Starting a side hustle can be a great strategy for creating a new revenue stream. And, it can even be a low-risk operation for achieving your dream of potentially starting your own business.
However, establishing and running a new business, especially within your available free time, takes plenty of passion and determination. It also comes with its fair share of mistakes.
Although some of these setbacks are unavoidable, some of the biggest side hustle mistakes can be circumvented with a bit of know-how.
Here are nine of the most common mistakes and pitfalls you can avoid when starting a new side gig.
Avoid these side hustle mistakes
1. Leaping before you look
Trial and error is part of running a business. But just figuring it out as you go can wind up wasting precious time and resources. Not to mention delay the returns you’re working for.
“Not defining a profitable niche from the beginning” is a common side hustle mistake, says career coach Jess Chua.
To avoid this, start with some competitive research to see what’s out there and how you can do better and create more value.
“This will help you target an audience that is willing and able to pay for a solution via your product or service,” explains Chua.
2. Failing to set clear priorities
Often times, running a side hustle is only possible if you do it in your spare time.
“You have even less time than you normally would working on a project or business full-time,” points out John Turner, entrepreneur, and founder of meditation aid QuietKit.
With limited time, you have to be clear on what needs to come first and which strategies to focus on.
“You won’t have enough time and resources to actually learn what will work and what won’t,” says Turner.
Learning through trial and error isn’t really an option. First, hone in on a strategy, then proceed.
“Go all in on just a few things that you think will make the difference between success and failure,” Turner says.
3. Spending too much time on menial tasks
Once you’ve identified your key action items, you still need to clear out enough time to tackle them.
However, the menial, day-to-day tasks of simple upkeep on a business can eat into the time you have to grow your business and complete your work.
“If you’re spending say 15 minutes a day on a task (say creating social media posts), the cost to your business over the year could be 50+ hours,” says Ian Wright, founder of payment comparison site Merchant Machine.
“So start asking yourself how to get more out of your time, which in turn will translate to a faster-growing business and ultimately more money,” Wright suggests.
This could include investing in software, services or digital tools that automate tasks as you develop your side hustle business.
4. Trying to do it all
A perk of a side hustle is you can be your own boss. But just because you’re running a one-person show doesn’t mean you should be doing everything yourself.
Side hustling is all about using your unique talents and skills to earn more. But, entrepreneurs
“have to be very aware of where their skills and talents end,” says Brian Bagdasarian, founder and senior growth strategist for Big Idea Marketing Group.
If you’re stepping into unfamiliar territory, essentially you “need to be able to drop any ego, and find support for the rest,” Bagdasarian says.
“Virtual Assistants, other friends with complimentary skill sets” can help, he adds.
5. Spending too much — on the wrong investments
As stated above, identifying key tools or services can free up time and resources you can use to take your business further and earn even more.
However, sometimes new entrepreneurs take this a bit too far.
“It’s easy to overspend when one is feeling optimistic and overestimating revenue,” Chua warns.
She recommends combating this with a clear, realistic business budget. You also should have a clear strategy and expectation of how each cost will benefit your side hustle.
“Stay disciplined and keep your fixed costs low, especially during the early days of your business,” Chua adds.
6. Underpaying (or overpaying) contractors
AJ Saleem, the owner of tutoring startup Suprex Tutors Houston, says his biggest mistake in starting this business was misunderstanding all of the implications of paying his contractors.
“I was simply not keeping track of what to pay my contractors and withhold taxes from them,” Saleem says. “I actually had to deal with the IRS to remedy the issue, but it was a major problem.”
If you start outsourcing work to others, make sure you’re aware of the pay and tax laws that could apply.
For instance, it’s possible that if you do a certain amount of work with a contractor you will have to issue them a 1099 tax form.
7. Failing to incorporate
You’ll need to separate your personal and business pay and expenses fairly early on.
Failing to do so can create a complicated mess. Not to mention open you up to becoming personally liable for business costs.
“If you have a fairly lucrative side hustle and are considering branching it off into a small business, it’s worth it to incorporate or form an LLC,” says Deborah Sweeney, CEO of incorporation service MyCorporation.
“Entrepreneurs who do this are able to protect their personal assets with liability protection and save money on taxes,” Sweeney adds. “Plus an LLC or Corporation legitimizes your company and makes you credible with customers.”
8. Underpaying personal taxes
What you don’t know could hurt you and cause some major pain once your tax bill comes due.
Tanner Callais, who runs cruise information site Cruzely.com as his side hustle, found this out the hard way. Even though he paid quarterly taxes, he wasn’t accounting for the employer-paid half.
“I didn’t realize at first that because self-employed people have to pay both sides of Social Security, the tax bill you will face is a lot higher,” Callais says. “At the end of the year, I ended up owing Uncle Sam about $3,000 more than I realized because I didn’t catch my mistake until it was too late.”
To avoid similar mistakes, read up on the ins and outs of filing taxes when you work for yourself.
You should also carefully track your ongoing revenue and expenses, so you can write off your expenses without guesswork. Or, consider outsourcing this and getting a tax professional’s expert advice for managing the tax work fro your side hustle.
9. Selling yourself short
A common problem with side hustlers is getting underpaid for their work.
When you’re first starting out, you might not have the experience to charge top dollar. Or, you might want to offer more competitive prices to attract customers.
Although this can be a smart strategy, don’t stick with it for too long. And don’t sell yourself short in an attempt to undercut the competition.
Another way side hustlers sell themselves short is by letting late, missed or partial payments slide.
“They are uncomfortable talking about money, so they don’t collect all that is owed to them,” says Andrea Miller, an entrepreneur who runs Music Studio Startup which provides business services to self-employed musicians.
At the end of the day, you want to make sure that you’re earning enough to pay for your time and effort. Otherwise, what’s the point?
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
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KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.