Side Business – You Should Have One
I’ve long been a believer in small business. I believe it’s the lifeblood of the economy. Small businesses (those with less than 500 employees) have created 64% of all new jobs in the US since 1995. I also believe it’s the path to true prosperity for most individuals. But for most of my life I’ve believed that you needed your small business to be your full time job for it to be worthwhile.
In the last five years, I’ve learned better. Most people should be operating a small side business. My wife and I currently operate two side businesses (a third business we operate is technically and legally part of one of the others) – and they’ve been really great for us.
Side businesses have several huge advantages over businesses that require you to work full time.
- You don’t have to quit your day job, so you don’t lose that income.
- You don’t have to find the cash to pay yourself a full time salary that replaces your day job, so it’s much easier to make the business profitable. In fact, with some kinds of businesses they can be profitable – or nearly so – from day 1 (Ever After Videography was profitable after Morgon’s first paying job).
- If you pick the right business, the major investment can be your time rather than your money.
- You don’t have to make a full time living at it, so you can scale the business up or down to fit your needs. If the workload is too high, scale it back.
- Keeping it part time can make it a great fit for a “stay at home” spouse.
- You get (almost) all the same tax benefits as if you had a full time business.
A quick example that combines several points: my wife is a stay-at-home-mother. Her side business does videography. She does all kinds of video work, but the main “bread and butter” work is weddings. This is a wonderful fit. Most of her workload occurs on Friday evenings or Saturdays – times when I’m already home. So we very seldom have to pay extra for childcare for her to work (we do, very occasionally – 4 to 5 times a year – have to make use of a drop-in daycare facility near us; the kids go so seldom that they view it as a treat).
The business has been profitable since the first paying job we landed her. Now… it’s not making us enough money for me to quit my day job. It’s not even making her what a typical “professional” job would make. But for about a dozen weekends a year worth of work, she makes more money than she would if she worked full time at a fair amount above minimum wage. That alone isn’t bad.
But on top of that, there are quite a few tax benefits to be had for having income in the stay-at-home-spouse’s name. You can now contribute to retirement accounts for the second spouse, not just the first. Dependent care expenses become tax deductible, if they help the second spouse work (or go to school). A lot of things you’re already paying for can become legitimate tax deductions (be careful with this, though – you do need to understand the rules well; or better yet, get an accountant who does).
I just finished doing our taxes for the year, and the business deductions alone from my wife’s business just impacted our personal tax bill to the point where they effectively increased her net profit by 25% (anybody need 20% off on TurboTax?). Now… if you grow your business past a certain point, it will definitely increase your tax bill – but then, you’ll be making a tidy profit at that point, too.
Think carefully before you jump in – not every business model will work as a side business. And you need a plan, not just an idea. But there can be a lot of benefits. What side business are you thinking of?