How to Make Your Side Hustle a Business
The gig economy is growing, and the number of full-time workers taking on a side job, also called a “side hustle,” is expanding with it. Millennials are reported to be the most accepting of the trend, with a whopping 50% of those between the ages of 23 and 38 taking on at least one part-time, independent contractor role to earn extra cash. The flexibility is attractive to all generations; even retired baby boomers are getting in on what these gigs offer.
Given how popular the movement has become, is it possible to see these jobs morph into full-time businesses with a living wage for their owners? Or, are they destined to be a way of scraping together money for debt repayment, dinners out and the occasional splurge? Here are the challenges those pursuing a side hustle may face when turning their side gig into a full-time business and how it still can be a worthy alternative to working for your boss the rest of your life.
Is It Scalable?
One of the things many side-hustlers-turned-entrepreneurs fail to examine is just how viable their part-time gig is as a full-fledged company. Scalability is key to knowing how far you can take your business, and if it will continue to offer the wages and stability needed for the next phase of your life. Babysitting one child is not scalable to a full-time wage; opening a day care center may be. Creating custom art pieces may require too much time per piece to make it profitable; turning your next watercolor into a series of perfectly priced prints has potential.
To get a quick view of the scalability of any gig, look at the number of hours you’d need to spend at your side hustle to make what you do at your full-time gig. Many gig workers are disappointed to see that the money doesn’t add up. This doesn’t mean that your idea can’t work as a full-time job, but tweaks to the process, product or pricing will need to be made before you can confidently walk away from that traditional career.
Is It Legal?
Moonlighting is older than the term “side hustle,” and yet it’s often not well understood. Doing the same type of work you do for your employer (but on your free time) is a good way to make extra cash and can make for an easier transition to owning your own business in the same space. Be aware of any conditions in your employment contract that prohibit this activity, however. While your boss may not care if you fix a few cars for friends on the weekend after you’re done working in his shop, there may be terms in your contract stating you can not legally open up a competing shop that takes away from his customer base.
Know what your contract allows, and make sure you follow the terms for creating a business in the same industry as your day job. It may require you to simply wait a few months before hanging out your shingle. Alternatively, there may be limits to whom you can solicit from your existing contacts. Whatever the legal conditions may be, make sure you’re informed.
Is It Affordable?
The average monthly earnings from a part-time business can range from a few hundred dollars to thousands. On paper, that can be a nice supplement to a full-time wage, especially if you’re getting benefits. If you wish to transition from full-time employment to full-time independent contractor work, however, you need to look at all of the expenses your employer currently covers and factor those into your full-time scalability plan.
Expenses that a small business has, that employees may not, include the following:
- Employer portion of payroll taxes (Social Security, disability, Medicare, etc.).
- Unemployment insurance, and payments, if applicable.
- Health insurance, dental coverage and short-term disability.
- 401(k) matching and company stock options.
- Infrastructure overhead, such as computers, desks, rent, internet, office supplies or even parking.
It’s worth noting that many of the new expenses you’ll have as a business owner have tax perks, so it’s not a 100% loss on all those new costs you’ll incur. Knowing the realities of business ownership (including cash burn rate) is vital to your survival. All costs should be explored before making the transition.
Is Your Business Ready?
Despite some of the challenges and expenses, those who move from having a side gig to owning a stand-alone, full-time business rarely go back to pulling a normal nine-to-five. Is it that they waited until they were ready? Did they pick a profitable business to pursue? Or, is it that people who are most likely to excel in a side gig already have the traits of someone who will make it in business?
Until more stats come out on the success of these entrepreneurs, it’s anyone’s guess. What we do know is that the next generation of business owners are dipping their toes into the water of entrepreneurship first, and that gives them time to get it right before taking the plunge.