This is a guest post from True North Accounting, a Xero Gold Partner.
As Creative Director at a marketing firm, Rob Sawchuck noticed independent small businesses rack up social media followings that his corporate clients would drool over. He wanted to try his own start-up and social media experiment. Thus, his custom design and print shop – Turkey & Pistols – was born.
He quickly found a following and, within four years, his side hustle became his full-time career.
At True North Accounting, we work exclusively with small business owners like Rob. If you’re thinking about levelling up your side hustle to your day job, here are a few things to consider.
Be ready to learn as you go
“I wasn’t aware of how many jobs would keep arising,” says Rob. “I had to learn how to bookkeep, invoice, pack shirts, and fulfill delivery.”
His advice: It’s OK if you don’t know how to do everything when you get started. You can learn as you go”.
Rob adds, “You should know how to manage your money and handle any service related to your business before you hire it out.”
As for managing your company’s finances, there’s accounting software to centralize and simplify your financial life. For example, with Xero’s Starter plan, you can send invoices, track bills, and reconcile your bank transactions ($15 CAD per month).
Now that you’re ready to wear many hats, here are some practical calculations to go through.
How much does my life cost?
Come what may, you want to keep a roof over your head and food in the fridge.
Take some time to map your current budget. What expenses must you make every month and what can you cut?
Do you have a partner who can help cover the bills?
Pinpoint how much take-home income you need to keep your life afloat (and remember that you’ll need to save approximately 30% of your income for taxes).
What business expenses will I incur?
What will the operating costs of your business be? Will you need to take on debt?
Will jumping out on your own create additional expenses like a cell phone bill, computer or health-related costs?
Rob’s first big expense was a CNC Router for cutting signs. Soon after, Turkey & Pistols had requests coming in for t-shirts. He leased a direct-to-garment printer, which required lots of ink.
He realized, “I had money in the bank, but I wasn’t sure how much I owed.”
To avoid being in the dark, add up your anticipated monthly business expenses: equipment, supplies, sub-contractors, home office expenses or office lease, and so on.
Remember, you want to pay for each and every business expense from your business bank or credit card account. When you’re disciplined with this, your bank and credit card statements become your de facto ledger (where all your write-offs are tracked).
Snap photos of receipts using Hubdoc, and forward invoices to your Hubdoc email address to ensure you have support for all your write-offs. Hubdoc stores the documents safely and can also send them to Xero to truly audit-proof your business.
How am I going to make money?
Now that you know what your life and business are going to cost – how are you going to make that money? What’s your hourly rate and how many hours do you need to work to cover your expenses? Would it make more sense to package your services and bill per project or piecemeal?
If you decide to incorporate your business, you’ll need to decide if you are going to pay yourself dividends (get paid as a shareholder) or wages (get paid as an employee). For more about incorporating and setting up your business, check out our ebook, The Path to Starting Your Own Business.
Take a look at your pipeline of work. It’s a good idea to have enough work lined up to cover your bills for at least three months.
Am I ready to run my own show?
Rob had hit a ceiling in his career, and always had a feeling that the marketing world wasn’t entirely for him. “I was always looking to do my own business, call the shots, pick my own clients and the kind of work I do.” He created those opportunities with Turkey & Pistols.
There are the practicalities to consider when it comes to readiness to start your own business. But, as Rob says, “When your passion becomes something you’re constantly doing or thinking about, you’re ready. Time is very valuable – if you have this idea and dream, you don’t want to let time slip away and never do it.”
With knowledgeable CPAs and bookkeepers in Calgary and Okotoks, True North Accounting helps make life easier for small business owners with bookkeeping, accounting and tax advice. Their streamlined process and clear, all-in pricing helps business owners save time and money.