If you’ve decided it’s time to turn your side hustle into a small business and transition into a full-time entrepreneur, we have a few steps you’ll want to follow before you turn in your resignation letter.
Set a date.
In general, humans work better when we have a deadline to hold ourselves accountable to. Deadlines also give us a natural framework to accomplish sequential tasks. How you identify your date to leave your current 9-to-5 job is up to you—it might be a date based on a life event, the cycle of your job (e.g. the end of a big project), or, smartly, an amount of money saved up.
Many entrepreneurs will work their side hustle for at least year or two (or more) before making it their primary source of income. It may take several years of running a small business full time before earing the same annual income as your last full-time job.
Save.
Several entrepreneurial and small business authorities recommend having enough in savings to live on for six months, plus any income from current clients. And this should be in addition to your emergency savings. Calculating how quickly you can save this amount will help you set your date for turning in your two-weeks’ notice.
You should also know how much money you need to make and by when for a sustainable business. This will help you manage your expenses, so any income fluctuations don’t eat into your profits. In a survey by Entreprenuer.com, respondents said they needed their side hustle to make nearly $45,000 a year, on average, before they felt comfortable completely leaving the traditional workforce.
Know how to scale your business.
This is crucial for your business to grow how it needs to, when it needs to. You will need to know how to create efficiency in your daily systems, how to digitize your work and keep information secure, how to expand inventory space and delivery logistics, and when and where to go for outsourcing tasks like IT, online sales, taxes, etc.
Register as an LLC (if you haven’t already).
You might have already done this with your side hustle, but in case you haven’t it’s very easy. You can register on your Secretary of State’s website, usually for about $50. Registering your business is important because it creates a legally distinct identity that is separate from you as an individual and your assets. This helps protect you from certain (but not all) legal liabilities—if your business gets sued, your personal assets like retirement accounts, home, and car are protected. Another step to take at this time to strengthen this legal protection is to create an operating agreement for your business. You can easily find standard forms for this online.
Get an EIN (if you haven’t already).
An employer identification number (EIN) from the IRS is a tax ID for your business. Getting one is fast and free. You can find the form on the IRS website and all you need is your registered LLC information and some personal information about you, the owner. You’ll get your EIN immediately.
Set up a separate business account at your credit union.
With your LLC name and EIN, you can now set up a business checking and saving account at your local credit union. You’ll also want to ask about a business credit card or possibly a business line of credit. Using these financial tools will keep money from your business separate from your personal funds, which is very important when it comes to taxes, paying contractors, etc. It will also help protect your personal funds if your business is ever audited or sued.
Manage risk by getting an insurance policy.
A commercial general liability policy or a business owner's policy can be a very smart expense for your small business and is probably less expensive than you think. A policy should cover the expense of a lawyer and any damages if your business is sued.
Don’t work for free!
Especially in the beginning, when your business is smallest, you can’t afford to work for free or in exchange for low value services. At first, your time put into the business may not directly correlate with financial success—it’s a lot of long hours with minimal return as you build your business, brand, and client base.
Working for free, or at a discount, can quickly undermine your entire business enterprise.
Take this list and get planning! Dreams come true in small steps, like checking off this to-do list.
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