If you are looking to start your own business or are already working on turning the side hustle into the main hustle, then I want to share with you some advice. I see many Millennials taking this path for a number of reasons. Sometimes it’s to have a better work-life balance and sometimes it’s to follow the passion they have been dabbling with on the side. Either way, it will be a challenge, but if you are passionate about what you want to do, then the challenge won’t seem as difficult. You may also have to make sacrifices, but it can be worth it. The first step before you leave that job that is paying the bills is to have a plan. You should have put in the work to figure out how much money you need to bring in to cover your basic living expenses. Additionally, let’s look at some other areas that you should consider when deciding to transition to being your own boss!
- Budgeting
If you are transitioning from a job where your paycheck is automatically deposited into your bank account every 2 weeks to something where your pay is varied, budgeting is going to be essential. You may have to wait until a project is finished to get paid. If you do have to wait, you should have an adequate cash reserve so that you can cover the necessary expenses for both your family and your business. That cash reserve will be essential as you grow your business so if that isn’t in place yet, start working on it ASAP.You should also have an idea of how much money you need to bring in each month and how long it will take to get to that point. Income may be low and expenses may be high at the beginning. Worst case, you may have to stay at your current job a little longer while you get things up and running on the side to bridge cash flow. Bottom line is that you need to know what it costs to run your business and your life and make sure the numbers work. - Protection & Retirement
Protecting you and your business comes in many forms. In terms of the business itself, that means how it is structured. Whether that means working as an LLC (Limited Liability Company) for some protection in case of a lawsuit or as an S Corp because you can pay yourself dividends instead of compensation as salary, the structure has to work for your business. An accountant can help guide you on some of these areas and an attorney can also be a big help with legal documents. Side note: I always recommend working with licensed and/or certified professionals on legal and tax related things.The other side of protection is protecting your ability to do your job. This means disability insurance, although it can be expensive. If you are considering it, know that disability insurance policies have many features that can be modified to fit your budget so don’t be afraid to ask to see different choices. For retirement savings, you have a lot of options as a self-employed person. I broke them all down in this blog post. - Taxes
Unlike people working for an employer, as the business owner you are responsible for making quarterly payments of employment and income taxes. If you are starting your own business, it’s a good idea to find a good accountant who understands small businesses and can guide you in some of the tax questions. You don’t want to get penalized by the IRS for not paying certain taxes because you didn’t do your homework. The accountant can also help come tax time figure out what is deductible for business purposes. Those deductions could include a home office or car used for business travel. Taxes aren’t something to mess around with so make sure you have a strong handle on this part of your business. - Team
Lastly, but probably most importantly is your team. As much as you are thinking about this as going it alone, you probably shouldn’t. You should have an arsenal of professionals (accountant, attorney, financial advisor) at the ready to help you start and grow your business. They are valuable resources so don’t overlook them.Also, make sure you let people like your spouse or significant other in on your plans. Your new business may affect family income and decisions as well as your stress levels as you take on this new challenge. You need to have your partner on board for the challenge. Trust me, it will be a lot easier if you know you have that support system at home to cheer you on!
Related Articles
[CNBC] How to Juggle the Financial ins and outs of Freelance Work
[Wall Street Journal] How to Transition into the Gig Economy