How To Manage Your Small Business After Lockdown
July 31, 2021
July 14, 2021
The Covid-19 pandemic has put millions of Americans out of work and many small retailers and restaurants out of business. At the same time, it has been a hotbed of innovation and new business creation. U.S. business formations rose by nearly 42% in 2020, according to U.S. Census data. There’s opportunity aplenty for small businesses selling things people are still buying under pandemic restrictions, from food and home entertainment to office supplies — as well as products and services needed by companies operating remotely.
As many Americans have discovered, you don’t have to quit your day job to start a business. Now is the perfect time to start a side hustle — a business you can run outside of the hours you work your full-time job. With many workers commuting less, it’s easier than it has been in years to create a side income.
Starting a side business is one of the smartest financial moves you can make right now. With the economy shaky, no one can have too much income diversity. Even people in seemingly secure public sector jobs have been hit with furloughs and layoffs since Covid-19 struck. That’s one reason 56% of Americans said they’d be more secure working for themselves than in a traditional job in 2020, up from 32% in 2011, according to the State of Independence Report by MBO Partners, a provider of back-office services to independent workers. For the groups hit hardest by job loss during the pandemic — women, people of color and older workers — depending on a job as your sole source of income is downright risky right now.
Even if you aren’t worried about job loss, a side hustle can be a great source of extra income to pay down debt, save money and invest. It can also have tax advantages. If you make purchases for the business, you may be eligible for tax deductions. Not to mention a side business can be the best way to get a taste of a future career you might want to ramp up later.
There are many options: doing freelance projects in your main career, building an ecommerce store around one of your outside interests, public speaking, providing personal service like home organizing, making birthday cakes for people in your community, you name it. Type side hustle into any search engine and you’ll find many lists of options.
As with any business, taking stock of your skills, talents and capabilities—including those you use in your life outside of work—can point you in the right direction. You’ll be more motivated to run a side business if it’s something that you’re good at, you enjoy and there are enough customers to make it worth your time.
One question that can help you come up with ideas: What are you the go-to person for at work? In your personal life? If other people consistently turn to you for help with something, whether it’s promoting events, doing their hair and makeup, helping them learn new technology or baking gluten-free desserts, that’s valuable information when looking for a side hustle. It shows there’s demand in the marketplace.
It’s also important to consider how much time and money you’re willing to put into a side hustle. If you’ll be doing freelance work in your field, it may not take much time to ramp up, but if you’re venturing into a brand new field, or one that requires a credential, like personal fitness training, it will take longer to get going. Businesses that require inventory will cost more to start than those that don’t. Checking out industry-specific market research reports can help you get a sense of the requirements.
Once you find an option you like — whether it’s freelance blogging, selling hand-knit hats or helping people declutter their garage — do a trial run. If you’re selling a professional service, put up a profile freelance marketplaces such as Upwork, Freelance or Fiverr. For a personal service, like SAT tutoring, posting in an ad in community Facebook groups that allow it can be a good way to spread the word.
For those starting a product-based business, like an ecommerce store, try producing or ordering a small amount of inventory, (there are many ecommerce-oriented websites that can show you the ropes,) and putting up a small store on a site such as Amazon, Etsy or eBay. Some new ecommerce entrepreneurs will create a horse race between several products to see which one sells, discount the losers and reinvest in the most popular. Another option is a drop-ship model, where you advertise your products on social media or your own website and take orders and send them to a manufacturer who takes a cut in price and sends them out, paying you a portion of each sale. The advantage of this model is it doesn’t require substantial start-up costs.
Once you’ve done a test run, you’ll know very quickly what it’s like to run the side hustle and if you want to continue with it. Even if you didn’t pick the right business out of the starting gate, consider what you’ve learned an investment in your own education as an entrepreneur; one that you will never get by simply reading about it or watching YouTube videos.
Every side hustle has different start-up costs. The best way to get a sense of what they are is to speak with people running similar types of businesses. Reach out to them in LinkedIn communities, listen to podcasts focused on starting a business in a particular niche (you can find them through ListenNotes), or attend free online events in the industry where you can network and ask questions.
If your side hustle involves freelancing in your existing field, your costs probably won’t be very steep. To get started, you’ll generally need a computer and phone separate from the one you use for your job; any industry-specific software required; and accounting software such as FreshBooks, QuickBooks or Xero to keep track of your income and expenses, so you have the records you need to file your taxes properly.
If you plan to serve big companies, you may also need to put up a simple website to make it through their compliance tests. They will ask you to prove that you are independently employed and are marketing yourself, so they don’t run afoul of worker classification laws. There are many platforms where you can put up a simple website for free, such as WordPress, Wix and Weebly. To put up a website, you’ll also need to register a URL with GoDaddy or one of its competitors.
If you’re running a product-based business, your start-up costs will also include a website and likely online ads on Google, Facebook or other sites. If you don’t choose a drop ship model, you’ll also have to factor in inventory and shipping costs. To determine what they are, it is important to talk with people running businesses in that niche.
Before you actually start your business, it’s important to determine whether you are allowed to run a side hustle under your employment agreement. Many employers don’t have any rules against running a side business as long as you pursue it on your own time and use your own equipment.
To be on the safe side, review that thick sheaf of papers you signed when the company onboarded you. Some companies may restrict you from doing side projects for their clients or for competing companies. If you’ve lost the paperwork, see if your company has an internal website where these agreements are posted or discretely ask HR for a copy “for your records.”
You can make a lot of progress on a side hustle in just a few weeks, but it’s important to block out time for it in your calendar, so you make real progress. Schedule at least one hour a week — or more if you’re in a hurry to get started — when you’re not accountable for doing something else, so it really happens. Mark your calendar with a specific task you will work on at that time, such as “register web domain” or “research accounting software.”
Creating a master list of tasks you need to tackle to get started will help you make the most of your time. Plus, you’ll have a tremendous sense of satisfaction as you check each one off and get closer to your launch.
For many side hustles, you won’t have to buy everything you need to launch at once, but it is useful to come up with a start-up budget so you can plan ahead for what you need to buy. For help in figuring out what your start-up costs will be, check out the U.S. Small Business Administration’s video, “Estimating start-up costs.” Here again, talk with entrepreneurs who are doing what you want to do for the most accurate picture. They’ll be aware of things that you might not read about, like fluctuating advertising costs.
Take a less-is-more approach and delay major business purchases as long as possible, in case you discover you don’t really enjoy your side hustle and would like to “pivot” into something else. It’s tempting to buy a tricked out new computer or outfit your home office with brand new furniture but conserving your startup cash is the best way to keep your options open as you grow the business.
You don’t necessarily need to form a business entity when you first open your doors, unless you are entering a field with a lot of potential liability. Many entrepreneurs try running their business for a few months first before they take that step. If you are doing business as a sole proprietor, filing “Doing Business As” paperwork with the office of your state secretary of state or treasurer may be helpful; some banks require one for you to open a business bank account. Fees tend to be nominal and are generally $50 or less.
Forming a business entity such as an LLC or corporation has the advantage of bringing you liability protection and establishing that your business finances are separate from your personal finances. The IRS publishes a guide to the various options.
Once you’re sure you want to continue running your business, speak with an accountant who specializes in small business to find out which type of entity is right for you and will be most advantageous from a tax perspective. Some entrepreneurs choose to have an attorney or accountant file the paperwork to help them establish an entity in their state. Others use their state’s website or a third-party site such as LegalZoom or Rocket Lawyer. Costs vary by the state. If you take the DIY route, you may have to spend several hundred dollars on this. If you get professional advice and help, it may cost a couple of thousand dollars.
The next step is to open a business bank account. Many banks will require that you obtain a federal tax ID first. You can do this for free through the IRS website. Fees for business bank accounts vary considerably, so it is important to shop around, particularly if you are running a side business that may not bring in a large amount of revenue at first.
Establishing a business checking account will enable you to keep your business expenses separate from your personal ones and help you start to build business credit. You may also want to apply for a business credit card, so you can keep all of your expenses in one place and simplify your bookkeeping. Business credit cards often have rewards programs tied to the types of purchases small businesses make, which you can use to pay for other purchases in the business. Some small business owners find it is helpful to open free accounts on payments sites such as Venmo or PayPal to allow for quick electronic payments from customers who prefer paying this way. You can transfer money that comes in through these sites directly to your business bank account.
If you need to accept debit and credit cards, providers such as Clover, PayPal and Square can enable you to do this using their card readers on your mobile phone or tablet. Major invoicing software providers such as FreshBooks and QuickBooks allow you to select an option on their invoices to let customers pay you by credit card or ACH. If your business starts to do a high volume of credit card transactions, you’ll want to find a merchant account provider to set you up with a plan that minimizes the processing fees.
While you’re getting the financial part of your business set up, you may also want to work on your branding. Some companies invest a few hundred dollars or more in creating a logo but it isn’t mandatory for every type of business. Putting up social media pages for your brand on sites such as LinkedIn, Twitter, Instagram and Facebook can help you spread the word about what you’re doing.
If you need help with certain tasks, like designing your website, consider hiring another freelancer. You can find designers and copywriters using sites such as 99Designs, Upwork, Freelancer and Fiverr or by searching LinkedIn.
Most business owners remember exactly how they get their first customer because it’s exciting to close that first sale. Fortunately, there are many ways to sell, even if you’re an introvert who hates cold calling.
The easiest way to win customers, if you’re freelancing in your own industry, is networking. Simply telling close contacts you are starting a business and asking for their advice may help you get leads or even projects to tackle. People who know you and respect your work may be happy to refer you.
If you’re selling a product, advertising on social media, attending a (virtual) trade show or creating a YouTube channel may help. For some entrepreneurs, creating an e-newsletter is a good way to stay top of mind. Regardless of which method you choose, it’s important to evaluate the cost of acquiring each customer and to fine-tune your marketing to keep the business profitable.
Evaluate the cost per acquiring each customer and fine-tune your marketing to keep the business profitable. Know your numbers, as Shark Tank judge Kevin O’Leary has put it. “You can’t manage a business without numbers,” he says.
One of the best ways to lower the cost of acquisition: Sell more of whatever you’re marketing to existing customers. People who love your product or service will often be eager to buy more, without a lot of advertising. Selling your product or service by subscription is a good way to capture more of their business. If you sell a service, consider offering a retainer to customers who use it frequently. Ask them to pay you in advance, for better cash flow. Just be mindful of how much bandwidth you have to manage steady customers and still keep your job.
Even a part-time business needs TLC. If you decide you want to run your side hustle on an ongoing basis, you’ll need a good team of advisors. You’ll need a bookkeeper, to make sure you are always on top of the numbers, know if you’re turning a profit and have your financial statements in good order. You will also need an accountant and if you’re negotiating contracts, an attorney. Look for professionals who work with small business owners regularly and are familiar with the issues facing smaller firms.
Makes sure you work with your CPA to stay on top of tax deadlines, so you don’t get hit with a big tax bill unexpectedly. One common mistake for first-time business owners accustomed to having taxes taken out of each paycheck is to forget to pay quarterly taxes and find themselves in a world of pain when they find they owe taxes in April.
If you started a side business to save more for retirement and are starting to see money coming in, sitting down with a financial planner can help you identify retirement accounts or investments where you can sock away some of the money for the future. If you bring in enough money from your side hustle to move to a higher tax bracket, you may have to pay more taxes. It may be more advantageous to put the money in a tax-deferred retirement account than to use it as extra money.
Running a side hustle takes some work, but it’s a great way to give yourself options. It’s not easy in many companies to get a raise right now. The beauty of starting a side hustle is you never have to wait for your boss to give you one.
Image Source: Getty Images
November 18, 2021
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