For many, running a small business on the side is a good means of making extra money for a rainy day. Whether you’re saving up for a down payment on a home, a child’s college fund, or simply an epic vacation, a side business can give you the extra money you need to help you reach your goal. But running a business isn’t without some considerations and trade-offs. Of course, perhaps the most basic of which is time – don’t expect free evenings or weekends so long as you’ve got a side hustle going. But there are other cost considerations as well. Here are some you may not have thought of.
Software & Apps
Depending on how you work, you may want some digital tools to help you stay organized. Though many project management tools offer free trial versions – Basecamp and Asana, for example – most cost money if you intend to use them on a recurring basis. Additionally, you may need specialized software programs if you intend to make extra income as a graphic designer, video editor, or other digital professional. In such cases, common programs like Adobe’s Creative Cloud and Apple’s Final Cut Pro charge a monthly or yearly license fee to access and use. Be sure that you take into account the various hard costs for these programs, and only invest in those that you will use regularly. Don’t pay for programs that will sit on the proverbial shelf.
Supplies can run the gamut, and may include everything from a laptop and printer to a pickup truck for weekend handy man work. The types of supplies that you buy will of course depend on the type of business you intend to run on the side. If you’re already familiar with the type of work you intend to pursue, there’s good news: you should have a handle on the common supplies you might need to do your job, and what their costs might be. Tally these up and see what your initial and recurring investments might be (they will also factor into your taxes). Does it make financial sense to continue pursuing this business on the side, knowing what your upfront and ongoing costs will be? Can you realistically expect to make a profit? Do this homework before you start your business, not after, to give yourself the best chance at success.
To reach a wider audience (beyond your immediate network), you may wish to advertise online. This can take many forms, from a simple (and free) Facebook page, to a dedicated business website and paid advertising campaigns on major search engines and social networking sites. Ultimately, you can pay as much or as little as you want, but know that what you put in can affect what you get out. If you simply want a website that you can refer people to, online services like Squarespace can be an affordable entry point and meet most (if not all) of your needs. If, on the other hand, you intend to invest heavily in search engine optimization and paid search, it’s important to know in advance that your costs can tally into the tens of thousands of dollars. Again, determine what you want – and what you expect to get in return – before setting down this path.
In addition to federal self-employment taxes, which hover around 15% on all earned income as of this writing, there are also state and local taxes that may be due. This includes additional state income tax, business filing fees, annual minimum tax fees, and other ancillary costs. As these additional taxes and fees differ state to state, and in some cases city to city, it’s a good idea to research these costs in advance so that you know what your tax obligations might be at the end of the year. It’s also worth noting that with a side business, you will be responsible for making quarterly tax contributions – if you don’t, you may be required to pay a late payment fee, on top of your tax obligation, come April.
As an entrepreneur, you will be selling either a product or a service. If you are providing a service, then your costs ultimately boil down to time. You are stating that you are worth X amount of dollars per hour in exchange for your expertise and skills. However, if you are selling a product (whether it’s handmade jewelry or vintage clothing on Ebay), there are more hard costs involved; after all, you have to pay for the product and materials in order to sell it to someone else. For those seeking an easy “in” to sales and merchandising, companies like Amway make it possible to acquire a small inventory and start selling right away. That’s good, as the alternative is building up your own inventory of one or more products, and then finding a suitable platform for selling it (such as Etsy). The choice is up to you, of course, but regardless of the route you take, you will have to weigh your product costs in order to determine pricing.
Don’t Let Added Costs Stop You!
If you are put off by the costs of running a side business, take a deep breath. Remember, all businesses involve cost. There is no avoiding that. The good news is that many of these costs can be deducted for tax purposes at the end of the year, which helps offset their real world impact on your wallet. And once you have made your initial investment, you can start earning money (which should easily cover these costs and more). Do some due diligence, tally up the numbers, and see what your upfront and recurring costs might be. Once you know the numbers, you know how much you’ll need to make to break even – and make a profit.