How to get Finance for Your Side Hustle

At House of Coco we love to champion the next #girlboss and we are always showcasing women in business on our site. One thing we realised is that there are more people than we imagined that want to have their own business or already have a side hustle going on alongside their ‘real’ job. We spoke to Faye Watts, a partner at Fuse Accountants, to get some advice. Here’s what she had to say…

There are many reasons for starting a business on the side of your day job: to supplement your full-time income, to form a hobby business, or to start a business whilst you are working that you can transition into when it builds up.  These reasons may well impact on how you structure the business, as to whether you form a company, be self-employed or partner up with someone else and form a partnership.

Set Up

Becoming self-employed is very straightforward and simply involves completing a form online to register with HMRC. Forming a company requires set up with Companies House and more structure although it is still relatively straightforward, but I suggest taking advice.

If you are simply looking to do a little bit of freelance work on the side then usually becoming self-employed is the easiest and most straightforward way of working. However this does not mean it is the most tax efficient and will totally depend on your personal circumstances. Also commercially, being self-employed doesn’t give you any protection against your personal assets for liability, which means that if your business goes down, you are financially responsible for paying any bad debts.

Forming a company gives you a little more flexibility for profit extraction and business planning, but can be a little bit more costly. Firstly you have the benefit of the limited liability protection from the company and the commerciality of having this. You can also do a little bit of tax planning to decide upon when you extract your profits which could give a tax saving compared to being self-employed for instance, if you are a higher earner.

If this new business is aimed at growth and long-term longevity, i.e. you may be considering investment or bringing in other people, a company will give you this structure.

Show Me the Money

If your business needs to raise finance to succeed there are several ways to do this.

Loans

It sounds obvious but it’s still important to remember that here you are borrowing money, but will retain full control of your business

  • You could source a loan from a bank or other commercial lenders.  Although this might be the more traditional route this seems to be less popular now as there are other options
  • There are some good government schemes offering start up business loans for new businesses
  • You could use a method of crowdfunding to raise ‘donation like’ injections of cash, particularly if your business is offering something to the community and you can give them a little something back as a treat
  • There are other public funding options that are available now (funding circle is one) whereby a collective group of individuals are effectively lending your business money as a single loan

Investment

Here, you are generally giving away part of your business in return for a cash injection, so this need to be thought through carefully,

  • Crowdfunding (as before) may be an option, but this time offering small quantities of shares in your company
  • You could sell shares in your company to investors, and you could also do this by enticing them through tax relief by offering EIS/SEIS share subscriptions into your company.  Consider whether you want these investors to have an active role in your business to help you grow
  • You could take on larger scale angel investors.

When considering investment, it is crucially important to work out in the beginning how much you actually need. Many people will come up with a figure in their head without any methodology behind it. They will say they need say £150,000 for a project for example but in fact they may only need half of that and can over-raise finance and not need to, meaning that they are giving away too much of the business. Often, people give away too much early on and then need to reach out to refinance again at a later date and therefore end up decreasing their own shareholding in the company. Eventually, this could even mean giving away the majority ownership.

Long or Short Term – Income or Capital

It is also important to consider whether this is a business that will give you money for the future or whether you are building something with the intention to sell it? There are many people investing time and money in building Apps right now with the hope that they’ll be able to build a subscriber base and then sell it into a larger company, for instance.

Where will your main financial return come from, i.e. from the sale of the business or from the services or goods it provides to customers? This will help you determine how much of your business you really want to give away in exchange for somebody buying shares in your business and it will also help you consider how much financing you really need at the outset.

This is why business plans and financial plans are essential for a business that needs finance. Be realistic and be truthful to yourself about anticipated returns, know how much your marketing budget will realistically be. You need to know what your professional fees and other overheads are going to be, do your research, find out from colleagues and peers and other business owners and put together a plan that is real and functional and something that can be fully fulfilled and achieved.

Tips for a Side Hustle

  • Getting any business off the ground is hard work and if you’re doing it in your spare time, even harder. Be prepared for that. You will be working evenings, weekends and holidays!
  • If you’re growing a business so that you can leave your job, give your new business plenty of time to prove itself before you make the jump…and to ensure that you don’t get bored with it!
  • Check out the rules at your 9-5 job. Will this conflict? Don’t make the mistake of letting your side hustle impose on working hours as, if found out, you may find yourself working on your side hustle full time a little earlier than you had anticipated, and check any restrictive covenants in your employment contract
  • If you are working with hands on investors and still in a 9-5 position, be clear about your boundaries and when you are available.

Faye is no ordinary tax advisor. Her background with creative industries and seven years as a freelancer in the fitness industry, followed by running her own accountancy practice since 2008 means that she has a real life understanding of the pressures of running and growing a business. As well as her work in tax consultancy and business planning, Faye sits on the advisory boards of a number of companies, including Funny Women and Sister Snog.

http://fayewatts.com and www.fuseccountants.co.uk and ein

You must be logged in to post a comment