2022 was the year of the side hustle. Recent data from Zippia show that 45% of working Americans have a side job, and that percentage rises to 70% for Gen Z. Some people use a side gig as an additional source of disposable income, while others view it as a necessity to afford their bills.
The gig economy has grown significantly in the last decade, thanks to the emergence of various mobile apps such as Uber, Lyft, Postmates, and DoorDash, which provide people with a flexible way of earning money. Furthermore, online platforms such as Etsy and Amazon have enabled individuals to sell their products and services directly to customers, allowing them to pursue their passions and creativity outside of their regular nine-to-five jobs.
Because they allow you to earn a few extra dollars while doing something you enjoy, these jobs can provide personal fulfillment.
But as your side hustle evolves, you may find yourself dreaming of leaving your day job and becoming a full-time entrepreneur.
The transition from side project to full-time business can be intimidating, so here are a few steps to take before making the plunge.
Be Honest With Yourself
Being your own boss sounds great. But running a company is challenging, and as it grows, you will be faced with day-to-day operations that may not be in your wheelhouse: marketing, invoicing, bookkeeping, and so on. You can outsource or hire to supplement your skills, but relying on your passion as your primary source of income can quickly extinguish your passion for it.
Is Now the Right Time?
Determining when to transition from part-time to full-time entrepreneurship is a decision that ultimately falls on you, but it's crucial to evaluate your personal finances. Can you handle the potential risks? Entrepreneurship is inherently risky: the Bureau of Labor Statistics reports that 20% of small businesses fail within their first year. If you have recently undergone major life changes, such as purchasing a new home or starting a family, it may not be the most appropriate time to take on additional risk. Keep in mind, however, that there may never be a “perfect” time to launch your business. Try consulting that one friend who always hurts your feelings a little bit, or that one uncle that uses spreadsheets for everything. If you’re still convinced, maybe it could be the right time. We’ll have to tick all the other boxes first, though.
Evaluate Your Financial Situation
When self-funding your business, also known as bootstrapping, you should have at least three months, and preferably six months, of operational cash flow saved up, which includes all business expenses: salaries, rent, marketing, and so on. Even if you plan to seek outside funding, it's expected that you will have invested some of your own money. After all, if you're not willing to invest your own money in your company, why should a bank or investor?
Determine Your Startup Costs
Another option for funding your business is to apply for a bank loan. Which, actually, is not as scary as it seems! This can be a good way to start a new venture. However, most banks will require you to have a substantial investment, typically at least 15% of the total startup costs. Additionally, your credit score will also be taken into account when applying for a bank loan, so if it is low, you will need to work on improving it. Our SBA Startup Loan Calculator can help you estimate what you might need to launch your full-time business. It provides average startup costs for over 20 different businesses, allowing you to see your down payment, debt service, and even calculate the number of customers you might need. It might also save you a conversation with the spreadsheet uncle (or at least make you more prepared for it).
If you have been working on your side hustle for some time, you should already be treating it as a legitimate business operation. If not, now is the time to do so. Register your business with the federal government and your state, usually through your state’s Secretary of State office. This process is relatively inexpensive (it should be less than $300; in my home state, it’s $150) and will save you from potential headaches later, such as when you file your taxes. Additionally, open a separate bank account for your business transactions and keep them separate from your personal finances. If you are providing a service, create a service contract. This will not only help set boundaries, but it will also make the transition to full-time entrepreneurship easier later on. Plus, people around you will start taking your side hustle more seriously, too.
Think About Scaling
When you're running a business as a secondary source of income, a single product or service may be sufficient. However, when you want to make it your full-time job, diversifying your offerings can help ensure room for growth. Think about adding similar products to what you already sell, expanding your target market, or giving your current customers more products or services. This can help increase revenue and provide a safety net in case one area of the business slows down.
Get Trusted Advice
When starting a business, it's common to run into doubters or naysayers, such as blunt friends or family members with strong opinions. They may be envious of your ambition, or they may view entrepreneurship as too risky (a valid point). However, if you have confidence in yourself and your business idea, you can take steps to mitigate those risks. One way to do this is by seeking advice from experts who understand your specific situation, such as a business consultant in your industry. Our team of business plan experts at Masterplans is also available for a free 30-minute consultation to provide advice on your unique situation. We’ll be incredibly straightforward and honest, but we’ll be nice, too.
Write A Business Plan
After you've thought carefully about every aspect of your company, it's time to make a business plan. This document will give you a comprehensive understanding of your business, assist you in aligning your goals, and help you envision how it will operate. You will do formal market research, test your assumptions, set short-term and long-term goals, and come up with strategies to reach those goals. It will also facilitate the process of raising capital from banks and other investors. Admittedly, this is a lot of work. If you need assistance with your business plan, you can find numerous applications and templates online. Or, if you’d rather spend time doing what you love and leave the plan to professionals, you can contact a business plan writing service like Masterplans for help.
A side business does not have to start with the intention of growing into a full-fledged business right away. It can be a great stepping stone to launching a new business years later. It enables you to test your product or service on actual customers while minimizing financial risk. A side gig can also help you gain valuable experience and skills that you can apply to your primary job or future business ventures. You can also learn about the industry and market you want to enter, which will help you make better decisions in the future.
However, if you find yourself constantly thinking about turning your side business into your primary occupation, it very well may be time to fully commit to it and join the ranks of other entrepreneurs who are making 2023 the year of the "main hustle."