There are many ways to start on the path to entrepreneurship. Some people leave jobs to pursue it, ditching their 9-5 thinking they can do it better than the firm they left. Others start straight out of high school with a passion that started in middle school. In my experience most people start their path through a side hustle. A side hustle is a hobby or side job you perform to compliment income you may get from a regular 9-5. As a business strategist, I am a fan of the side hustle; however, far too often when I meet with prospective clients they are still operating as a side hustle and have not transitioned over to a business. There is a fundamental difference between the two and this is often the reason investors or banks shy away from providing funding. Anyone can slap a name on a building but it’s the entrepreneur that creates a true business and gets away from the side hustle mentality.
1. LET BANK STATEMENTS GIVE WAY TO FINANCIAL STATEMENTS
Let’s say I come to your business and I ask for your financials. If you hand me bank statements I’m going to say, ‘Thank you but I need to see your financials”. Bank statements are great but they do not give you an accurate depiction of what is going on in your business. If you are running a side hustle they are just fine but not for a business. There are many financial statements to use but the three most people want to see are your Balance sheet (shows how much the business is worth), Income Statement (how you are making money) and Cash Flow Statement (how cash flows through your business). If you don’t know how to make these statements there are ways to get this done. The first option is an accountant. They will know how to interpret your business for you financially and help you understand so you can explain it to someone else. Another way involves software or applications like Quickbooks that will translate your numbers for you. Lastly, you could invest in advance payment systems (this is the one I advocate for all the time). Buying a payment system like a Clover or Square system keeps up with this data up to the minute and can be summoned at anytime. So keep the bank statements for your own personal records. People will take you serious when you start taking your financials seriously.
2. TRADE “MANE, ALL YOU GOTTA DO IS” FOR SIX SIGMA
When you grow up in Memphis you often hear people make that statement trying to make something sound less complicated than it actually is. In business, cash may be king but efficiency is a god. Having a process in place for your business can be the difference in making profit 7 years from now or not lasting 7 months. A Six Sigma black belt (a way to measure how efficient business runs) is not required to run a business but striving towards it separates the business from the side hustle. Think about Subway for a minute. The process of making a sandwich flows quickly because everything is organized. One straight line. One fluid motion (in a business sense). You don’t see the employees grab the bread then head to the back to get the meat before moving next to the cash register to get lettuce. That would be ridiculous and time consuming. So when you convert to a business from a side hustle make sure some type of process is in place and always look for ways to improve it.
3. START TREATING LOSSES AS DEDUCTIONS
I am not an accountant but I know when you have certain expenditures you can write them off as a business expense. Many side hustles are often hobbies and cannot be deducted. So you take the loss with no way to recover it. Business is hard enough without letting money fly out of the door like that. Once again this is where an accountant comes in to save the day. They can advise you on what is deductible and what is not (Sounds like an accountant is really important right?). You can write off some meals, gas, and even mileage. Our firm writes off mileage every year because we do a lot of traveling for speaking engagements and consultations. Also, we deduct are phone bills because we have a dedicated business phone. So take advantage of deductions, as a business you’ve earned it.
4. MAKE IT OFFICIAL
You have been grinding and hustling for awhile wanting to go legit. It may be time to choose a legal structure. Honestly, you have been acting as a Sole proprietor all this time and that is legit. However, you should file for your fictitious name so that people can find you and so you will not be simply known as the “ yard man” or “cake lady”. You could also go the LLC route so that you can have both protections and separation for your personal and business assets. You are not afforded such luxuries as a sole prop. Remember: with great power comes great responsibility. There are certain taxes that must be paid to keep these protections, usually referred to as a Franchise and Excise tax. Finally, you could really go big time and have an S corp or C corp but remember…….even greater power………greater responsibility than the LLC option. So in my best Beyonce voice, “if you like it go ahead and put a name on it”.
5. LESS QUICK FIX AND MORE LONGTERM INVESTMENT
I often frustrate my wife by using the phrase forward guidance. This is nothing more than looking at the current conditions of your business and making a forecast or projection based on those conditions. Far too often in business, entrepreneurs focus so much on reducing costs that they increase them longterm. Yes, you should reduce costs in a responsible way. If you can buy that machine that is new or slightly used move forward with the purchase. Spending the $1000 now in order to save you $5000 down the road is a lot better than spending $250 now, another $1500 for constant repairs, and $1000 on that new machine you have to buy to replace the old one (the example is extreme but not farfetched). Take that payment system I mentioned earlier. They are pricey, I’ll give you that; however, it’s cheaper than hiring an accountant, personnel for inventory control, and an HR person for payroll. Sounds contrary but you are reducing cost by spending more.
WHAT’S THE BOTTOM LINE?
Side hustles are great for 10 year olds with lawn mowers (me in my youth) and people trying to add additional revenue streams of income to their household’s bottom line. However, when its time to go full throttle in your business you have to put on your “big boy” or “big girl” pants and be the entrepreneur you envisioned for yourself. Know your numbers so that you can impress the bank. Make sure your process is seamless and effortless so that your business hums like an extremely efficient machine. When I was young my grandmother had a term for people living together and not being married. Well, if you are not doing the things I mentioned above, you are not really in business………..you are just playing business. #AnOwlInYourCorner