Here’s the TL;DR
- Setup a separate bank account for your business.
- Setup a Cash Reserve account.
- Use the profits you make from your side hustle to build your Cash Reserve.
Having a financial safety net for your business is one of the keys to long term success of your business when you leave your regular income behind, and make your side hustle a full time gig.
Turning your side hustle into a full time gig will require capital. But, you won’t have access to the same sources as those big companies do.
Large corporations have access to capital from a variety of sources like banks and investors.
You’ll have to build your own capital reserve.
It’s your Cash Reserve. Think of it this way. It’s a big bucket of cash that you can dip into from time to time when income from your business isn’t enough to cover all of your expenses.
Ideally, you should have at least 6-12 months of expenses stored in your reserve
Here’s how to build it up…
1. Setup a operating account for your business
Practically speaking, your personal bank account should not be used for your business too. If you do, you’re asking for a bookkeeping nightmare. Trust me. I’ve been there, and made that mistake.
Setting up your business operating account will help you track income and expenses for your side hustle.
There’s no need to have a “Business Account” from your bank. Just a regular checking account will do.
When you get paid for your side hustle, make sure the money goes into your business operating account, and not your personal account
Your personal acount should be continued to be used for your regular income, and household expenses like they have been.
The business account will keep your business separate, and will also help to manage cashflow.
2. Setup a separate Cash Reserve account
This is a second acount to build up your savings, and your cash reserve.
Again, trust me on this one. Your operating acount is a terrible place to build your cash reserve. It’s just too easy to use the money in that account for business expenses.
Remember, this is your safety net, and having it separate from your operating account minimizes the risk that you will use these savings for operational purposes.
Ideally, the reserve account will be at a separate institution from your operating account, and will pay you a higher rate of interest so that at least your money is not just sitting there not growing.
3. Use profits to build your cash reserve
Every month, transfer the profits from your operating account to your cash reserve.
Since you still have a regular income at this point to cover your personal expenses, there’s no need to take an income from your business yet. That’ll come later, once you’ve gone full time.
As your Cash Reserve builds you will see it grow slowly at first. But, then it will pickup steam as your profits start to grow.
Then once you have 6-12 months of both personal and business expenses saved up, you’ll have a safety net to help you make the transition to full time.
Hope that helps,
PS. If you’re close to making the leap to being a full time business owner, and you need some advice, click the orange Let’s Talk button above to book a complementary strategy session.