The Key to Going from Side Hustle to Small Business (Hint: Your Money)

Quit Your Job

Ever dream of quitting your day job?

For many, quitting the “rat race” and owning a business is the ultimate dream.

Setting your own hours, and watching the money roll in seems like the ideal lifestyle.

Unfortunately, for most of us, it isn't so easy.

Most of us can't just quit a day job and turn a hobby into a money-maker.

There are commitments to meet, and financial considerations to account for.

Before you quit your job, it's a good idea to plan ahead, and fix your finances — especially if you are bringing in a substantial portion of your household's income.

With some planning, and proper preparation, you should be able to transition from a “real” job and side hustles to living off the income you make from home.

Can You Afford to Quit Your Day Job?

One of the first things you have to figure out is whether or not you can afford to quit your job. In my case, it was an easy enough decision — I didn't have a day job. I started freelancing writing right after earning my degree.

My husband was working on a degree at the time, so our small family of three went from living on student loans to…living on student loans plus whatever I could bring in.

However, not everyone is in the same situation. Most of those who start a side business from home have more traditional jobs with benefits, and families to support. Just quitting is likely to lead to difficulties making the mortgage payment, and doubts about whether or not there will be enough food money.

And you can't forget the huge role health insurance plays in many families. For some people, the prospect of having no health insurance is enough cause for caution when quitting a “real” job.

Take a look at your finances. Are you in a position where the loss of your income would impact the family's cash flow? Does your partner have a job that could make up some of the difference? How much are you earning on the side right now?

If you have a partner whose job offers sufficient income (plus benefits) when supplemented by your side income, and he or she is supportive, you might be able to quit your day job and concentrate on growing your home business.

Fix Your Finances for a New Situation

Even if you decide that you can afford to quit your regular job in favor of building a side business into a serious money-maker, there are still a few things that can help you better fix your finances:

  • Pay down debt: Debt is one of the biggest reasons people are afraid to start a business. When you are preparing to do away with a major source of household income, the fewer obligations you have, the better off you will be. You don't have to worry as much about paying your bills when most of your debt is gone. When you have consumer debt hanging over your head, it can be a source of stress in your finances and in your life. Turning a side business into a regular business takes a lot of effort, and often puts strain on even the best relationships. If debt is in the mix as well, it can pressure even the most loving relationships to the breaking point.
  • Build your emergency fund: Prior to quitting your day job, you should go into high gear, building your emergency fund as much as you can. A safety net, to help you through the lean months, is essential. This is especially true if your partner doesn't earn enough to support the family without your income to help. The bigger your emergency fund, the more time your business will have to grow into a success.
  • Create a plan: Do you know how your business will grow? Make a list of everything you need to do in order to find success. Do you need to upgrade your web site? Do you need to spend time forging connections? Do you need to look for low-cost suppliers? Figure out what needs to happen with your business, and plan for it. Your plan can help you stay on track as you work to increase your income.
  • Test out your living situation: Would you be able to live on a reduced income for the period of time it would take to grow your business? Test it out. Instead of using the money from your traditional job to live, bank all of that money in your emergency fund for at least two months (longer is better, though). See how stretched you are, with just your side income and what your partner brings in. Is the situation tenable over time?
  • Prioritize your spending: Before you quit your traditional job, understand your spending priorities. Consider what's most important to you. What budget items are necessities, and what items are wants? Know, ahead of time, which items can be cut from your spending plan. If you run into an especially difficult month, you will already know which expenses to cut in order to maintain fiscal solvency.
  • Comparison shop for what you need: If you will need insurance, it's time to comparison shop for what you need. This is especially important in the case of health insurance. There are online aggregators that can help you find health insurance at reasonable prices. If your family is relatively healthy, a high-deductible health plan, in combination with a Health Savings Account, can provide you with the protection you need.
  • Prepare for taxes: Understand that you will need to pay your self-employment tax. Without your employer paying part of your taxes, your tax bill will increase as you earn more money. Most of those who own businesses pay taxes quarterly in order to spread out the cost over the course of a year.
  • Research other costs: Prepare for the expenses of starting a business. Some of these include fees for a license in your state. If you plan to have someone help you set up the business, consider those expenses as well. You will need to make sure you understand the laws in your state, and that you are prepared to pay the requisite expenses.

Editor's Suggestion: Getting a home loan when you are self-employed is significantly harder than if you are employed, even if your business is doing well. If you are planning to move or refinance your home, do so before you quit your job.

Bottom Line

Starting a side hustle for supplemental income is different from starting a home business. If you feel as though your business is growing enough to allow you to quit your day job, double check your finances.

If you aren't ready now, create a plan that will get your finances in order so that you can quit your job and turn your side hustle into your main hustle.

Image by tom harle


  1. topgirl_nina says:

    I have to agree. No matter how much you think that you and your family is pretty healthy, having health insurance to back you up is a great idea.

  2. This really gives me a lot of realizations in life and I thank you for the shared thoughts here…