Hey Reader,
How do you know when to take this side-hustle full time?
I hear that question a lot.
And for good reason! Leaving your job is stressful to plan for, even if it’s a job you no longer want. Think about the things you’re walking away from:
- The perception of predictability and stability of your paycheck
- The support of the people around you (peers, leadership, etc)
- The simplicity of having one area of responsibility (mostly)
Out of all the obstacles, the financial unknown seems to cause most of the entrepreneurial paralysis I’ve seen.
It doesn’t help that side-hustle income naturally looks unpredictable: A revenue roller coaster with varying highs and drawn out lows.
The choice to jump on that ride looks tricky:
Make the leap too early, and you may not be able to make ends meet. New clients take too long to sign on the dotted line, you run out of cash, and then you’re back on the job hunt. Technically, you find yourself in a worse position than when you started!
But if you wait too long, you might miss out. You may miss out on a few key clients, or lose momentum, or—god forbid—something happens in your personal life that sets you farther back from going full time.
Complacency, even, is a powerful drug.
What happens to most of us: We freeze.
We get paralyzed by the decision. We wait for a sign, or an external force to let us know when the time is right. And we wind up stuck in the waiting place (Dr. Seuss… look it up. #DadLife).
It doesn’t have to be like this!
You can make this decision confidently, based on logic and sound financial principles. Here’s how:
- Separate pilot and plane
- Pack your parachute
- Build your runway
- Accelerate to takeoff speed
Bear with the metaphor. I’m really into Masters of the Air on Apple TV, OK? Great show so far, highly recommend it if you like stuff like Band of Brothers.
All right - let’s dive in.
Separate pilot and plane
When you have a side hustle, things are simple. You make some money, and the money is yours.
Heck, even most full-time entrepreneurs think like this about their money.
In the states, most of our businesses will be set up as sole proprietorships or LLCs. And with pass-through entities like these, even the government considers our money all going to one place: us.
But here’s the thing: This mindset doesn’t help us make smart financial decisions.
In fact, I’ve seen this money mindset handicap some of the smartest and most creative business owners I know. It influences the way we price our work, the way we handle our revenue, and how we handle growth.
You and your business are two different financial beings.
You are the pilot. Your business is the plane. Even if you’re learning to fly and your side hustle is a sputtering little one-prop glider.
Two separate entities.
When I fully adopted this mindset, it felt like I lifted a major boulder from my path. So many things became easier:
- I didn’t feel guilty about charging more…
It was fuel for my business, not greed.
- I felt insulated from the revenue roller coaster
- I didn’t feel tempted to overspend on good months
- Tracking profitability of each project
While this is mostly a mindset shift, I also wholeheartedly recommend (if not outright require) you to have a business bank account in addition to your personal ones.
Literally separating your finances from the business is ALWAYS a smart decision.
Side note: When and if you go full time, I also recommend setting a fixed salary for yourself that is paid to you from your business. In effect, you will become an “expense” to your business. This will help you track your project profitability over time. We do a DEEP dive on this in Accelerator, Module 05 (Functional Financials).
Once you separate yourself from your business, you should have a reasonably firm idea of how much you need to bring home each month to make ends meet.
That monthly number will be essential for the next step.
Pack your parachute
You’ve separated pilot and plane. Nicely done. Now what happens if your plane experiences complete engine failure? Or runs out of fuel?
I don’t know about you, but I’m going to want a parachute strapped to my back.
This metaphor just keeps on giving.
If your business crashes and burns, you want to be able to soften your own landing.
The best way I know how to do this is by having money set aside. Money that’s reserved for emergencies.
An emergency fund… if you will.
We hear this preached in the darkest corners of the interwebs (I’m looking at you, Dave Ramsey), but we rarely heed this advice.
An emergency fund is essential.
And I get that most of us don’t have them. Credit cards don’t count. Your mom (wonderful as she may be) doesn’t count.
As Caleb Hammer says, “Not having an emergency fund IS an emergency!”
Calculating emergency funds is best done in units of time, especially for our purpose here. And the math is simple: everything is based on how much money you need to survive on an average month.
Understanding our expenses is very important here. If you need help with this, hit reply and let me know. I’m working on a budgeting spreadsheet for a friend, and I can share it with you too.
Think survival (not living your best life) when calculating your monthly number: Rent/mortgage, food, minimum debt payments, utilities, and other essentials. Coffee should not be on this list (unless you’re shipping it my way - that’s a green light from me).
Now that you know how much you need each month, how big should our parachute be?
Well, obviously, the bigger the better.
But this decision is going to be based on your tolerance for risk - and there are only a few wrong answers. I would not stray below these minimums:
If I were planning on sticking with my job, I would be comfortable with a three-month emergency fund. Typically, you should be able to find a new gig in 90 days.
But if I were going full-time on a business, I would only be comfortable with a six-month emergency fund. And honestly, I would prefer to have a full year ready to roll.
Having a big parachute can be a huge stress-reliever. I can tell you from experience that having money in the bank for emergencies is a powerful confidence booster.
But I’d like to take precaution one step further:
Build your runway
If personal cash is a parachute, business cash is fuel.
But when you measure how much fuel a business has in units of time… that figure is called runway.
Seriously, this metaphor *chef’s kiss*
Put simply, runway is how long your business can run… before it runs out of money.
Typically, runway is calculated by adding up the business cash on hand with how much it is certain to come in. That sum is then divided by the total of business expenses in a month.
But let’s keep it simple: Think of this like a business emergency fund.
First, add up all of your business expenses for an average month. These are all things like Adobe subscriptions, bookkeeping services, and web hosting. Things that you wouldn’t pay out of your personal bank account, but are essential for your business to run.
Next is what everyone forgets: You.
It’s time to set a personal “salary.” You know how much you need to bring home each month: this is a reasonable starting point for that number.
The key is: Don’t go crazy!
In the beginning of my business, I set my personal salary to be pretty close to my needs. It was tough, but I’m so glad that I started there. My business was lean enough to run on slow months, and every time I gave myself a “raise,” I felt luxurious.
Once you have that set, add your business expenses with your personal salary.
This sum is the number you’ll use to calculate your runway - it represents one month.
Granted, you could add 30% for taxes and the unexpected, but we’re playing fast and loose here. Keep it simple, stupid (Great advice, hurts my feelings every time).
So… how much runway do you need?
Once again, this is going to depend on your risk tolerance. Most advice out there is to have a full year of runway (usually in the form of funding), but we’re starting a creative service business… not a software company.
This might surprise you:
If I were starting a studio again, I would feel comfortable with three months of runway in the bank.
Granted, I would prefer more (six months would be great). But if you’ve been bringing in “hub” clients (see the last newsletter), and have a personal emergency fund… that gives us a LOT of time to find our next client.
But what’s next can make us feel even more secure.
Accelerate to takeoff speed
Having a big parachute and a long runway are great precautionary measures against crashing and burning. But taking a side hustle full time has a major advantage over starting a business from scratch:
We can start picking up speed before we take off.
This. Is. Huge. Side hustles have a natural head start: we (hopefully) already have business coming in before we go full time.
But how “fast” do we need to go before we take off? How much business should we be bringing in before we’re ready to go full time?
Personally, I would feel really comfortable making the leap if I brought in 60% of my personal needs (see step two) for three months in a row.
Think about it.
You’re spending 2-4 hours per day on your side-hustle. You’re bringing in 60% of your personal needs.
What would happen if you tripled your time investment?
By going full time, you’ll be able to invest 6-12 hours per day in your business. It’s reasonable to expect a correlated increase in revenue.
By that math, going full time should yield 120-180% of your personal expenses… or more.
And that’s just a starting point.
The key to this is consistency. Bringing in a big client in June, but nothing in July or August is not the kind of consistent revenue I would look for.
That’s where hub clients are your best friends - look for retainer or recurring engagements early on. These are a fantastic way to hit those three consistent months.
Obviously, this also would depend on your risk tolerance. You’ll have to make your own call if three months and 60% are in alignment with your sense of security and safety. Just like all of the other metrics we’ve covered here.
But I’m fairly confident that this formula is a great foundation for taking a side hustle full time. Especially after coaching hundreds (thousands now?) of side hustlers.
Let’s review.
Map your financial escape plan
Let’s take a look at our financial escape checklist one more time. Personally, I would be extremely confident to make the leap when we have:
- Separated ourselves from our business
- Saved up at least a six-month personal emergency fund
- Saved up at least a three-month business runway
- Consistently brought in at least 60% of our personal needs for at least three months
Action item: Run through each one of the four checks above. Adjust as needed. Get a good grasp on how far you need to go and goals accordingly.
In Summary
We’ve covered a lot of ground today. And we’ve covered a lot of ground in this series. If you’ve been following along, this is the last part of our four-part series on how you can kickstart your creative business while working full time.
I hope this (long-winded) guide can help lower the stress, risk, and uncertainty taking your side hustle full time. All you gotta do is:
- Set aside shop time
- Kickstart the lead machine
- Onboard “hub” clients
- Map a financial escape plan
If you’ve done all this… and you’ve checked the boxes on your financial escape plan… and you have a high level of skill and an impressive body of work… and you still don’t feel ready to start…
I got you.
I know where you are… because I was there too.
For me to make the leap, it took a rude awakening from my best friend, who said,
“Dude… what the f*ck are you waiting for?!”
Sometimes it takes a little bit of mental legwork to feel ready. That’s why I wrote an article on why you don’t feel ready:
Read it here.
I’ve got all the faith in the world in you.
Ben Burns
P.S. Just so you know, if you’re happy having a job and a side hustle that brings in extra cash… I am all about it. Go for it. Don’t feel pressured by anyone to jump into a business full time.
P.P.S. If you do want a supportive environment and access to more content like this, I’d love to see you in Accelerator. Side-hustlers are welcome. This week alone, we’ve had four people lock in five-figure projects. Take a closer look at the program by watching the tour we just did this week by clicking here.
P.P.P.S. Please note that nothing here should be considered financial advice. I’m just sharing what worked for me. Enjoy :)
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