Whether out of passion or frustration, the pandemic has seen more people than ever take their stampede seriously. In fact, according to recent figures from the US Census Bureau, there was a 53% increase in new business filings in 2021. (opens in a new tab) compared to 2019.
However, whether it’s interior design or cake decorating, wedding photography or dog walking, how do you turn your side hustle into a viable business? Here are five steps you can take to make the transition as smooth and successful as possible.
1. Establish the appropriate legal form of ownership.
Remain a sole proprietorship (opens in a new tab) may mean less administration in the short term, but it also creates a lot more risk in the long term! This is because any credit, legal or liability risk rests with the individual owner. However, by giving yourself the shield of legal ownership, you will ensure that the liability stops with your business rather than 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 Score (opens in a new tab)the largest national network of volunteer mentors and business experts 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 revenue, having a clear strategy is essential, and that’s where writing a business plan comes in. will help identify your business vision, decide what sets you apart from your competition, and determine how much you need to earn to produce enough money to not only survive, but thrive on your sideways hustle.
If you don’t know how to write a business plan, don’t worry! There are plenty of great resources and advice, including from the US Small Business Administration. (opens in a new tab).
3. Plan to hire.
As a secondary scammer, you are the accountant, receptionist, salesperson, marketing manager and more. But becoming a business means deciding when you can afford to provide extra support to meet (hopefully!) increasing demands on your time. Let’s say your goal is to earn a six-figure income every year. If the average full-time work year is 1,900 hours, that means you’re aiming for a value of about $50-55 for each hour of work ($100,000 divided by 1,900 hours).
Any time you perform a function with a lower than typical hourly rate – for example, administrative tasks such as handling mail or answering the phone, which tend to pay around $10 to $15 an hour – you reduce your ability to earn the desired $50 to $55. In that case, hiring someone to do it instead makes sense, both financially and to help you avoid burning yourself out trying to get it all done.
4. Let go to grow.
As you seek to grow, it’s important that you have the bandwidth to focus on the parts of the business you’re particularly good at while leaving the rest aside. If you’re a baker, for example, you’re much more valuable meeting customers and creating products than sending invoices or responding to emails.
A good rule of thumb is that if someone can do a task at least 70% or 80% as well as you, delegate it. This can be done through part-time or full-time employment or through one of the many small business incubators in the country. These provide expert support on everything from accounting and legal services to human resources and capital investments. In addition to benefiting from additional expertise, the abandonment of certain operational tasks means that you will spend your time working on company rather than in this.
5. Gear up for big contracts.
Most side businesses start with things like selling to friends of friends, posting your products on Pinterest, or making one-time sales at farmers’ markets. But as your business grows, you may want to enter into larger contracts with larger customers. This means you will need to establish some infrastructure to ensure they are comfortable working with you. Set up appropriate cybersecurity and data protection, for example, and also arm yourself with damage insurance. That way, if something goes wrong or gets damaged while you’re working for them, everyone knows you have the protection you need.
In addition to the steps above, there is perhaps another key consideration for anyone considering the transition from part-time hustler to full-time entrepreneur: go with your eyes open. Running a business is hard and multi-faceted work. And usually, that comes with the added pressure of having to make enough money to support yourself and your family.
Yet at the same time, imagine this: every day you go to work, you’re doing something you’re good at. Something you are passionate about. Something that truly belongs to you. If you’re willing to accept the ups and downs and put in the time and energy to make it a success, turning your side hustle into a business might just be the most rewarding decision you’ve ever made.
This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC (opens in a new tab) or with FINRA (opens in a new tab).