5 BIG Mistakes People When Starting a SIDE HUSTLE
If you’ve been working a 9-5 job for years, then there’s a good chance you’ve wondered: “Why does it feel like I’m just working to pay bills? How do I get out of this financial rut?” And you might have even thought that a side hustle business is the way to go. But, sometimes even if you have a side hustle it can feel like it isn’t helping you reach your financial goals, as much as it is pushing you further into debt!
A lot of us keep making the same side hustle mistakes over and over without even realizing it. And if this is you then you’re in the right place. I’m Kim! And I’ve put together the five big mistakes that many of us making when starting a side hustle. If you are still in your 20s, 30s or even a senior citizen, then it’s likely that you’ve made one of these mistakes. But don’t worry! You have control over your life, and knowing what to avoid is step one. Are you ready? Let’s go!
Overestimating how quickly you can turn a profit
The first mistake is overestimating how quickly you can turn a profit. A lot of business owners or potential business owners side hustle owners assume that they will launch their business and within a few weeks or a few months they’ll be turning a profit, but that’s not always the reality. Sometimes it takes more time and trial-and-error to get to the point where you are truly profitable. Don’t underestimate how long it will take!
This is especially true if you’ve quit your job before having a plan in place to replace that income. Make sure you’re mindful of how much you’re spending money on your business before bringing in income and profit. I know it’s hard to make ends meet when you’re getting your business off the ground. It’s even harder when you’re trying to build a brand and make money for yourself.
But it’s okay to run your business as a side hustle until you can get your business to bring in money! If you find that your business requires a lot more of your time to get it up and running, then work part-time so you can pay your bills while you get things going. Before quitting your job, put money aside in a buffer account so that you’re able to cover your personal expenses while you are running your business.
You’ll be able to minimize the stress for a specific period of time. Think about saving money for six to 12 months if you plan to quit your job so you can really focus on bringing your business on its feet. Saving money might take time, but that’s okay. Running your business as a side hustle will allow you to keep busy while also working towards getting yourself established in the industry!
Mixing your personal and business finances together
The number two mistake is mixing your personal and business finances together. This is a TERRIBLE idea! When it comes to your business finances, keeping them separate from your personal finances is a must. It’s not just a good idea—it’s the law! If you want to apply for financing or get tax help, you have to show both the business side of things and the personal side.
One of the biggest reasons this is important is because it allows you to track your business progress in terms of how much you’re spending and earning. Having a blended set of business and personal finances can be very confusing, and can make it difficult to keep track of what you’re spending money on.
It also opens up lots of opportunities for problems when it comes to tax filing and with the IRS. And if something goes wrong? That’s going to lead to an audit — which means trouble! Keeping your personal finances separate from your business finances means having separate bank accounts for each, so that they don’t mix up with each other on paper or in an electronic format like an account register.
This means having different accounts for personal expenses like shopping or paying bills versus business expenses like rent or marketing campaigns.
Not staying on top of your business bookkeeping
The number three mistake is not staying on top of your business bookkeeping. And we don’t just mean the small stuff: not keeping track of how much money is coming in, or how much money you’re spending.
We mean big-picture stuff like how to avoid unnecessary transactions, what areas of your business are growing and shrinking, and where your money is going. But don’t worry! There are tools out there that can help you stay on top of your business finances — and they’re super easy to use.
We recommend using an Excel or Google spreadsheet for easy access, or using a tool like Quickbooks, which is an industry leading business finance tool. Or even using something like Wave App, which is specifically designed for small businesses! No matter which tool you choose, all it takes is a few hours per month to check in on your finances and make sure things are running smoothly.
Not planning for taxes
Mistake number four is not planning for taxes. If you’re thinking about starting a business, you may have heard that taxes are going to be a big pain for you. And yes, they can be. But here’s the thing: if your business becomes profitable, you’re likely going to owe taxes or have some sort of tax obligation — even if it’s not yet profitable.
That’s why we always recommend that people create a separate business account so they can save 25-30% of their profits in it. Then, when they start to make more money, they can spend it on whatever they want—and no matter what happens with their company’s finances, they’ll have money set aside for the inevitable tax bill.
It’s important to note that if your company isn’t yet profitable, there might be deductions you can take for your business that could reduce its taxable income. But if it is profitable… well, then having a plan for taxes is key.
Why? Well, first you’re putting money aside so you don’t owe thousands of dollars in taxes at the end of the year. And second, you’re creating a separate account where you can put most or all of your profits so it doesn’t get counted among other expenses.
Not having a business emergency savings
Finally, the number five mistake people make with their side hustle businesses is not having a business emergency savings. It’s super important to have emergency savings, not only in your personal life but also your professional one. Life happens, and it happens in both your personal and professional lives.
You want to make sure you have a plan for when things don’t go as planned in either of those areas. For example, if it’s a slow season and there are delays in getting product issues resolved or service issues resolved, or if there’s a need to issue refunds due to product malfunctions or service failures, it’s important that you have money available to cover these things because… well, … life happens.
Having a side hustle can be exhausting. It is hard to stay on top of all the things you need to do. Plus, its easy to get sucked into a lot of distractions and time traps.
But if you have the knowledge of what to avoid, then you can make smart money decisions that will have a positive impact on the rest of your life. Knowledge is power. And that is even more true with money. There are certain rules to how money works and how to make it work for you.