Everyone loves the idea of a little extra cash on the side… ????
And with the demand for talent at an all-time high, it presents the perfect opportunity for smart employees (like you) to get some work done alongside your full-time job, and add a little extra breathing room to your monthly finances.
While I’m all for my clients having another stream of income, there are some things to keep in mind when going into business for yourself, both legally and financially.
#1 Set Up an LLC
If you’ve never registered a business before, this step can seem daunting, but it really isn’t.
All that’s required in most states is to fill out a form on your Secretary of State’s website, pay a fee of about $100, and choose a business name that no one else in the state is operating under.
The reason for doing this is to keep your side hustle business as a separate, legal entity from you as a person.
This way, if something were to go horribly wrong with a client and they try to sue you, only the business’s assets are up for grabs… and not your personal assets that you’ve worked so hard to build up.
It is, however, important that you also operate everything separately for the LLC protections to take hold, which is what the next steps are about.
#2 Keep Personal & Business Finances Separate
One of the most important ways to keep your LLC separate from you as a person is to keep the finances of both entities entirely separate.
A best-case practice is to have a separate bank account that you get paid into for your side hustle that you use to pay your business expenses, like website hosting fees or Google ads.
Ditto for credit cards: Don’t put business spending on your personal credit card, or personal spending on your business card.
When it’s time to pay yourself, you can transfer the money out of your LLC’s bank account into your personal account, or write a check to yourself.
Tip: Use an invoicing and expense tracking software to keep records of your revenue, expenses, and how much you pay yourself. Tools like Freshbooks work really well for self-employed service providers.
#3 Sign Checks & Contracts With the Business Name
Any time you’re acting on behalf of the business, make that very clear.
When you establish your LLC’s paperwork, you’ll likely give a title to yourself, like “President” or “Owner” or something else.
When you sign your name for something on behalf of the business, sign with your title as well.
Business contracts will usually have a place for you to enter your title along with your name, but they don’t always, and checks may not. Make sure you write this in just in case as an extra seal of protection around your personal assets.
#4 Plan for Your Extra Income & Taxes
Along with making sure your personal wealth and assets are protected while you launch and start earning money through your side hustle, you also need to have a plan for the reason you started a side hustle in the first place…
What to do with that extra money!
Naturally, because your income is higher, you’ll have more taxes to pay, but make sure you talk to a tax professional about whether you should file (& pay) those taxes individually or through the business.
But once taxes are taken care of, it’s exciting to think about what kind of goals you can fund with an extra $1,000, $2,000, or more per month. Talk to your financial advisor about a plan for this money, especially if it’ll be coming in regularly, so you can make the most of this extra cash.
#5 Make Sure Your Employer is Okay With It Before You Start a Side Hustle
In theory, your own time is your own time, and your employer shouldn’t be able to dictate how you spend it.
Some companies, however, have rules that if you’re a full-time employee, no other side employment is allowed.
If you’d like to start a side hustle, double-check your paperwork and ask your HR manager about any documentation that might be required to do so.
In an ideal situation, you’d at most have to submit a statement outlining the work you intend to do and promising that you won’t work with clients or do work that helps your company’s competition, uses your company’s intellectual property or private information, diminishes your company’s work in the marketplace, or impedes on your “full time” hours.
Making sure you have your i’s dotted and your t’s crossed here is important, because while it’s rare, there is the occasional horror story of someone losing their job after their company found out about their side hustle.
Starting a Side Hustle Can Be Well Worth It
In short:
Congratulations on the new side gig!
I love seeing how creative people get with their side hustles… and that they can get rewarded for their expertise outside of their 9-5 as well.
First and foremost, make sure you keep your side hustle as a separate legal entity, because I’d hate to see all your hard financial work go up in flames because of a fluke of a situation that could drain your personal assets if you don’t have that protection.
Secondly, put that new money to good use!
“Good” use has different definitions for different people… but make sure your money works for you the way you want it to.
Do you want to buy a house ASAP?
Take your kids on another vacation every year?
Build up your retirement nest egg a little faster so you don’t have to spend as many years working?
Grow your collection of eclectic tea pots?
There are no wrong answers… as long as it’s what you genuinely want.
A financial advisor can make sure you put that extra money in all the right place so it grows faster, is available when you need it, and costs you as little in taxes as possible.
If you’d like to talk to us at KB Financial Advisors to see if we’re a good fit for you (whether you’ve got a side hustle or not), you can book a no-obligation call here.
Disclaimer: This post is not intended as legal advice. Please speak to a lawyer and/or look up self employment laws in your state.