Transforming your Side-Hustle into a Full-Time Business
Whether you are nurturing a unique idea or developing a skill along with your 9-to-5 job, starting a side business can provide a satisfying and potentially lucrative outlet for your energy. There comes a crucial point for most side-hustlers where they address the question – Do I make the leap to full time?
Deciding whether to transition a side hustle into a full-time business is far from a simple decision. It requires careful consideration of various factors. A fundamental aspect to consider is how much monthly income you require to “make ends meet.”
Understanding Income Requirements
Let’s paint a hypothetical scenario. Suppose you are a salaried employee making $70,000 annually. Calculating it monthly, you’d make roughly $6,000. However, as anyone with a regular payslip knows, taxes take a considerable chunk out of this sum. So, after tax deductions, you’d probably end with around $4,000 per month as your take-home pay. This is the figure that would be your benchmark when deciding on monthly income needs.
Factoring in Tax Implications and Expenses
One of the perks of being a business owner is that you have the advantage of deducting expenses and other tax write-offs before calculating income tax. Sounds great, right? However, this also implies that you might have to accumulate more gross monthly income as a business owner to achieve the same net earning as that of the above-mentioned $4,000.
For instance, assume your gross monthly income as a business owner to be around $6,000. Factoring in the expenses of around $2,000 and tax deductions worth $1,000, this calculates your net income to be a ballpark figure of $3,400 per month – obviously less than your earlier take-home salary. Thus, to match your previous income or exceed it, your gross earnings need to be more.
Identifying the Golden Ratio
An effective yet conservative strategy would be to aim to achieve at least 50% of your required gross monthly income from your side-hustle before going all in. At this stage, with full devotion to your venture, it can be envisaged that you’re likely to make up the remaining difference.
When it comes to pricing your services, keep in mind a profit margin of around 50%, particularly when starting out. Ensure that your rates are competitive within your industry. Another key factor to consider while pricing is the total hours you would be required to work.
High Startup Costs and Expenses – A Reality Check
Don’t forget many businesses pose high startup costs and expenses before you reach a point where ongoing monthly costs stabilize. It isn’t uncommon for budding entrepreneurs to confront unexpected costs along the journey. It’s always a good idea to have a well-crafted budget to navigate these initial financial of challenges with relative ease.
Seeking Professional Advice
Given the nuances and intricacies of tax regulations and financial planning, it’s always advisable to consult with an accounting expert or a financial advisor. They can provide you guidance specific to your situation, taking into account all the potential deductions and considerations. Always remember, though the provided examples have been illustrative, they are purely hypothetical and may vary greatly based on individual circumstances.
Diving into a new venture full-time is exciting, yet a consequential decision. Make sure your move is backed by a meticulously calculated plan. The day your side hustle starts bringing in a steady stream of income, not only augmenting but potentially surpassing your salaried income, you’ll find the confidence to embrace the transition boldly.
Lastly, remember, it’s your passion that led you to start your side hustle. Don’t let finances fizzle that out. Understand, calculate, plan and then make that big leap!