Starting a side-hustle business is exciting. It is an opportunity for you to do what you enjoy and make some extra money at the same time.
Look Before You Leap
But before you leap in, have a think about the following questions to stand the best chance of making it a success:
What do you want to achieve by starting a business? Will it be as a hobby for a bit of extra money, just to be your own boss, semi-passive income or an empire to sell eventually? If you don’t know why you are starting a business, how will you know if it is a success?
What are you willing to sacrifice? In starting a business, you need to understand that there will be a considerable administration burden. Your evenings and weekends will no longer be reserved just for your hobbies, social life and housework. What will you lose to make this happen? Time, money, hair (or all of these)!
How will you validate your idea? Ask relevant people about their problems, not about what they think of your idea. People will generally tell you what you want to hear, especially family and friends. How will your product/service address their problems? Is it a large enough problem to make them want to pay you to solve it or will they get by with their current solution?
How to attract customers? Don’t overestimate the power of a marketing channel. Customers rarely come flocking to new businesses, and if they do, you are probably not charging enough to make the business feasible long-term. What will it cost to get a customer?
Which business structure will you use? Self-employed (sole trader or partnership) or a limited company? The implications of your decision vary greatly (tax payable, personal financial risk, amount of administration, etc). The best option now may not be the best option next year. Do your research and get advice. What structure makes sense for you (not your mate down the pub)?
How many new bank accounts will you need? How will you keep your business money separate from your personal money? A separate business bank account is strongly recommended, ideally with an additional savings account to put money aside for your tax bills.
When should you register with HMRC? If self-employed, you need to register by 5th October following your “first” 5th April in business. For example, if you start your business in February 2022, your first 5th April will be 5th April 2022 and you will need to register with HMRC by 5th October 2022.
When will you submit your tax return? If submitting your self-assessment tax return online, you will need to get it prepared, filed and paid with HMRC by 31st January following your first 5th April. In the example above, the deadline would be 31st January 2023.
Accounting and Tax
Who will take care of your accounts and tax? Will it be you, a friend or family member? A good accountant will make your life easier and may reduce your tax bill significantly.
How much tax will you pay? This will depend on your overall earnings from all sources (employment, self-employment, rental income, dividends, pension income, etc). As a side-hustle, your tax bill may be more than you are expecting. This could happen if your main form of income uses all your personal allowance and pushes you into a higher tax bracket.
If you would like a chat about any or all of the above questions with Gareth, book in a free meeting here.
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