,” Chung said. “If you’re putting together a robust business plan for something that’s going to turn into a full-time business, it’s important to do three to six months of research.” You will need to understand all the pieces that go into the business, such as taxes, administration, marketing and social media. If you don’t have any experience in those areas or with hiring staff, it’s going to take some time.
Do it now: Know why you’re doing it. Are you just looking to make some cash on the side or are you hoping this grows into a long-term business? Have you thought about how it would work, logistically? Will you be doing it on weekends? Three nights a week? Are there start-up costs? Do you need a website? “You really need to create a plan,” Chung said. “You need to understand how much time you’re willing to allocate, where the clients are coming from and how much it’s going to cost you.”
Make sure there will be customers. Many people start side businesses out of a favourite hobby. “Just because you like the product or service does not mean anyone else will buy it,” said Stephen Harper, a professor of entrepreneurship at the University of North Carolina Wilmington in the US and author of Here’s to the Crazy Entrepreneurs. “The key to success is to find people who are not having their needs met at all or well enough, and to develop and offer what they want — not what you want.”
Read your employment contract. “Consider your employer’s policy on having side businesses,” said Susan Solovic, a small business expert in the US and author of It’s Your Biz. “You need to look at your employee handbook and see if there are any prohibited things you can’t do. Otherwise you could be terminated if you violate that policy.” This is especially important if you’re hoping to freelance in the same industry or if you’ve signed a non-compete agreement, which means you agreed not to compete with your employer for business.
Be realistic about the time commitment. Dedicating the bulk of your free time to a second job is tricky. Have you thought about the mental drain of working all week at your full-time position and then spending nights and weekends at your other venture? When will you spend time with your family or give yourself a break? “People don’t realise how much time they need to rest and recharge their batteries,” Chung said. “It’s vital to manage your time well and make time for self-care because otherwise the whole thing will fail.”
Do it later: Keep an eye on the money. Just because it’s a side gig doesn’t mean you should manage the finances less fiercely. Stay on top of your expenses, particularly the variable costs. “And more importantly, watch your receivables,” said Brian Moran, founder and chief executive of Brian Moran & Associates, a consulting company for entrepreneurs in the US. “A side business can suddenly become very expensive if you’re not watching invoices and ‘net 30’ becomes ‘net 60’ [days before you are paid by customers].” In other words, make sure people are paying you promptly — and follow up.
Know the tax laws. If you are making money from your venture, you will likely owe taxes. There may also be certain business practices you must follow, depending on where you live and the type of industry you’re in. In Canada, for instance, business owners must start charging a Goods and Services Tax once they hit a certain income threshold. In Australia, you would need to register for an Australian Business Number and may have to register for Goods and Services Tax. In the US, you’ll need to file a Schedule C with your income taxes in April. Many people don’t consider any of this until they’ve been at their side business for some time.
“I talked to one lady who had started an eBay store and she emailed me and said ‘I make $50,000 selling stuff on eBay. When do I have a business and when do I have to pay taxes?’ Solovic said. “I said to her, ‘Run to your nearest accounting professional right away.’”
Do it smarter: Be prepared for your business to take off. Have you thought about what you’d do if your side gig grows exponentially? “You do often reach a fork in the road where it’s hard to balance both your job and your side business,” Solovic said. “That’s when you have to take that leap of faith and say, ‘Ok, I’m going to go full time with my side business.’ At some point you may face that.”
To learn more about starting and running a successful business, visit the Business Owner’s Playbook.
This article was written by Kate Ashford from BBC and was legally licensed through the NewsCred publisher network.