10 Steps for Setting Up a Side Hustle - Step #10 Don't Quit Your Day Job - Yet!
No, I'm not trying to rain on your parade, or pull the plug on your copywriting business, or throw a wet blanket on your medical coding side hustle, or put the kibosh on your website design income. But let's be realistic. Suppose something has been a side hustle for a while, rather than your full-time job. Or maybe it's a brand new endeavor. In either case, it doesn't pay to assume everything's going to start running like a charm because you suddenly decided to focus on it. You need to give your business some additional thought, even after it's up and running. Small businesses are not a set it and forget it kind of thing. And the following "ponder points" will prepare you for what's to come – a possibly great adventure that has its ups and downs, just like life.
Test the Stability of Your Business with the Following Questions:
Is your business self-sustainable?
I don't mean whether yours is a green company. While that's nice, the question is more about whether your business relies so heavily on outside services, support, and operational needs that it couldn't run if something happened to those sources.
A dog-walking business is probably self-sustainable, and I know someone who used to do this as a primary source of income to live in a nice condo in Rehoboth Beach, DE, so it's definitely a money maker. Of course, if all the dogs in the neighborhood suddenly disappeared, well, that's another story. But for the most part, one person, walking dogs… pretty self-sustainable.
But suppose you have a cottage cupcake business and don't grind your own flour. In that case, you'd be out of business if your flour supplier suddenly disappeared…. Or raised their prices so drastically that it cut into your profits.
Or perhaps you do website design, and you're reliant on the internet to do your work. Well, let's face it, if the internet went away, we'd ALL have issues. But you get the idea. Think about what you need to do your work, and if it isn't something you can produce yourself without a huge added expense, you aren't really self—sustainable. That isn't the end of your business, but consider some backup sources, build a relationship with them, maybe use them for a specific smaller product or supply, so they're ready to ramp up if the need arises. OR consider offering a secondary product/service that is perhaps related to your primary business, but not reliant on the same things. Then you can always switch gears if that time comes. I saw a piece on TV the other day about a company that manufactured cast iron BBQ pits and other cooking items. During the pandemic, they saw business drop but noticed companies that manufactured kettlebells and dumbbells sourcing iron overseas. Flip a few switches (and probably a lot of thought) and they started providing those items manufactured in their own plant. The key is paying attention to your market, your sources, and new possibilities, and changing the direction of your business if needed.
There are also ways you can be partially self-sustainable. The more ways you can create that level of sustainability, the more likely your business is to stay afloat if the world's pendulum swings in a new direction. Chron. defines a self-sufficient business as "one that provides for itself and does not need input from outside sources in order to function." They also provide more detail on specific types of self-sufficiency for small businesses:
Financial Self-Sufficiency – this is a tough one. But if you can operate your business without borrowing any money, and the business's income sustains itself, you're there.
Practical Self-Sufficiency – Meaning you're able to perform pretty much everything without bringing in someone from outside. Most small businesses are in this realm initially, if it's just you. Still, suppose you're hiring delivery trucks, using delivery services (including USPS/FEDEX or any other), or need help with any part of your product or service. In that case, you aren't "practically self-sufficient." In fact, there are a lot of books out there about living a "practical self-sufficient life." It used to be quite popular in the 70s but is still a thing today and is supported by those looking to reduce their carbon footprint and live life off the grid. Inc.com also has a great article about keeping your business self-sustaining after that first rush of growth. This model helps you constantly change to take advantage of opportunities, prepare for new or changing competitors, position yourself for continued growth, and more.
To learn more about running a self-sustainable business, check out the posts on self-sufficiency from both Chron. and Inc.
Do you earn enough to cover all the benefits you need?
It feels like a bit of whiplash to go from growing a business that's sustainable to worrying about whether you've got medical coverage, but it's an important consideration. And it includes two parts:
Benefits for YOU
If you've been running a side hustle and working a full-time job as well, you've likely been receiving company-provided benefits: PTO, health insurance, retirement plans, and maybe even travel reimbursement, a pension, dental and vision plans, life insurance, entertainment discounts, tuition, and regular (or irregular) raises. Did I miss anything? When you consider giving your notice to turn that side hustle into your only job, it's time to consider what you're leaving behind. It can get expensive.
Self-employment taxes – Yes, if you've been running a side hustle, these are nothing new, but if your earnings increase in that side hustle, the taxes will also. You'll need to track personal and business expenses carefully. Also, perhaps consider making quarterly projected tax payments so that you do not have to come up with a large chunk of cash for the IRS! If self-employment is new to you, you're used to your employer collecting your taxes (and they pay a portion of them, too). You'll need to realize that taxes are now your responsibility and may be higher than you anticipate.
Liability Insurance – This is strictly covering you if a client files a claim against you. Depending on your business, liability insurance may be a "must have" or a "nice to have." It depends on the types of risks present in your operations. Dogwalker? Maybe you'd be liable for injury or illness for a pet you walk. Opening a restaurant? Did or could someone trip and fall in your space? There are all kinds of risks associated with a business, and you should consider whether that will be something you need.
Health Insurance – This is a tricky one. With an employer's coverage, you may be getting family coverage, dental, life, and more. But unless you're able to switch to a spouse's policy, you'll need to shop around for the benefits that fit your needs. Is it just you? Or is there a spouse/family to consider? If you choose to forgo insurance, check with your state since some states have individual mandates around insurance coverage.
Short-Term healthcare is also a consideration, since you'll have a bit of a wait for long-term coverage if it's needed. Business News Daily offers some great information on long-term coverage options for the self-employed. AND more information on Retirement Plans, which would be available to you depending on your situation.
In the end, this is a piece of the puzzle you don't want to skip. It could have profound implications for you and your family, as well as your business.
Benefits for YOUR EMPLOYEES
You may feel that offering benefits to your employees is something only big businesses do. But if you need to hire staff and want a chance at bringing in talent that will help your business thrive, you need to consider employee benefits. It isn't just about health insurance and a retirement fund. To be competitive against the bigger players, you've got to get creative. There are a number of low-, no-cost benefits that could be very appealing to prospective employeest:
Gusto recommends some of the following benefits for small businesses to offer their employees: creative and not as costly as you might think.
- Kombucha on tap
- Telecommuting (after COVID we're all used to that)
- Pet insurance
- Bring your pet to work options
- Flexible hours
- HRA accounts (Health Reimbursement)
- Identity Theft Protection
- Student Loan Assistance
- Onsite Daycare
- Regular social activities that include the family
- Taco Tuesday, Thirsty Thursday, etc
The list is endless. Consider your employees and the employees you hope to hire. What will they find interesting and of value? Something that appeals to you isn't necessarily something a prospective employee may find attractive. You want to offer benefits that are both valuable and competitive when someone is comparing job offers.
But you've also got to source the table stakes. And these days, table stakes include more than you might expect. What benefits are just automatically expected, and how will you source those? Everyone expects healthcare, dental, vision, and disability, vacation time, sick time. They can be quite pricey, but you can offer these as "voluntary," meaning your employees pay the full price, or you cover just a portion. But where do you source these offerings? Fit Small Business offers an excellent outline of how to set up a benefits program for your small business, including table stakes and nice-to-haves, as well as estimated costs per employee. Take the time to walk through everything and make sure what you're offering is something you can afford, and something your employees actually want/need. Also, try to make sure you're offering something that makes you competitive when it comes to choosing you as an employer over the business down the street or wherever they're located.
If business goes through a lull, can you survive?
So this goes back to that "is your business self-sustainable?" question but it's more than that. A lull is totally different than suddenly losing a provider and you can just get another. Maybe sales are slow for some reason, maybe trends are changing, or maybe your business is changing its offerings. Can you continue to be solvent if the money coming in suddenly decreases a bit? I'm not talking about stopping altogether, which is what happened for many small businesses during COVID. But what if you run a Glamping business and suddenly you hit a rainy summer. Sure some people might think it's glamorous to camp in the rain, but will everyone? Or what if you decide you need a vacation (because in reality, we ALL need time away!)? You book a 3-week cruise (wow, your business must be doing great!) and your unique skills won't be available. Can you outsource work? Or are you planning it BECAUSE business slowed down, so now you can get away? Just give it some thought. Have a fund that will cover expenses, similar to a rainy day or emergency fund you'd have for your personal budget. That way, a sudden loss of income isn't going to see your business crash and burn.
But what if that lull is actually due to your business losing its location, or equipment vandalism, or an interruption to utility service, or any of a number of other catastrophes that can prevent you from getting your work done. Having a Business Continuity Plan is the key. Sourcing backup staff, equipment, and locations are standard practice with larger businesses, but why not for your business, too? Sound complicated? Not to worry, SBA spells it all out for you with its 7 Ways to Start Your Business Continuity Plan. It's pretty simple and includes steps like:
- Determining your risk potential
- Understanding your needs when it comes to power (generator talk)
- How will you communicate with employees and other important people? (If it's just you, yourself, and you, you've probably got this!)
- Lining up backup vendors/suppliers
- Find out if Business Interruption Insurance is right for you. (more on this below)
- Consider cloud storage for critical data
- Test your plan!
It may seem like a far-off, never gonna happen moment, but look what happened in 2020. None of us predicted that, and many of us probably wish we had at least been a bit more prepared.
Business Interruption Insurance
Business Interruption Insurance is exactly what it states it is, insurance to keep you going if something dramatically impacts your ability to operate your business or shuts it down altogether, and you're unable to cover expenses to keep your business running. It's different than a Business Continuity Plan. However, having that plan is also a kind of insurance (figuratively speaking) against things going south fast if you hit a bump in the road. According to Nerd Wallet, Interruption Insurance usually covers the following expenses:
- Lost net income (based on financial records).
- Mortgage, rent and lease payments.
- Loan payments.
- Routine bills.
- Taxes.
- Employee payroll.
- Relocation expenses to a temporary location.
- Extra expenses such as rent for temporary space.
Some lenders require this type of insurance for a specific number of months if you're applying for a commercial/business loan.
Is yours a seasonal small business?
As with the discussion above of a "lull" in business, seasonal businesses can have a regularly recurring lull. The following businesses (and many more), depending on where they're located, may have a built-in lull because the demand for products or services is impacted by the seasons.
- Water park
- Ice cream truck
- Beachfront rental
- Landscaping
- Holiday-related gift items
Can you be relevant through multiple seasons? One way to handle this is to offer an alternative service/product of value in the off-season. Example? Many landscapers also offer snow removal services. Beachfront rentals might offer a lowered fee and perhaps some winter-related perks for guests; handmade quilts, mulled wine on arrival, free snowshoes. You get the idea.
The point is, if yours is a business impacted by weather/seasons, have a plan for how you'll get through those. Worst case scenario, you get a line of credit that will carry you through those slow periods. But make sure that the amount you borrow, plus any interest and fees, is something you'll easily be able to cover when business picks up! Operating a business "on credit" is a sure-fire way to drive your business into the ground. Poor little side-hustle that never got itself off the ground.
Can you handle the heat if competition moves in nearby?
One last reason to stay on your toes: you've always got to be looking behind you… and across the street, down the block, or online. If your industry has a low cost of entry, competitors will spring up and take advantage of the demand you've built. They could undercut you on price to steal clients, offer premiums to transfer business, or they may genuinely be better than you! If you understand your competitive edge, you'll develop a marketing plan. That plan will clearly explain why your current and prospective clients shouldn't go running off to the newest company on the block (or web).
Keeping your enemies closer is also a helpful tip in these situations. See a new business that is offering something genuinely unique, but related to your business and may be attractive to your clients? Reach out to them if they're in the area. Are they online? Reach out to them there. Heading to a conference or industry show? Look for businesses that service the same area. You never know whether you'll be able to support each other. You may need an alternative source occasionally. I know someone who owns a goldsmith business. When he shuts his place down for a few weeks to take a vacation, he refers business to his local competition. When he's back, they know he'll be taking back his clients, but he does the same for those other businesses. BUT they all know what each other's strength is and don't look to steal clients. That's one of the benefits of building a network. It's a network that can be very useful if you know how to work it. Dumb Little Man, Tips for Life explains the positives and how to network for your small business perfectly. Knowledge sharing, referral business, and reciprocal support can all be good things about having a competitor nearby.
Don't Quit Your Day Job?
Hey, I can't stop you; you're perfectly welcome to quit your day job. But I hope this blog series makes you realize you need to do it wisely. If your business is ramping up, income and projections are in line to allow you to live life happily, and operate your business successfully, sure go ahead. But do so after you are fully informed and prepared for what may come next. It's an adventure, after all. If you're just starting your side hustle, definitely DON'T QUIT YOUR DAY JOB (unless that's already happened) until you're up and running at a level that supports taking that big step. And that takes us to the bonus post coming up next – Don't use need as a motivator (Coming soon).
Sources
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