If you’ve got a side hustle that’s bringing in some solid income or you’re thinking about starting one, you might want to know if you’ve got what it takes to translate a side hustle into a serious business. While no one can guarantee your success, there are some ways to make the transition more likely.
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Experts recommended 11 ways you can turn your side hustle into a business, and how to know when it’s time.
A good starting point is to look at skills you already have or services you already can offer and connect those up to a demand for service elsewhere, according to Katie Nelson, CEO at Sales UpRising.
Almost anything can move from a side hustle to business as long as there is a demand for the service, she suggested. “Some of the most common that I see is coaching. You can find coaches for so many things now, so if you’re an expert and want to share your knowledge then coaching may be the right move for you,” she said.
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Before deciding if your side hustle is ready to become a full-time business, it’s important to take a close look at your income, profitability, savings and overall business plan, according to Brian Ford, CFP and wealth management advisor affiliated with Northwestern Mutual.
If your side hustle can cover both business expenses and essential personal costs, such as rent, utilities and insurance, and you are consistently meeting or exceeding those costs, you may be in a good position to take the leap into a full-time business.
Since it can take time for a business to become profitable, it’s smart to consult with industry experts about when you can realistically expect to start seeing returns, Ford said. “You’ll want to use that information to determine how much in cash reserves you’ll need to keep both your business and household income stable during the transition.”
You also want to conduct enough research to understand the market, competitors and customer needs that the business will serve.
If your side hustle income is good but not quite enough to fully fund your business, there are other ways to secure funding without saving for years, Ford said.
“If you’re open to giving up some ownership, you could consider pitching to angel investors or venture capital firms for support.” Just keep in mind, these options come with giving up a bit of control, so it’s important to weigh the pros and cons carefully.
Before launching your business, it’s important to understand the laws and regulations that apply and find out if you need any licenses or permits, Ford explained. If you’re opening a physical location, zoning rules might impact your plans. Regulations can vary by state or even by city, so don’t hesitate to reach out to city hall, your local chamber of commerce or a lawyer for guidance.
Additionally, “Legally, the moment income from a side hustle exceeds $600 in a tax year, the IRS views it as taxable,” according to Shane Lucado, founder and CEO at InPerSuit, which triggers reporting obligations. “Registering an LLC is the logical first step,” he said.
Tax status under Subchapter S should be reviewed once net income hits around $40,000 annually, he said.
However, Ford said not everyone needs an LLC. It’s important to consult with tax and legal experts to help you weigh the pros and cons before deciding.
Even if your income is looking like enough to make this business fly, Ford said, “building savings early on can provide a financial cushion, helping you weather challenges without derailing progress.”
Lucado recommended an emergency fund of at least six months’ worth of business expenses. Lucado said that income alone isn’t enough to sustain a business, however. “Carrying personal credit card balances above $10,000 or inconsistent emergency savings weakens the case. A business account with at least 60 days of operational cash on hand is not optional.”
Additionally, leaving your job means you’ll need to find alternative coverage, so it’s important to budget for health insurance, whether that’s through COBRA, a spousal plan or individual coverage, Ford pointed out. Similarly, if your current job provides life or disability insurance, you’ll need to secure that on your own, and this should be factored into your financial planning.
Another key part of planning for this transition is having a business plan, Nelson said.
“Only 33% of small-business owners begin their year with a business plan, which is a shame because it increases your chance of launching your business by 260% and has a 30% greater chance of growth,” she said.
Business plans should include your revenue goals, ideas to overcome your current obstacles, reminders as to why you are in business, your ideal clients and how you intend to delegate work, as well as weekly and monthly plans.
Being mentally prepared for this leap is just as important as being financially and operationally ready, Ford said. “Experiencing hesitation or self-doubt is normal, and it often means you’re ready to take on the challenge.”
Learning to move forward despite the doubts and uncertainties is part of the process.
Running a business also means taking on more responsibilities, like marketing and customer service, so make sure you’re ready for those additional tasks, Ford insisted.
“If you’re not fully confident yet, keeping your day job a little longer might give you the cushion you need to transition smoothly.”
Lastly, don’t try to go it alone, Nelson said. “For anyone thinking of starting a business, having a mentor can be vital. Even if you’re just keeping tabs on people you admire online to begin, this can help you grow more and faster,” she said.
As things progress, hiring someone to help you scale and improve your business may be vital to your success. So, find someone you mesh with.
You also need a support system, she insisted. This can be family and friends, but don’t limit yourself to this group. Network and find like-minded entrepreneurs who understand what you’re going through.
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This article originally appeared on GOBankingRates.com: 11 Ways To Turn a Side Hustle Into a Real Business — and Know When You’re Ready
