Side jobs are an awesome way to make some extra cash while working around your own schedule and lifestyle.
But before you start creating a list of side business ideas, be sure to ask yourself these five questions to determine whether making extra income is feasible.
1. Am I allowed to start a side business?
Everyone wants to know how to make money on the side. However, some people are limited by their current employer in what they can do outside of work.
When you accepted your current position, you likely had to sign an employment agreement. This document usually puts some limits on what you can do outside of work.
For example, an employment agreement could restrict you from consulting for a competing company. Clauses in employment agreements could also prevent you from doing any work for any other type of business, including your own.
If that is the case, you are better off skipping the side hustle. If your job is your primary income source, then there is no need to put that at risk to start your own business for extra income.
2. Do I have the time for side jobs?
If you’re allowed to start one of your side business ideas, it’s time to look at your work schedule.
Do you have the time to take on anything outside of your main job? If you’re a medical resident at a hospital, probably not. But if you typically work around 40-50 hours per week, it’s easy to figure out how to make money on the side.
Take an honest look at how you really spend your time outside of work and sleep. How many hours per week do you spend browsing the web and social media? Or, watching TV and playing video games? How often do you waste time on something unproductive?
If you can carve out at least 5-10 hours per week, then you’re in an excellent position to start your side hustle.
3. Who is my target customer?
Once you pick your favorite side hustle idea, it’s time to learn how to make money on the side with it.
But before you can sell a product or service, you need to know if someone will buy it.
In The $100 Startup by Chris Guillebeau, he points out that there are only a few conditions you need to start a business. One of those is a target customer who will actually buy what you’re selling. That can be an online audience, members of the local community, or some combination.
However, if you don’t know who would actually pay for your product, then you should probably look for other ways to earn money on the side. Or, build out a better marketing plan with a target customer in mind.
4. Do I need to register my business?
Deciding how to structure your business is important once you have decided for yourself how to make money on the side.
Here’s a list of the most common ways to structure a side business. If you have any doubts or questions, consult a legal or tax expert to help you get everything sorted out.
Sole proprietorship – A sole proprietorship is the default business classification for anyone who earns money without registering another type of business.
It essentially means that you are operating the business as yourself, not as a separate legal entity.
Sole proprietorships are great when you’re learning how to make money on the side because you don’t need to file any paperwork to get started. Unless you want to file a trade name, sometimes referred to as a “doing business as” name, or a DBA.
However, if you operate as a sole proprietorship, you are legally and financially liable for anything that happens. Including lawsuits against your business.
Limited Liability Company – A Limited Liability Company, or an LLC, is a way to register your business to limit your personal liability related to the business.
For example, if someone is injured due to your product or service, they may sue for damages.
As a sole proprietorship, you are personally liable, and any assets such as your home or bank accounts are subject to the suit. However, as a properly registered and managed LLC, only business assets are available for damages.
This is usually the best option for the majority of side hustles, depending on your state.
In some states, filing an LLC is a quick online process that costs about $50-$200 per year. In others, like California, it subjects you to a special franchise tax that starts at $800 per year, on top of your filing fee.
5. How should I take care of the bookkeeping?
When taxes come due, you are required by law to pay income taxes on any profits your business generates.
That means you have to track your business revenue and your business expenses to be able to report your business income on a Schedule C with your income tax return.
For very small, new businesses, an Excel or Google Sheets spreadsheet should be plenty to track everything. However, make sure to be very thorough.
And if you are operating as an LLC, you should open a separate business bank account to create a divide between your personal and business finances.
As you grow, consider upgrading to a professional bookkeeping program like Quickbooks or Xero. You may want to hire a paid professional bookkeeper and tax preparer as well.
Why you should learn how to make money on the side
You can potentially earn an extra $1,000, $10,000 or more with a side business. But you’ll never know until you try.
In fact, I made $40,000 with my side business last year, and it let me leave my full-time job to work online full-time. Talk about a win-win.
You can only budget and lower your expenses so much. But, your income doesn’t need to have a limit. So take that side business idea, go forth and increase your earning potential!
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