Even if you’re used to having a variable income, starting a business — which is essentially what taking on a side gig is — can bring new challenges. Creating systems and getting organized at the start can give you a solid foundation for building your income and avoiding unnecessary expenses. With a focus on the financial aspects of running a business, here are a few of the things you’ll want to consider.
Track your business invoices, revenue, and expenses
A clear picture of the money coming into and out of your business can be important for managing your personal and business finances. Many side gigs don’t have a complicated financial structure, but there are at least three important pieces of information to track:
- Invoices. Sending invoices might be a new experience for you, but don’t worry, there are templates you can use online. Make a habit of tracking when you send an invoice, when the payment is due, and when you receive the money. If you don’t have a system in place, you might forget to send an invoice or let an unpaid invoice slip through the cracks.
- Revenue. Track how much you get paid once the money reaches your account. If you offer several services or products, or work with different clients, you might want to separately track the revenue from each one.
- Expenses. You also want to know how much money it takes to run your business. Some side gig apps will track some of your expenses, such as the app’s cut of the revenue. But the otherwise untracked business expenses can be important, especially if you need the records for tax purposes.
Once you have tracking systems in place, you can use the data to determine how to grow your side gig or which work might be most worth your time.
Try accounting software
Depending on the type of side gig and how many transactions you’re tracking, a spreadsheet might be all you need. But if you’re dealing with a lot of clients or have a variety of income sources and expenses, it might be worth using accounting software.
Some options can link to your financial accounts to sync and categorize transactions. Many also let you send invoices directly from the software and track their payment progress. And a few offer free plans or low-cost options for freelancers and solopreneurs.
Learn about common industry tax deductions
Whether you’re making and selling coffee, driving for a delivery service, or trying your hand at working online, you likely aren’t the only person doing this type of side hustle. Try to learn how tax deductions (i.e., write-offs) work, and common deductions in your specific industry can help you save money come tax season.
The IRS’s small business and self-employed tax center could be a good place to start for general knowledge.For industry-specific tips, look for forums or groups where people discuss best practices. Or consider a one-time consultation with an accountant who specializes in the type of work you’re doing.
Consider opening a small business bank account
Strictly speaking, a business bank account isn’t a necessity if you run a sole proprietorship — the default business type and what many side hustlers use (even if they don’t realize it at first). However, it could make tracking your business revenue and expenses much easier.
Some business bank accounts may also include benefits that can help small business owners, such as a limited number of free incoming domestic wire transfers or cash processing.
And a business credit card
Similarly, using a business credit card for your business expenses can make tracking your expenses easier. A business credit card like the Valley Visa® Business Credit Card also lets you earn rewards on all your purchases and offers fraud protection. Plus, you’ll have at least a few weeks between the purchase date and when the bill is due, which can be helpful when you’re waiting on clients to pay their invoices.
Set money aside for self-employment taxes
Use your revenue and expense records to estimate your income (i.e., profits). As a business owner, you may need to make estimated tax payments each quarter. You also may need to prepare to pay self-employment taxes. Setting aside money for taxes as you earn it could help you avoid a nasty surprise when filing your annual return.
Learn about new retirement account options
Having a side hustle may make you eligible for new retirement accounts, such as a solo 401(k) or SEP IRA. Having access to these tax-advantaged accounts could let you put more money aside for retirement, especially if you don’t have a retirement plan through an employer. However, you may want to speak with a financial advisor to discuss your options, and which types of accounts will be the best fit.
At Valley, we’re committed to helping small business owners succeed. Whether you’re just starting a side hustle or looking to turn the hustle into a new career, our banking and wealth management professionals are ready to help.