Financial Tips for Turning a Side Hustle Into a Business

Turning your hobby or side hustle into a business with positive cashflow can be a rewarding experience. But without the right tools and guidance, it can be hard to get your idea off the ground.

Personally, I’ve seen a number of friends turn hobbies into money-making side hustles. As just one example, I have a friend who enjoys making jewelry.

She searches thrift stores and estate sales for broken jewelry to repurpose into one-of-a-kind pieces. At first, she did this just for herself, but now she has an online store where anyone can buy her creations. Her costs are low which makes her profit margins high, so she’s able to make money on the side while doing something she enjoys.

Regardless of your reason for starting a business, keeping your finances organized from the start will help contribute to your success. Here are some key considerations.

Do Your Research

As you make your plans, research everything there is to know about your industry. From doing market research to a making an analysis of your competitors, its crucial to understand the field you’re diving into. First-hand information is the most valuable, so if you know someone in the industry, ask to pick their brain over a cup of coffee. They’ll teach you more than any book.

TRACK YOUR BUSINESS INVOICES, REVENUE AND EXPENSES

Remember, this isn’t your childhood lemonade stand - you have to track expenses. Even if the financial structure of your new business is simple, there are three important pieces of information to track:

• Invoices - Set up a process to send invoices and then keep track of when payment is due and when money is received. Without a system in place, it’s easy for invoices to fall through the cracks.

• Revenue - Track how much you are getting paid. If you offer several services or products, or work with different clients, you might want to separately track the revenue from each one.

• Expenses – Monitor how much money you spend, so you know what it costs to run your business. By subtracting these expenses from your revenue, you can determine if you’re profitable.

Use Accounting Software

There’s plenty of free software you can take advantage of. When you’re starting off, you don’t need to be fancy, but you do need to be organized. The right software can help. Some software can link to your financial accounts to help you categorize transactions, while others can help send invoices and track payments. From bookkeeping to invoices, budgeting and taxes, there are systems for all your financial needs.

For example, having a system that lets you send invoices directly from the software and track your payment process can be a game-changer. Depending on your needs and budget, you can choose from a wide array of options.

Learn About Common Tax Deductions

Learn how tax deductions work for your business’ specific industry to help you save money come tax season. If you don’t know where to start, the IRS’s Small Business and Self-Employed Tax Center can be a good place to find general information. Also, seek out industry-specific tips in forums or groups where people are doing something similar. Again, first-hand information will be the most valuable. And it’s always a great idea to use a tax professional, which can save you time and money.

Set Up Your Small Business Accounts

Keep your business and personal accounts separate, not just for legal reasons but for peace of mind. Things will get murky if you start co-mingling your main income with your side hustle. I recommend starting with a small business checking account where you can make and receive payments.

Another option is using a business credit card for business expenses, which can make tracking the new business’ expenses easier. With responsible use and timely payoffs, you’ll also be able to take advantage of credit card rewards.