You Can’t Knock the Hustle!
With inflation at a 40-year high, interest rates ever climbing and energy bills continuing to spiral skywards, we are all feeling the squeeze right now. Simply demanding more money from our employers to help cover rising living costs isn’t necessarily the solution to the immediate problem either, as we have all witnessed from the countless strikes that have taken place over the last year.
The current economic challenges go some way to explaining why nearly half of the adult British population (46 percent) – up from 19 percent pre-covid – have established a “side hustle” to generate an extra source of income and provide added financial security. A side hustle can include anything from monetising a skill or hobby, to selling products online. Typically, it is a small-scale project or activity that is often done during someone’s spare time.
While it may have never been the initial intention for your side hustle to take centre stage and become your main source of income, how do you know that you’re not missing an opportunity to use your side hustle as a steppingstone into entrepreneurship?
You get out what you put in
For most, a side hustle is an informal way to make extra cash. This additional income may help to support lifestyle choices or be set aside to achieve a particular savings goal.
If you find that your side hustle is demanding more of your spare time and increasingly encroaching on your day job, this may be a sign that it is time to refocus your priorities and potentially leverage your primary source of income to grow your side hustle into something more substantial.
There will never be a perfect time to make the leap into entrepreneurship, however, there are often a few tell-tale signs as to when it might be just the right time to make the switch. For example:
- The demand for your product/service is growing exponentially and your new and repeat customers extends beyond family, friends and close acquaintances.
- The notional cost of the time you are spending versus the income you’re generating is close to what you would receive from your main gig.
- It is starting to feel like you may need an extra pair of hands or two to help run the business and ensure that it thrives.
If this sounds familiar, entrepreneurship is probably calling your name.
Start with the end in mind
When establishing a business, there are a number of initial considerations that you need to bear in mind. One of the questions I am always asked is whether a business owner should continue as a sole trader or register their start-up as a limited company.
The right answer to this question obviously depends on the type of business you are planning to start. It is also dependent on the need to limit your liability, tax planning considerations and future business funding needs.
Before you run off to register your company at Companies House and issue new shares to friends and family, speak with a business expert to ensure that you are taking the right steps (see below information regarding the ICAEW Business Advice Service).
This initial advice could save you a lot of costly headaches further down the line, particularly if you ever find yourself in the fortunate position of selling your company!
Don’t forget the taxman!
Did you know that if your gross income from your side hustle exceeds £1,000 during the tax year it must be declared to HMRC on your Self Assessment? People are often surprised to find out that this casual income is still subject to tax.
If you’re starting a new self-employed business and expect your annual gross income to be no more than £1,000 you may not need to declare this income or register for Self Assessment at all. However, if you have made a loss during the tax year you may want to do so voluntarily as you could benefit from certain special tax reliefs.
This could result in a cash refund from the Taxman which could be a very welcome cash injection as you look to scale your business!
Limited companies are taxed differently, and this may help determine what form your company takes at least in the early days.
Take the leap
If you’re seriously considering becoming your own boss and taking the first steps into entrepreneurship, I would always recommend speaking to an accountant or business advisor before taking the plunge.
The ICAEW Business Advice Service offers a free initial consultation with a qualified Chartered Accountant for all UK based SMEs and start-ups. This advice could prove invaluable and will help to guide your thinking and plan a successful entrepreneurial journey.