During the Covid-19 pandemic, millions of Americans faced layoffs, pay cuts and reduced hours, leading them to search for new, creative ways to make money. For some, that meant turning to a new, lucrative source of income: the side hustle.
To start a side hustle, all you need is free time, a strong internet connection and a passion project. Anything that can turn a profit is fair game, whether it be selling clothes online, walking dogs or baking cakes.
But what may have started as a way to make extra cash outside the 9-to-5 is shaking up the economy: IRS data reveals the number of people filing 1099 tax forms, which includes freelancers and self-employed workers, has been growing three times as fast as traditional employees filing W2 forms in recent years. Many have been inspired to take their side hustle full-time, too — U.S. business formations rose by nearly 42% in 2020, according to U.S. Census data.
“When you decide to freelance or start a side hustle, an entire world opens up for you with new job opportunities,” Shahar Erez, the CEO and co-founder of Stoke Talent – a freelance talent management system, says. However, it’s important to consider the risks of leaving the security of a full-time job to grow a new business before making the leap. “It’s not for the faint of heart,” Erez adds. “You’ve got to be ready for the sleepless nights and not knowing if a paycheck is coming at the end of the month.”
So when is the right time to quit your job to turn your side-hustle into a thriving business? How do you know if it is the right path for you? CNBC Make It spoke with career experts and entrepreneurs who successfully made the switch about how to turn your side hustle into your main hustle.
Make happiness a priority
The first question you need to ask yourself before making any career change should be: “Am I happy?” says Emily Jump, who recently left her job as a marketing coordinator for a local dentist’s office in Columbus, Ohio to grow her side business, Columbus Cosmetic Ink.
That answer will guide your next step. If you spend your afternoons daydreaming about your side hustle at work and spend every free minute trying to grow your business, it may be time to quit. “You need to follow your gut, it’s there for a reason,” Jump says.
She ran her cosmetic ink business on nights and weekends while working at the dentist’s office for four months before quitting her office job in June. Before making the leap, Jump says she made sure she had enough money in her personal savings account to cover her business and personal expenses for the next six months and had a list of regular customers to fill up her schedule.
Jump now spends her days at a small studio in downtown Columbus tattooing semi-permanent eyebrows on her clients, some of whom are cancer survivors who lost their hair in chemotherapy treatments. “I’ll hand them the mirror when I’m done and they cry,” Jump shares. “Good eyebrows give you confidence, they can change your life.”
Though leaving the security of a full-time job to start a new business can be scary, making the leap can open the door to greater happiness and fulfillment. “Every day I wake up and I’m excited to work, which I’ve never felt in my entire life,” Jump says. “I wouldn’t trade that feeling for the world.”
Create a business plan
It’s important to map out what the next few months of growing your side hustle into a full-fledged business will look like to make sure it’s sustainable and profitable. Nation1099, Side Hustle Nation and other websites offer tons of free resources for new entrepreneurs to calculate their business costs, customer demand and forecasting revenue.
You also need to decide if you’re ready to hold yourself accountable while growing your business, since you won’t have a manager looking over your shoulder. Side Hustle Nation founder Nick Loper suggests finding a mentor with a similar successful business and asking how they got started. “They can tell you, realistically, what the next 3-5 years look like, or how your lifestyle and budget might change,” he says. Considering these changes will help you figure out what you’re ready to take on.
Get your finances in order
What’s the number one reason most new businesses fail? “You run out of money,” Erez says. Organizing your finances will help you determine if you have enough money in personal savings and revenue from your growing side hustle to cover your business and living costs. Erez recommends mapping out your monthly living expenses (housing, groceries, health insurance, etc.) as well as how much money you predict to spend and make on the business based on customer demand.
“Questions you should ask yourself include: ‘How much money do I need to have in the bank while I’m waiting on the next customer?’ and ‘What’s my runway with my personal savings?'” Erez says. Run an analysis (or hire an accountant) to crunch the numbers and draft a business plan for what the next 3-12 months will look like to decide if you and your savings are up for the challenge.
Know your baseline
Starting a business isn’t all profit and glory — before becoming a full-time entrepreneur, figure out your risk comfort level.
Dasha Kennedy left her job as a default counselor at a bank in St. Louis to grow her side hustle as a millennial financial coach in 2018. The no. 1 tip Kennedy passes on is to know exactly how much money they need to make per month to cover all their expenses.
“Before you quit your job, you want to see if your side hustle is even bringing in enough to cover the baseline because if not, you’re quickly going to find yourself in a hole,” she says. Establishing your baseline can also help you set your prices and production schedule to stay out of the red.
Most importantly, Loper adds, you need to decide if you’re prepared to face the worst-case scenario. “What’s your comfort level in potentially burning through your personal savings, or you don’t have anything to fall back on?” he says. “You might have to swallow your pride, dust off the old resume and go look for another job … which is perfectly fine, just be ready for it.”
Check out: Should you talk about your side hustle during a job interview? Here’s what experts say
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