When you’re running a side hustle, the nitty-gritty of your financial situation often takes a back seat to more immediate concerns. The problem is that financial health can have a major bearing on the success of your businesses. If you run any kind of a side hustle in the hopes of making your gig a full-time business, improving your financial situation is of the utmost importance. When performing a financial check-up, be sure to do the following.
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Audit Personal & Professional Expenses
As you should know, there are two ways to improve your balance sheet: increase income and/or reduce spending. Working on the latter first makes the most sense for many part-time entrepreneurs. Start with your household budget and look for personal expenses that can be reduced or eliminated. Do the same with each of your side hustle budgets. The idea is to trim the fat in a constructive way so that your business is better able to adapt to new market realities.
Reconsider Your Incorporation Status
One of the most critical concerns for side business owners is their legal business structure. Many small-time entrepreneurs opt for a sole proprietorship in the interests of keeping things simple. However, you may find that switching to an LLC or S Corp is more financially advantageous. Many states allow LLCs to earn up to $100,000 before taxes kick in. Schedule some face time with a competent tax attorney to see if another business structure makes sense.
Take Stock of Your Physical Assets
Financial flexibility can make or break a side business during the lean times. That’s why having the right amount of capital invested in physical inventory, equipment and real estate is so critical. Take a look at where your money is parked to see if becoming more or less liquid will improve the bottom line. For instance, renting a commercial space can make more sense than owning it outright for many side hustlers.
Take a Look at Your Rainy Day Fund
Knowing that a major mistake or a random setback can sink your side hustle is never a good feeling. Furthermore, not having a backup plan in place if you need quick cash is foolhardy. Determine how much money you can afford to allocate to your emergency savings and deposit it in an account that can be tapped at a moment’s notice. Check out savings rates for various institutions at Bankrate.com and check the rates at your local credit union.
Evaluate Your Current Banking Situation
As we all know, not all banking institutions are created equal. If you’ve stuck with the first bank that you encountered for years simply out of habit, you’re selling yourself and your side business short. Do a little bank window shopping to find institutions with superior interest rates, lower fees and compelling perks. If you’re a reliable and predictable customer worth courting, banks will fight each other to secure your business.
Give Your Credit Profile a Tuneup
For small business owners, the ability to secure financing on credit often dictates whether a venture will succeed or fail. As such, maintaining the highest possible credit rating is imperative. You should review your credit report at least twice a year. Be on the lookout for errors that unfairly reduce your score. Even something as trivial as a late utility payment from a few years ago can result in higher interest payments.
Explore Non-Traditional Lending Options
Believe it or not, securing loans from the SBA or your local banking institution isn’t always the best way to finance a side business. There are many P2P micro-lending sites online that allow savvy entrepreneurs to obtain loans from investors at favorable rates. Popular platforms include Lending Club, Upstart, Prosper Marketplace and Funding Circle to name just a few. Consider taking out a small loan that can be paid back quickly to build credit.
Reevaluate Your Insurance Coverage
Having the appropriate insurance coverage for you and your side businesses is the best way to protect yourself from unforeseeable events. More importantly, zeroing in on the right level of coverage will save you a ton of money in the long run. In many cases, consolidating all of your insurance needs under an umbrella policy is a prudent move. If you have dependents, make sure that your life insurance coverage is sufficient.
Review Your Compensation Situation
When you’re running a side business, the amount of money that you earmark for your salary is critically important. Any cash that you withdraw from the business is capital that can’t be reinvested in growth. Depending on the circumstances, it might make sense to take a temporary pay cut for the good of the enterprise. At the same time, evaluate your regular 9-to-5 compensation and ask for a raise or bonus if you feel it’s warranted.
Fine-Tune Your Side Hustle Pricing
Obviously, determining sensible price points for your products and services will go a long way towards maximizing total net profits. Go too high and you’ll turn off potential customers. Go too low and you may make your side hustle a non-viable concern. You should reassess your pricing levels and how they may be affecting profits and growth every few months. Learning Excel or QuickBooks Pro will be quite beneficial.
Make Estate Planning a Top Priority
No matter how old you may be, estate planning becomes a critical business concern should the unthinkable occur. Contact a competent attorney who specializes in estate planning and go over details like a living will and durable power of attorney. Have a foolproof, actionable plan in place for either transferring your businesses to a successor or liquidating assets when the time is right. Discuss your strategy with your family before making any permanent decisions.
Go Over Your Retirement Portfolio
If you haven’t created a retirement savings portfolio yet, there’s no time like the present. Companies like Vanguard.com and Betterment.com can help you to craft a personalized plan that will ensure a comfortable retirement. A good portfolio typically contains a high-interest savings account as well as investments in stocks, bonds and real estate; however, your individual situation must be taken into account. Review your portfolio annually and adjust asset allocation based on economic realities.
Reduce Tax Liabilities to a Minimum
If you’re willing to sift through local, state and federal tax statutes, you will find a slew of deductions that will reduce tax liabilities greatly. Review personal deductions as well as those for your business. Schedule a meeting with a good tax attorney to devise the perfect tax deduction game plan that will slash your annual bill to practically zero.
The Devil’s Always in the Details
While the tips mentioned here apply to nearly every side hustler, they’re fairly broad in scope. To make them work for you, there’s no getting around the need to crunch a lot of numbers. In most cases, hiring specialized attorneys and fee-only Certified Financial Planners is the most cost-effective way to proceed. The investment that you’ll make in their knowledge and experience will pay off handsomely in the end.