The pandemic forced many businesses to shutter during lockdowns, but it also triggered a rise in entrepreneurism as American workers found themselves with more time on their hands to start up their dream businesses. Now, more than two years later, many of these lockdown side hustles have taken off and are poised to become so much more than something to while away the quarantine hours.
If you are ready to grow your side hustle, start with these financial and legal tips to bring your business to the next level. With a little research and the right experts to lean on, you’ll be on your way toward transforming from a lockdown entrepreneur into successful CEO.
How to Grow Your Side Hustle
Consider Your Tax Obligations
Is a side hustle considered self-employment? Side hustle ventures that started in the spring of 2020 are now driving a new era of self-employment. It’s important to understand that your side hustle is considered self-employment, no matter how much money you are making or whether or not you have another, steadier job.
Once your side hustle starts officially making money, you are considered self-employed. That means there are tax implications for self-employment you’ll need to study up on. For example, your self-employment tax is 15.3 percent of your profits. All income derived from your side hustle will need to be reported directly to the IRS by filling out Form 1040.
Jeff Heyer-Jones, owner of SparkEvolve, a consulting firm that serves small businesses, helped clients turn their side hustles into full-time jobs over the past two years. His advice for all of his clients, whether they are just starting a side hustle or growing after a few years, is to look into entity structure right away.
“There are many to choose from, and they all have pluses and minuses,” he says. “Do your research and ask yourself what type of liability your company has.”
In the end, it’s all about making sure you and your business are well protected. And Jones advises his clients who are growing their side hustles to look at their liabilities, finding the right liability insurance for your business. “You’ll want to prepare for worst-case scenarios,” he says. “Because they do happen!”
Set a Viability Budget
Sometimes, it takes money to make money. Even so, if you’re ready to grow your side hustle, you’ll want to be very careful about how you budget for small business growth. For Stewart Gold, one of two dads who started the toy business Dingle Dangle Baby during COVID, it was important to have a viability budget from the get-go. "Viability budget" is his term for the amount it will cost to bring the product or service to market.
“Once you have a clear idea on the cost of materials you will need, you should put together a budget showing just how much it will cost to get started,” says Gold. “After that, the next step is creating a first-year budget to see if your idea has a chance at profitability. If you complete a budget and find out you don’t have enough funds to start your business, you will need to start planning on how to get those funds.”
This viability budget will give you a road map for the year ahead and allow you to see if you can attain your goals realistically. From here, you will need to make some edits to your goals, tweak your spending, find investors or line up some loans. Starting with a very clear picture of your budget is one of the quickest ways to get a clear picture of how to grow your side hustle.
Be Smart About Cash Flow
For many entrepreneurs who want to know how to grow a side hustle, cash flow is the first issue to overcome. Damon Henrichs, who opened ManBasics Speakeasy Barbershop in April of 2020 and is now poised to turn that success into a franchise opportunity, learned some important lessons about cash flow management early on.
“Sometimes we had to do some creative juggling to make things work, including taking some less-than-ideal short-term loans,” says Henrichs. “If we could go back and do it all again, we would have structured in such a way that didn’t require us to take on that short-term debt.”
Henrichs and his business partner worked through some tough loan terms early on, but he now advises: “Opening or growing a business will take a fair amount of cash, but if you can’t afford to pay back a short-term loan within 30 days of acquiring it, don’t do it!”
Taking your lockdown side hustle to the next level will usually involve getting the word out there and making sure you're seen as a professional business. This could even lead to getting investors on board.
Shaunak Amin, the CEO and co-founder of SnackMagic, knows this well. His company, a snack delivery service, was born out of the need to pivot his lunch delivery business that couldn't survive the empty offices of the early pandemic.
In order to get the financial help he wanted, he knew he needed to present this business as professional from day one.
"We asked ourselves, 'How do we create a splash? How do we get attention?' We produced an eight-part video series on how we launched our brand — the initial idea, pivoting, launching, getting our first order within three weeks and then scaling it $0 to $20 million in ARR in just 8 months. This series, combined with our summary that outlined our product-market fit, our solid unit economics and the fact that we were already profitable, helped us attract investors."
Moving Beyond a Lockdown Side Hustle
If you started a business during the lockdown as a side hustle and have been growing steadily ever since, it’s important to make sure your business is well protected, running well, insured and incorporated. Moving beyond a hobby that makes money into a growing business will require careful planning and strategizing, but you’ve made it this far already!
Nicole Bowman is a freelance writer who thinks turning research into stories is the best gig ever. She started writing billboards back in 2002, worked in book publishing in New York for many years and now she creates all sorts of engaging content for the web. Nicole lives in Rehoboth Beach, DE, with her husband, two sons and their poodle, Tootsie. She loves the great outdoors, bookstores and tennis.