It can be personally and financially rewarding to earn extra cash doing something you enjoy. If you are one of the many Americans supplementing your paycheck by running a small business, here are some tips to help you profitably manage your side gig:
Make your business official
Consider running your side job like a real business, even if you have no intention of turning it into something big. Open a separate checking account. Get an Employer Identification Number (EIN), a federal identifier, for tax purposes. Apply for a state tax ID, if your state requires one. And, consider working with a tax professional that specializes in helping small business owners.
Track your earnings and expenses
Store your receipts and use a spreadsheet or app to keep tabs on how much you earn and spend. If expenses are high and income is low, you may want to scale back your efforts or look for ways to reduce costs. As your earnings grow, eligible expenses can help offset a potential tax bill.
Find your sweet spot
Look for ways to efficiently increase revenues. Set prices to ensure your costs are covered and focus on your most profitable products or services. Target your best customers and build a repeat business. Market your side business through social media to grow a following.
As your business grows, you may be tempted to quit your day job. Before you turn your efforts into a full-blown career, ask yourself:
• Is it scalable? It will likely take additional resources to turn your hobby into a full-time moneymaker. Will you need to invest more of your money in the business? If so, how much? Also, evaluate your ability to obtain more supplies and whether you’ll need to hire an employee or two.
• Is it sustainable? Consider the size of your market and demand for your product or service. Who is your competition, and where do you fit into the mix? Will your offering still be relevant in five years? Ten? Trust the numbers over your instincts.
• Can you afford to give up the benefits that come with your regular job? Going solo often means purchasing health and disability insurance on the open market. You’ll also be responsible for establishing your own retirement savings, federal tax withholding (called FICA) and estimated quarterly taxes.
• Are you ready to become an entrepreneur? Think carefully about whether you’ll earn enough income to support yourself. Going out on your own is exciting, yet it can also mean a change in lifestyle. You will need to be ready to put in the time and effort to grow the business, while being mindful of how the career change could affect your personal finances.
Get professional help
Tap someone with financial acumen to help you assess your business. And consider consulting a financial advisor to discuss the financial implications of running and potentially expanding your business venture.
Bronwyn L. Martin is a Financial Advisor Chartered Financial Consultant with Martin’s Financial Consulting Group, a financial advisory practice of Ameriprise Financial Services Inc. in Kennett Square and Havre de Grace, Md. She specializes in fee-based financial planning and asset management strategies and has been in practice for 18 years. To contact her visit www.ameripriseadvisors.com/bronwyn.x.martin