As a side business owner, there are a lot of amazing moments like earning money for the first time outside of a job, scoring a big client, or hitting a revenue goal. But for every entrepreneurial success, there are plenty of mistakes to make, too. Side businesses can drain your time, energy, and money if you let them.
To enhance your chance at success, avoid these side business mistakes while building your business.
1. Not Knowing Your Goal for Your Side Business
A side business can be a great way to make extra money and build marketable skills, but it also requires a significant personal investment. With such a time-consuming side project, it’s important to be sure you know exactly what your goal is for your side business.
Do you want to use your side business to pay off debt? Do you want it to help you save? If so, it’d be a shame to bring in a bunch additional income, and then to have it slip back out as extra mindless spending.
Is your side business meant to build skills to help you with your full-time job? If so, you’ll want to make sure you aren’t sabotaging your work success by diverting your attention away from important work projects. But if you are a creating a side business that you hope will grow to be your full-time endeavor, you’ll want to grow your side business in a different way.
The extra effort you spend on your side business can be a huge boon, as long as it’s actually helping you reach your long-term goals.
2. Neglecting Everything Else
Building a business can be an exhilarating pursuit. But in the rush to build a side business, it’s important to not neglect all the other aspects of your life. Building a career and financial security is important, but your health and relationships are important too. Happiness research has shown that relationships and health add much more to our well-being than a little bit of extra money.
It’s not a clear-cut thing. It could be the right move to work on a Saturday morning. But on a different Saturday morning, it might be time to get off the computer and go watch your kid’s soccer game.
If you find that you are overwhelmed, sleep deprived, and not spending enough time with the people you love, see what you can do to work more efficiently. You’ll burn out if you keep just trying to grind it out. Many times, it’s possible to raise your prices and get paid the same amount and work less. Other times, you know the time crunch is temporary and you’ll be able to weather the storm until a calmer time.
When you are in dire financial straits, it might be the right move to continue to hustle. But don’t get so use to the hustle that you don’t realize when you can back off.
3. Putting Too Much Money at Risk
Some side businesses generate enough for fun money, and others bring in major bucks. Regardless of where you are in the side business spectrum, make sure to not overextend yourself financially. As with any small business, there is the risk that the business could fail. And on top of that, since the business isn’t your main gig, you could get tired or bored and simply decide not to pursue the business anymore.
That’s why it’s important to limit your financial risk. Think very, very carefully about buying expensive equipment or leasing long term office space. If your side business doesn’t work out, you’ll be on the hook for a large expense with no extra income to support it.
A side business can give you additional freedom with your money and your career. Making a large financial promise or investment can restrict your choices. You’ll be less financially secure than you were before you started the side business.
4. Mistaking a Hobby for a Business
It’s possible to turn a hobby into a business, but make sure you know the difference as you work on your side business. Not all hobbies are profitable. If you spend more than you make every year in the business, the IRS views your work as a hobby, not a side business. You can owe back taxes if the IRS decides you’ve misclassified your hobby as a business!
But not only that, running a business isn’t always fun. It means monitoring your profit and loss, paying taxes, dealing with regulations and insurance, personnel issues, and delivering to customers even when things aren’t going right! As Michael Gerber wrote in The E-Myth, a common entrepreneurial mistake is to enjoy working in the business but to hate working on the business. You might like to bake cakes, but hate running a cake shop. If your business is your hobby, you’re even more at risk for this mistake.
If you haven’t put too much at stake as discussed above, it’s not a big deal to just shut the business down if you don’t enjoy it. While some hobbies can turn into successful businesses, not all are profitable or fun to run. Consider this before you invest too much time and money into a side business.
Avoid These Side Business Mistakes
A side business can be a great blessing for your finances. But taken too far, your side business can also drain your time, energy, and money. Avoiding these side business mistakes will help your side business succeed.