Becoming a full-time business owner is an opportunity too good to pass up, and if you already have a flourishing side hustle, you have all you need to attract success. With that said, it isn’t easy to turn your passion into a company. You’ll need to follow certain steps to make it work.
How to Turn Your Side Hustle Into a Full-Time Business
Knowing how to make the most of your side hustle can change your life. Whether you’re an aspiring photographer or a fashion designer, these tips will help you build a full-time business.
Choose a Corporate Business Type
All freelancers, independent contractors, and small business owners are sole proprietors by default, but you’ll want to switch to a corporation or LLC. As a sole proprietor, you have to pay a 15.3% self-employed tax rate plus income tax, which makes your total tax burden quite high.
Setting up an LLC as an S Corp can help you save on taxes. However, your state will determine how you go about setting up your business type. For example, if you live in Houston, Austin, or anywhere else in Texas, this Marketwatch guide on setting up an LLC in Texas is very helpful.
Treat it Like a Full-Time Business
The only way to scale your side hustle is to treat it like a full-time business. That means you don’t work for free to build exposure or promote someone else’s company that’s similar to yours. It also means putting your weekend and vacation plans aside for the time being.
While you’re probably in a rush to scale, try not to put all your eggs in one basket. If you scale too quickly, you’ll run out of money. For this reason, writing a business plan is a good idea, as this document outlines your company’s objectives, key players, goals, and strategic actions.
Understand Business Taxes and Deductions
Even if your side hustle isn’t making enough to be taxed (i.e., less than $600 a year), you should get to know business taxes and deductions for when it happens. For example, you have to start paying quarterly taxes if you suspect your self-employer tax burden will be higher than $1,000.
Whether you make $1,000 or $1,000,000, you can take advantage of business deductions. These include but aren’t limited to travel costs, car mileage, cell phone use, rent or mortgage payments, utilities, and internet as long as these costs are related to your business operations.
Manage Risks and Plan Your Finances
Every business faces risks, and you’ll need small business insurance to protect you against lawsuits. If you work from home and don’t see clients in person, consider purchasing income protection, home, health, disability, and cyber liability insurance to protect you and your assets.
By managing your risks, you’re also ensuring you stay financially stable as you grow. However, you also have to keep a close eye on your business finances specifically to avoid shortfalls and potential bankruptcy. It’s important to become an avid saver to stay secure in the growth stage.
Open a Separate Business Account
If you were pooling all of your transactions into one account, now’s the time to stop. However, you need a business license to open a business bank account, so you might as well apply for an Employer Identification Number (EIN), even if you want to stay as a freelancer/sole proprietor.
Opening up a separate business bank account has multiple benefits. Besides helping you stay organized, a business account allows you to build business credit that’s separate from your personal credit. This allows you to take out loans or sign contracts under your business’s name.
Published by HOLR Magazine.