money·3 min read

Side Hustle Getting Serious? These Smart Money Moves Will Set You Up for Success

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Design: theSkimm | Photo: iStock
May 4, 2022

If your side hustle is feeling more and more like a real business, that’s because it is. As a new small business owner, where you put your company funds is a major decision. And cutting back in small ways can have huge advantages. (Hi, going paperless.) 

Tell me your small business accounting secrets.

Put the calculator away. According to this survey, 60% of small business owners admit they don’t know all the ins and outs of accounting, and 64% use accounting software.Even if you are a numbers whiz, calculating everything on your own makes mistakes more likely.And small biz accounting mistakes can cost big. 

And no, software doesn’t have to break your business budget.You could start out with a free option like Wave.

What other secrets should I know?

One of the best things you can do for your business is invest in a point-of-sale (POS) system. Think: like a modern-day cash register. Except they do more than process payments. Advanced POS software can also handle inventory management and calculate taxes for orders from different states.

Depending on which one you choose, expect that investment to range from free to $299 per month. Yes, you’ll need one. Otherwise, you won’t be able to process transactions.

What about my 401(k)?

Just because you own a business doesn’t mean saving for retirement goes out the window. You can still take advantage of a solo 401(k). Depending on the financial service provider, it could be called a Uni-k Plan, Individual (k), or One-Participant (k). The upside of enrollment is it’s open to all business owners, whether you own a sole proprietorship or a corporation.

The downside: it comes with major limits. Only you and your spouse (if they’re an employee) can participate. Besides that limitation, most financial institutions operate solo 401(k) plans exactly the same as employer-provided 401(k) plans.That means less documentation and, usually, lower fees.

Any alternatives to a solo 401(k)?

You can also set up a SEP IRA (short for Simplified Employee Pension IRA) if it’s a better fit for your money goals.And you don’t need a ton of employees to have one.A SEP is an option even if you’re your only employee. And you can add employees as your business grows.And for 2022, you can make pretax contributions up to 25% of your income, or $61,000. Whichever is less. 

What if I don’t want to retire?

You should still have an exit plan in place. Because sometimes, it's not up to you. Health problems or other factors out of your control could compel you to leave the workforce.And you deserve options. Hint: That small business could become a booming asset that you’d like to sell one day.

theSkimm

No, you don’t have to be a math genius to start your own business. Thanks, accounting software. But you do need a budget and retirement savings, even if it’s just to have options.

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