5 Tips for Starting a Side Business

I’m in the process of starting another side venture. I won’t get into the details and it’s a fairly short-term project, but the cash from it could be used down the road for something a little bigger. I’ve learned some important lessons just starting out, and taking a page out of The Finance Blogger‘s book, I’ve finally got some business knowledge to share!

1. Test Drive if Possible

Not all businesses can start with a small sample, test, and see if the results are what were expected. It doesn’t have to be the full thing, even a low-risk starter project could be enough to show you whether it’s a worthwhile venture or if you’re in over your head. I’m lucky to have the option of starting small, so instead of investing a lot of money in this, I’m putting just a little in and seeing if what I have is viable and will work the way I expect.

2. State Up-Front How Much You are Willing to Invest

As with any investment, know in advance how much money you are willing to throw at the project. If you do, you won’t go overboard and spend more than you’re comfortable with. I’m not willing to take out a loan for this one or put it all on my credit card, but I am willing to take some of my hard-earned money and invest in what I think is a very safe venture. I have my limits, and will make sure not to cross them.

3. Determine Your Risk vs. Reward.

In college, I was intrigued by far too many opportunities that involved putting a lot of money down, with the reward being just a 10% gain after a ton of work. That sounds great, but I was taking on far too much risk. If you’re going to invest, make sure that the expected outcome is worth it. In this case, the risk is minimal, under $500, while the possible reward is closer to $5,000. With that ratio, it’s hard to say no. Also, consider extra precautions such as small business insurance to reduce the risk involved with starting a side business.”

4. Is It Sustainable?

In high school, I had a job that paid me $30 per hour! The only problem is that I only had the opportunity to work 5-10 hours a month. If it’s not something that will be able to continue in the future (or have a great pay day soon!), take a second look before quitting the day job. I’m well aware that this low-risk high-reward proposition won’t last forever, but that still makes it worth it right now. Knowing that it isn’t a long-term plan yet is good to know up-front so I don’t get too invested.

5. Know The Market

It could be ‘the opportunity of a lifetime,’ but if you’re not the one making the claim, do you trust the information. Do your own research, get involved before making a commitment and you’ll have a much better feel for whether or not you can be successful. I’m confident in my approach mostly for one reason: I can get a fairly good estimate of the value of an opportunity with just a brief look, which means I won’t get tricked into going after something that I’ll regret in the end.

I’m just starting my business venture but I think I have a good feel for the possibilities as well as the realities. I’m able to test drive it, I’ve set my maximum investment, and I know it’s a low-risk, high-reward type deal. It won’t last forever (at least at this level), but it has the opportunity to grow, and I know that I can thrive in this market. By slowly easing my way into the process, I will be able to gauge whether this will be as successful as I envision.

Readers, what rules do you have for jumping on a side opportunity? Do you sometimes get too excited you forget to take a step back?

17 Responses to 5 Tips for Starting a Side Business

  1. JT McGee says:

    #6 Make sure you love it.

    Unless you’re entirely in love with the business you wish to start it won’t go anywhere. Young businesses are like babies, they require a ton of attention and care, and they don’t show you how much they love your appreciation until they’re older.

    • Daniel says:

      @JT McGee, Very nice, I’m definitely good on that one. It’s something I’m very into and despite the hours I put into it, I don’t consider it work at all. More like hanging out doing stuff, and the fact that I can do it while watching tv definitely helps!

  2. tmgbooks.com says:

    IMO, the real value of a side-business (in addition to a full-time job) is that it works to diversify your income. If you are able to create a side-business (or two or three!) doing so will make you that much more financially viable.

    When you have only a single source of income (usually the case for most people and that being their full-time job), your financial security is 100% dependent on that job–risky in my book.

    The thing is, even a small business on the side can eat up all your free time and most of us are reluctant to give that up–even for money or more financial security! And if someone is not able to manage their personal finances, managing the finances of a business will also be a stretch. So, easy to promote the concept but it falls on a lot of deaf ears!

    • Daniel says:

      @tmgbooks.com, It definitely is a balance, and taking up all your free time doesn’t sound inviting to anyone. It seems like a luxury to have multiple sources of income, but maybe a big part of it is the initial investment of time and a little money and the result could be less work in the long-term.

  3. krantcents says:

    You made some good points. My rule is simple, I have to enjoy it if it takes more than a week or two, otherwise I won’t do it very well.

  4. You know I would do this. In fact I want to do it. Do you need a partner?

    • Daniel says:

      @Kevin McKee, Before hearing the idea? Wow, you put a lot of faith in me. What if it was something very morally wrong, taking advantage of people to win a quick buck? Still interested?

      • @Daniel, You seriously considered changing your mind on the “coupon sharing is stealing” deal. I trust you.

        Plus it’s a 1000% return. So the answer is still a resounding yes.

        • Daniel says:

          @Kevin McKee, haha well it isn’t anything illegal. I’m trying to make it work on a larger scale, but if my trial works, maybe we can go global.

  5. MoneyCone says:

    Network with people in your field of interest before deciding to jump into it.

    For some reason a lot of my friends want to open a restaurant. They think it is easy, but if you talk to someone in that business, he’ll give you a very different perspective.

  6. Evan says:

    For me it is all about accountability and drive. I went through 700ish old emails tonight trying to garner contacts for a partner of mine in a business….

  7. Daniel, getting your feet wet before diving in is some of the most sound advice you can give. If you’re willing to put in the extra effort, you can easily find out whether a business has legs before putting all your weight into it.

  8. 20 and Engaged says:

    Plan plan plan! This is definitely my problem. If you are looking to start something up, you have to have it all planned out (at least bare bones). Have a plan and you’re virtually unstoppable!

    • Daniel says:

      @20 and Engaged, But it’s so easy to want to just jump in! It’s a good point though, taking a step back and planning beforehand can pay big dividends.

  9. I’m on my second side business. And I’m doing it much smarter this time than the last. My rules:
    1. Create or follow a business model that works.
    2. Understand you are not selling X, you are “marketing” X. Study the masters to get good at marketing.
    3. Realize it will take more time than you think to get the return you want , especially if you don’t follow Rule #1
    4. Test. Test. Test. by starting out small and learn if it is a viable market before your quit your job or invest a lot of money into a new venture.

    • tmgbooks.com says:

      @Felicia Gopaul @ College Savings, Good point!

      Every business is the selling business. I write books and give seminars but the success of my business is dependent on the effectiveness of my marketing and a lot of that is me selling face to face.

      That aspect of running a business is why many fail. I had to learn marketing but had the resources to do so; it would have been much better had I started the business already having a proven marketing plan in place.

  10. Steve Sildon says:

    Don’t forget about a business plan. That seems to be a commonly forgotten basic principle when starting any business, large or small.

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