Growing a side business while working a full time job?

Have you ever thought about running a small business on the side while working your full-time job?

Perhaps you're already part of the new gig-economy and providing work-on-demand services back to your past employer.

For many people, working a side hustle is becoming more and more important in our growing world of temporary contracts and flexible working hours.

While providing flexibility (and promising better work-life harmony), growing a side business also requires a new business owner to learn new skills and new habits, before success arrives.

Here are some common financial mistakes time-poor new business owners can avoid.

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New Adventures require new thinking

Like all new ventures and adventures, our current thinking and way of doing things are usually not enough to take us to the new places we want to go.

Business owners usually have an increased ability to take risks and delay gratification, (often for a very long time) but this also makes them more likely to make mistakes, while they’re building their new venture.

Now while every expert begins as an amateur, here are nine of the most common mistakes first-time business owners and contract workers need to avoid when growing their side business hustle.

• One of the main reasons many new businesses fail is not through a lack of ambition but through lack of clear understanding of the core foundations for every business venture.
• Some mistakes are small and can be fixed on the fly but some mistakes (especially when it comes to money matters) can easily sink the ship - and it doesn't have to be this way.
• Cash flow that suddenly dries up, unexpected expenses (always at the worst times) or rapidly increasing amounts of debt without an understanding of where income may come from, have all been known to bring even the most exciting endeavours to an unexpected stall.

Nine core financial mistakes new business owners make and what you can do to avoid them.

1. Not having separate business and personal bank accounts.

This is the most basic of all mistakes that are easiest to fix.

Separate your personal and business banking accounts today or the cost of this mistake will extract a high price later, (your accountant may even refuse to work with you if you don't use cloud-based financial record keeping).

• Having a separate account for your business will help you see a more accurate picture of your business's cash flow and health.
• But perhaps, more importantly, separating business and personal money promotes a very different mindset about how your business fits into the rest of your life. Having separate accounts can help keep you from blurring those important lines.

Pro Tip: At some stage do yourself a favour and test drive an online bookkeeping program like Xero. It can save you time, your sanity, (probably your significant relationship) and help you keep track of your numbers all while prompting you to keep on top of your invoicing - all in one place.

2. Going into credit card debt with only the ‘expectation’ of future revenue.

Put another way, 'don't fund the chickens before they hatch'.

When you begin a business you suddenly become the target for every software subscription seller and catalogue-supplying salesperson on the planet.

It can seem everyone wants to sell you stuff they insist you’ll need for your business (but often less relevant for an early-stage startup) suggesting you simply use your credit card to direct debit the payments. Bad advice for a new business.

• These mounting ongoing expenses expose you to the risk of deep debt if you don’t manage your new-found credit card. Many new business owners fail to fully appreciate they’re compounding their expenses at an early stage and incurring interest charges every time they use the credit card when they don't have the full balance paid off each month.
• Under the guise of keeping cash in your trading account for liquidity, it's tempting to simply roll over the credit card debt till the following month and see what happens, then later sign up for a credit transfer and push the growing unpaid problem 12 months down the road.

Now before the hate mail comes in, 'Yes responsible credit card use is always a good practice'.

But when talking about the honest realities of life and business, it's easy to let credit card overuse expose you to deep debt that can structurally become difficult to pay off in the period when your business is entering a growth cycle and needing money to fuel its fast growth expenses.

Over time, business-related credit card debt can be the trigger for a catastrophic cash flow failure or credit freeze.

Unmanaged credit card use is the worst financial mistake small business owners make. If you want convenience use a debit card instead.

3. Not resisting the temptation to immediately go out and make major business purchases.

When starting a new business it's understandable we all want new tech, flashy websites, the best in class software, perhaps a funky office fit-out and personal wardrobe to match.

But if you’re just itching to make a major purchase (even if you're convincing yourself it's really an investment ...) near the beginning of your business growth, think this decision through very, very carefully.

• Akin to watching a learner driver buy an expensive shiny new car, admittedly some expenses may be mandatory; like an online presence, business cards, professional indemnity insurances and professional costs like legal, insurance and accounting.

But, you always need to ask yourself;

• ‘How is this expense going to help generate more revenue in the short-term?’
• ‘How far will this early expense move the profit needle for you?’

Right timing is everything

If you're thinking about planning a launch party with a theme cake, buying embroidered polo shirts, personalised iPads and drink bottles for everyone and in-office back massage gift vouchers, first stop and consider whether these initial non-core-expenses will add enough value to your bottom line to justify the initial spend.

4. Making a large asset purchase (like a car) too soon.

Most small businesses start off significantly undercapitalised which means they start off without a significant cushion or buffer of cash to get them started and then hold them steady until the income and profits come in.

• During your first foray into any new business, there are always (yes always) a lot of unknown expenses and unexpected learning opportunities that come your way.
• The harsh reality is you're going to have failures and some of them may come with a big price tag upon them.
• If you rush out and put a lease on a new car and then something unexpected happens that means you won't be able to pay yourself next month, big-ticket purchases made too quickly, can often steal your focus - and all your spare cash.

When you're starting up, be as lean and low cost as possible in both your business and personal life.

5. Not saving and planning for lean times and inevitable emergencies.

There's no shortage of people reminding us 'cashflow is king' and all business owners will attest to the necessity of liquidity.

• This is a hard life lesson to learn; intentional saving for a rainy day or lean times (or even a pandemic) is a necessary core business skill.
• Simply defaulting to ‘using a credit card to buffer unexpected costs’ will only create more problems down the track.

More importantly, it also means you never develop the core skill of saving and planning (and even delayed gratification).

Build a 3-month reserve of money sufficient to cover your costs. Without a backup plan, you can find your efforts and your assets frozen.

Pro Tip: Consider the peace of mind that Business Overhead Expenses cover can bring where all fixed costs can be paid if you're sick or injured and can't meet your fixed bills for up to 12 months.

6. Not planning for your tax obligations and BAS.

Many successful tradies talk about the habit of putting 30% of their income away in a separate account to cover their tax liabilities - it's a good idea that just works.

• There's a reason why our habits are hard to break.
• They guard us, bring predictability into our lives and they can also become the protective core habits we need.

Get a separate account to manage your tax obligations and don't argue, just do it.

7. Not setting a clear spending budget and saving plan for your business.

While it may be possible to initially run a business without a very clear plan for the future, over time you'll have a hard time hitting your target if you don’t know where it is.

We all need to continue to spend less than we make and this is true for business too.

• Set a rough budget to help guide you on what you can and cannot afford to spend each month.
• Make sure your spending budget separates your operational, marketing and other expenses so you can see what you can and cannot spend each month.

8. Not tracking recurring key dates and subscription expenses.

In today's world, many recurring business expenses are moving towards subscription models, like annual software licensing, professional association fees, legal and accounting and even insurances.

• It's easy not to see what's not constantly in front of you so consider making a separate calendar reminder for recurring business expenses and subscription renewal dates.
• This way you can see what expenses are coming in your next month, quarter or year, all in your daily diary.

9. Not knowing your monthly 'minimum number'.

We all have minimum costs to keep the doors open for business. These are usually called fixed overheads and can include leases, wages, utilities and alike.

• Calculate the cost of your fixed monthly expenses so you’ll know how much revenue you need to make each month to keep the doors open.

Knowing your monthly minimum number will also prompt you to keep track of your progress, your focus and your activity.

Avoid death by a thousand cuts.

I have seen some small businesses make catastrophic mistakes look like a sudden car wreck.  But more often than not, I see a business failure come from a series of small bad (or late) decisions and financial mistakes that over time cause the business to stall, then freeze, then die.

But “I’m not a money person…” I hear you say.

What you focus on gets your energy and what you avoid only serves to sabotage you later on. While you may not feel like a ‘money person’ you do need to develop core skills.

My friend and colleague Amanda Fisher, The Cash Flow Queen, makes this comforting statement, ‘You don’t need to know all your numbers all the time, but you do need to know which ones are the important ones at a particular time’.

Where to from here?

The world continues to change as does the new normal (whatever that is).

1. Take a more considered role in improving your financial skills and getting more life Confident with your money matters - even before you need them.
2. Remember to invest in yourself.  If you're in the gig economy or thinking about running a side hustle, its time to learn about basic cash flow management and budgeting and increasing your skills. The more you learn the more you earn.
3. If you haven't subscribed to Our Not-a-Newsletter, you should. It's designed to make complex Australian financial issues easier to understand and help increase your financial awareness and knowledge, one month at a time.

Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn.  Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.