Investing in a Side Business From Your Salary: 6 Things to Consider

Every business has some level of risk associated with it. The market rewards risk; if it didn’t, then everyone would start his or her own business and the subsequent rewards would be diluted. Sometimes we need to mitigate risk, however, by continuing to work a “day job” while we grind away at our side gig or side business.

This can be tricky, because that side business could easily be our main source of income in the future. But it can also drain a large chunk of our savings and/or salary in the present, and possibly never turn a profit (like most businesses). So here’s what first-time business owners should consider regarding how to fund their side gig.

1. Do not dip into your retirement savings.

Yes, I began with a “don’t.” But this is crucial. Yes, it may pan out. But let’s deal with probability, not possibility. CAN this be the best decision of your life? Sure. WILL it be the best financial decision of your life? Statistically speaking, probably not, given how many businesses ever actually turn a profit, especially in their early years. So hands off retirement savings, or any other irreplaceable savings.

2. Manage your initial debt.

Most likely this will be personally secured debt, so don’t take on more than you can comfortably pay back on your current salary. You decide what that is, but without knowing the details of your business, I would recommend it be recoverable in one year under your current net income, as a rule.

3. Consider using a fraction of your salary.

Simply calculate how much you can spare out of each paycheck and use that. If you need a larger initial investment, e.g., for product development or a prototype, start saving a few months before your pre-launch activity. This budget discipline is also useful in vetting your idea, organizing your business, and not spending that money on yourself.

4. Don’t jeopardize your current salary with your startup work.

That’s much easier said than done, because working on your startup is probably a lot more fun than your job, but it’s important. Your startup has a better chance of surviving if it has funds coming in.

5. Spend “close” to your customer.

In other words, while it’s tempting to spend on “Phase 2” or the next cycle, it’s generally safer to concentrate on spending your dollars where they will have the most impact on your customers and prospects. This helps you spend less initially and focuses you on customer success and your marketing and sales pipelines.

6. Niche your side-hustle.

If your small business lacks the funds to build an elaborate marketing and sales pipeline, consider a “niche.” Focus on a particular customer and a particular service or product, and pivot that niche if your data and experience lead you elsewhere. But beware of dilution; typically, multi-service/product marketing and sales pipelines are expensive to get right on a side gig’s budget.

These considerations are just the tip of the iceberg with regard to financing your side gig, but I hope they are useful. If you need assistance, don’t hesitate to reach out and let us know. Maximize the return on your startup investment; give us a call to discuss how.