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Suddenly your side hustle is more than just pocket change.
You could be looking at a new phase of your business, says Kurt Wiegert, a certified financial planner and president of Towson Wealth Management in Towson, Maryland.
The trees are everywhere, yet sometimes you can’t see the big-picture forest.
For that, you might need an expert — someone who can help you figure out a plan, even when you are foggy on everything but the broadest goals.
With years of experience in digital marketing and content creation, Boulder, Colorado, resident Vee Weir realized she could work for herself. She took the leap and started her own digital marketing business in January 2019.
In just about a year, Weir, 27, went from invoicing under $100 at a time to thousands of dollars in monthly retainers. “As an entrepreneur, I made $3,000 less [in a year] than I made at my full-time job,” said Weir. “My mind is blown, how I broke even.”
Along with the increased revenue, though, came more questions and more decisions about business structure, how to pay herself and whether to use a CPA.
In every kind of business, people fail to think about risk, said Wiegert at Towson Wealth Management, “whether it’s insurance, investments [or] what is an exit strategy.”
A onetime consultation with a CFP can put you on the right path in terms of protecting yourself. If your insurance is inadequate, the CFP can help you uncover that. Wiegert recommends considering liability insurance and errors and omissions coverage. You might want to see if some areas can be added to your homeowner’s policy.
A good scenario would be a business owner working with both a CPA and a CFP. “It’s a mistake to put everything back into the business,” said Logan Allec, 31, a CPA with a personal finance blog called Money Done Right. “You have to think about retirement options, and a CFP can give a holistic picture.”
Here are seven more things you can do to expand your business, from side-hustlers who took it to the next level.
1.) Protect yourself
Source: Vee Weir
Weir, who says she is very risk-averse, immediately took steps to protect herself. She registered the business as a limited liability company, or LLC, to separate her personal assets from those of her site. She got a separate bank account. “It makes tax time easier, and it’s way easier to record your profit, your net, your gross,” Weir said.
Weir felt she might be especially vulnerable because of the nature of her work. “In digital marketing, if you say the wrong thing or present inaccurate information” you could be looking at a lawsuit, she says.
“You don’t necessarily need to make a lot of money to cause financial harm or be sued,” said Wiegert.
Take the person who starts a YouTube channel. Two things to be wary of: copyright or legal issues. “Maybe they’re saying things against a celebrity, and they don’t know what they’re doing,” Wiegert said.
2.) Separate checks
Logan Allec, 31, says neglecting work-life balance is a common mistake for new business-owners.
Source: Logan Allec
If your revenue is growing, keep separate accounts. It’s pretty basic, Allec says, but a lot of new business owners make the mistake of not setting up a business account.
Aside from the legal implications, “just from a tax and accounting perspective, it’s an absolute nightmare,” said Allec, who lives in Los Angeles. “They’re doing great but running everything through one bank account: holiday gifts, dentist bills, receivables, payables.”
Paying someone else to straighten this out is time-consuming and expensive. “I’ve had to bill clients more to clean this up than for tax returns,” Allec said.
3.) An easy finances hack
With a side hustle that’s not a formal business entity, you can just establish another personal account for all your business transactions, Allec says.
Another way to keep your personal finances distinct from your business: “If you have an EIN [employer identification number], set up a business credit card,” Allec said. This can simplify sorting expenses later on.
4.) Seek balance
Allec says many fledgling owners neglect their personal finances and well-being.
Eventually, though, “it can really affect your business,” Allec said. Entrepreneur types can be workaholics, so overdoing it is understandable. But if you ignore your health and your family and friends, a few years down the road it all collapses.
Your support system — those family members and friends, as well as people on your team — is critical, Weir says. “It’s thrilling and risky and scary, and you need people there for your highs and lows, which can happen in one day.”
5.) Build a team
Working with professionals is a way to protect yourself, Weir says. At first, she tried to do things on her own. There’s no rule book, she points out, and she doesn’t have a business degree.
When her banker recommended Weir buy a payroll system, she reluctantly agreed, though she thought it was expensive. He said it would be a huge mistake not to use it.
But then a CPA she consulted after moving to a new state told her the system was unnecessary after all.
“I’m busy running a business,” Weir said. The CPA pointed out that Weir lacks personal expertise as an accountant, so it made sense to outsource some of the money and tax work to a professional. As a single-person company, Weir keeps accurate records of everything she brings in, based on the CPA’s advice. She canceled the payroll system.
6.) What’s everyone else doing?
Anthony Martin chose an S-Corp structure for his agency after conversations with other business-owners.
Source: Anthony Martin
Anthony Martin, 37, owns an insurance agency in Reno, Nevada. In the planning stages of starting his agency, he was wondering which business structure to use, so he scouted the competition. “I knew people who had developed large, successful agencies,” he said. “So I asked them what they selected, and why.”
Each agency had established itself as an S-corporation for the tax benefits. Martin spoke with a CPA for more insight. While there are more reporting requirements associated with an S-corporation, the tax advantages make it worthwhile, he says.
“Everyone seemed to say it comes down to your [revenue] projections and whether the numbers make sense,” Martin said. He began to clear over $50,000 beyond the salary he was taking, and the structure actually worked in his favor.
Don’t be afraid to look at your competitors and even ask for advice. “You’ll find most people are happy to share their knowledge,” blogger Allec said. In most cases, you can build a network of people in your field. “Be a resource to them, too,” he said.
7.) You can’t do it all
Within the first year, Allec’s blog was netting more than $10,000 a month. Between managing the site and working as a CPA, he worked all the time.
“Eventually, I realized I had to outsource,” he said. He hired an editor for the blog and staff for his accounting practice. “I do the high-level reviews and consultant [work],” he said. Staff does the rest of the accounting practice.
It’s crucial to figure out the best use of your time. In the beginning, you can and do have to do it all yourself.
“You can bring in a few thousand a month on your own,” Allec said. “You can’t make $100,000 a month yourself.
“Once you hit a certain level of profitability, [you have to] pay people to do the rest.”
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
Originally published at CNBC