Square, bespectacled; the old movie trope of accountants – think Albert Brennaman in the romcom Hitch, or Ghostbusters’ Louis Tully, throwing a party purely because it’s “tax deductible” – is not true to modern life.
In fact, accountants have a starring role for small businesses, says Joanna Booth, founder and director of Social Media Makes Sense, a company specialising in social media for TV and training for small and medium-sized enterprises (SMEs).
Financial planning can be overwhelming and complex, and hiring an accountant straight away will ensure your side hustle is smart about its money, sustainable and potentially scalable.
However, you do need some insight into the numbers, so we asked Joanna to help us write a script for taking your business from side hustle to something bigger, accommodating any financial plot twists along the way…
Side hustlers are full of great ideas, but how can you tell if a side hustle is viable enough to be a sole source of income?
There has to be a big enough need for your offering, and you can use your workload to measure that.
If it’s hard for you to juggle both your full-time job and your side hustle, that could be a sign that your offering is in demand.
If your side hustle isn’t keeping you busy, you may need to keep your day job for now.
The first step in financial planning is validating your business – proving there’s a need for your offering by making a sale to at least one paying customer.
Doing so will set the trajectory for the rest of your business plan.
Once the business has been validated, how soon can new entrepreneurs expect to collect a salary from their side hustle?
For me, this depends on how much support you have to focus on your business.
If you have a partner who can financially support you, for example, you can leave your job and start your adventure without being in a rush to take a salary.
If you don’t have support, you need to take a salary straight away. Your salary probably won’t be the same as what you received as an employee, so you will need to zero in on making sales.
Don’t rely on savings – they disappear quickly and should be there to enhance and support, not replace income.
Many side hustles need funding for startup costs. How should entrepreneurs decide between a loan and an investment?
Use your aspirations for your business as guidance.
If your vision is to massively scale your business, then you’ll probably benefit more from a large cash injection from an investor.
If your idea is really great, you can leverage business equity for the cash you need to put your plan in action.
This of course means you’ll give up a bit of your business control to your investors. They will likely have a heavy influence on your business’ direction as they are looking to recoup the highest possible return on investment.
If your vision for your business is to make a comfortable living for yourself, then consider getting a business loan from a high-street bank.
Business loans are usually straight forward.
You maintain total control of your business’ future, and the bank is only interested in repayment according to the loan terms.
A business loan doesn’t come with the added pressure of generating a high return on investment.
How should entrepreneurs get prepared to seek startup funding? What will lenders and investors want to see as a demonstration of finances?
Both will want to see how thoroughly you’ve planned to be successful.
They want to see how well you understand your financial circumstances and how you’ve planned to optimise your strengths and support your weaknesses.
They will especially want to see how well you’ve researched your market and how your findings support your business plan.
Show how you plan to market yourself, who you plan to sell to, and how you plan to use funding to cover operational expenses.
Don’t ignore the risks and challenges. Prepare to show how you plan to address these in great detail.
What are some financial indicators that a new business is doing well? What should entrepreneurs be tracking?
This will vary too much for one sweeping answer.
Your focus and strategy will change as your business matures from side hustle to small business, and each stage will have its own applicable points of interest.
Even further, even businesses of similar models can have different goals and visions for expansion, or not.
Universally, side hustles and mature small businesses should know their break-even point and aim to keep expenses low.
Don’t measure your success by anyone else’s numbers, set yourself goals that matter to you.
This is your adventure. Plan your path toward the goals that resonate with you and celebrate when you win.
You’ll do great!
At what stage in business maturity should entrepreneurs hire an accountant?
We can’t all be good at everything. If you can afford an accountant straight away, hire one!
They’re the experts, and it’s their job to handle the accounting side of your business so you’re able to work on building your customer base without distraction.
There’s already so much to juggle, and most new entrepreneurs and even seasoned small business owners won’t have the time or knowledge to do it all themselves, and certainly not long term.
Your accountant will be there to keep you financially organised so you are ready for growth and free from tax penalties. I love my accountant!
How can new and seasoned business owners improve their business finance knowledge?
No matter what size or how mature your business is, don’t be afraid to ask for help.
If you can’t afford to hire an accountant, many accounting firms offer free webinars and learning sessions that cover general accounting best practices. You can also ask direct questions in those kinds of settings.
Aside from that, if you just want to handle your accounts yourself or just want to be knowledgeable, you can take an online course and apply what you learn to your own business.
At bare minimum, my advice is to watch your accounts daily, limit your spending, and stay diligent about getting paid on time.
Never miss an episode
Subscribe by email and get Sound Advice delivered to your inbox every month with the Sage Advice newsletter with a ton of related articles, templates and problem-solving guides for small businesses so you can put our sound advice into practice.