Over the past two weeks, we have covered two of the three things you must master to take your side hustle full-time: your business strategy and your business workflow. Today we will be tackling the final part: organizing your business finances.
Brace yourself. There will be numbers and math. There’s no way around it. If you want to organize your business finances, you have to crunch the numbers.
“What gets measured, gets managed.”
– Peter Drucker
If you aren’t assessing your finances on a monthly basis, they will get out of control pretty quickly, and your goal of taking your side hustle full-time will keep getting postponed year after year.
The main reason most people don’t go after their dream of being their own boss is because they fear the loss of financial security. When you’re working for yourself, your paycheck is never certain. That’s why it’s super important you get your finances in order now if you plan to quit your job someday.
Months before I was going to take my business full-time, I started cutting back on my expenses. I reduced my phone bill and cable plan. I cooked at home more often instead of eating out. And I cancelled memberships to services I didn’t need.
Here are 5 steps you can take to master your finances, set a budget, and lower your risk of a financial catastrophe.
1. Write It Out
Getting clear is the first step to mastering just about anything. To get clear on your finances, write down all your current expenses. Separate them into the following categories:
- Non-negotiables: These are expenses that are constant and you can’t change. This includes utility bills, gas, and groceries. Try to document the exact numbers or estimate the best you can.
- Optional: These expenses are nice to have but you can do without them. Examples of these expenses are Netflix, premium cable packages, and eating out.
- Entertainment: It can’t be about all work and not play. Factor in a budget for fun activities.
- Business expenses: Anything that is costing you money to run your business goes in this column.
Note: It all adds up. Include every single thing you pay for on a recurring basis, no matter how small the expense.
2. Cut Back
Analyze each column. Honestly ask yourself where can you cut back. Switch to smaller phone or cable TV plans. Can you start brewing coffee at home instead of paying inflated rates at Starbucks? How about all of the membership sites you are subscribed to? Can you cancel any of them?
It’s easy to get sucked into paying monthly fees for things you don’t need because “they’re only $5, $10, or $20.” It seems like an insignificant amount. But when you do the math, they add up to hundreds of dollars every month.
If a business expense isn’t directly helping you grow your business, eliminate it. If it’s not a non-negotiable, cut it out.
There will be time for luxuries in the future. For now, cut back wherever possible if you’re serious about taking your side hustle full-time.
3. Set a Financial Goal
This financial goal is not the amount of money you WANT to be making in the future. It’s the minimum amount you NEED to be making in order to take your side hustle full-time. In other words, how much money does your online business need to be generating in order for it to sustain you financially?
Let’s add up the numbers to find out. Add the figures from step two for each column. Then add the total expenses for each column together.
Bonus tip: To give you some extra room for unexpected expenses, add a buffer to the final amount.
If you’re the sole provider in your household, the final figure after adding all the columns and a buffer is your financial goal. This is the amount of money you need to be making before you quit your job.
If you have a partner who helps you with expenses, factor in his/her salary. Then decide what your part is. That will be your final financial goal to be able to quit your job.
4. Make Plans to Reach That Goal
Now that you know how much you need to be making from your online business, you can start planning different ways to reach that goal. Do the math.
For example, let’s say you’re publishing books on Amazon.
To make $1,800 a month, here’s a possible breakdown of the math to reach that goal.
You have 10 published eBooks, and you make a profit of $2 per eBook download.
You sell 3 copies of each eBook a day X $2.00 profit=$6 a day per eBook
$6 per eBook X 10 total eBooks=$60 per day
$60 per day X 30 days in a month=$1,800
So you would need to sell 3 copies of each of your ten books a day on average to make $1800 a month and meet your financial goal.
Tailor the above example to your income streams and do the math. Play with different numbers to come up with your financial goal, depending on the number of products you have and how much profit you make from each of them.
5. Create Multiple Streams of Income
To help you reach your financial goal faster, you may need to set up more than one steam of income. To keep things simple and less overwhelming, keep all your income streams as related as possible.
I talk about roughly the same things on my channel, my blog, and my books. But they all generate cash flow in different ways.
No matter how much planning you do, risk is always there. Taking precautionary measures by creating a solid business strategy, mastering workflow, and being smart with your finances will only lower your risk of a financial mishap, not eliminate it. At the end of it all, the fear will still be there.
It will always be scary to make the leap and take your side hustle full-time. The deal-breaker for me was the pain of regret for not going after my dream. This was greater than the fear of losing my financial security.
To close things up, I want to leave you with a quick excerpt about fear from my book Online Business Success: 6 Fundamentals of Making Money Online Doing What You Love
“Most people will never follow their entrepreneur journeys. They will never see where their creativity can take them because they are afraid. Passion takes a back seat and fear takes the wheel.
They stay at their corporate jobs because it’s comfortable and secure. They’re waiting on the right time or for the fear to disappear. Resistance takes real joy in this because it knows that fear will never go away. You have to push through it and do it while afraid.”