How to Start a Side Business

How to Start a Side Business

by Belle Wong, J.D., November 2015

There are many reasons for starting a side business. You may have a brilliant business idea but you’re not in a financial position to quit your day job to focus on a new business full-time. Or perhaps you need to supplement your salary, whether it’s to make ends meet or because you’d like to make a special large purchase or take a once-in-a-lifetime vacation.

Side businesses can provide much needed income to meet a number of desires and needs; they can also be a good way to test drive both your business idea and your ability to run your own company without the time commitment required by a full-time start-up.

There are a number of advantages to starting a business on the side while keeping your day job. In some cases, these advantages may even be the reason why you’ve decided to start a side business in the first place.

  • Less time commitment required. Compared to a full-time start-up business, a side business can work even though you can only put in part-time hours into the business. This makes it an ideal business to start while holding down your day job.
  • Health insurance coverage. In addition to the regular paycheck, health insurance is probably one of the main advantages of starting a side business while keeping your regular job. Health insurance is expensive, and if you can start a business while keeping your health insurance coverage going for both you and your family, you can save a lot of money that can then be reinvested into your business.
  • Avoiding cash flow problems. Cash flow problems can be a big challenge for start-ups. Let’s say you have the clients, and you have the work, but the gap in time between when you send out your invoice and when your client sends you payment may prove too large for your start-up to handle; bills that come due before payments arrive still need to be paid, and on a timely basis if you want to retain your good credit rating. With a side business, you can use the salary you make from your day job to help pay the bills that come due before your client’s check arrives.
  • Staying afloat. Cash flow issues aside, during your start-up phase it’s likely you won’t have many clients—or any at all. Despite this, you’ve still got expenses associated with running your business. But because you’re running a side business, you have that regular paycheck to help you keep your fledgling business afloat while you work at landing customers and clients.
  • Test-driving your business idea. That idea you have for a new business might be a little on the risky side; you have confidence in it, but there’s a lot you don’t, and can’t know, until you actually place your idea on the market. A side business is a great way to do this without sacrificing the security of your full-time paycheck. 
  • Test-driving your business acumen. The test-driving idea works as well in terms of testing your business acumen, especially if this is your first time venturing into running your own business. While there are still risks involved in running a side business, there are generally less things at stake than there would be if you were starting a small business on a full-time basis. The side business gives you the opportunity to test out your ability to run a business without risking too much.

Disadvantages of Side Businesses

While there are certain advantages to running a side business, there are also some disadvantages you should be aware of before you decide to start a business on the side.

  • It’s still a time commitment. Yes, a side business should require less of your time than a full-time business would, but it still does require a time commitment, and this time has to come outside of your work hours. What does this mean for you, the new side business owner? You’ll find yourself with a lot less time for personal activities; friends and family in particular may have a hard time understanding this.
  • Exercising care while on the job. When you’re running a side business, it’s important not to be tempted to use either company time or company resources to conduct your business. Whether your employer knows or doesn’t know about your side business, taking advantage of company time or resources to work on your own business is both unethical and can lead to unwanted consequences, such as getting fired.
  • Running a business on limited hours. You understand that you have only limited hours to run your business, such as your lunch hour, evenings and the weekends, but unfortunately your clients won’t care that you’re doing your best to manage your business during the times you’re not at work. There will be occasions where you will have to figure out how to deal with a customer who’s demanding your attention now, while you’re at work, rather than later.
  • Part-time commitment means part-time growth. Unfortunately, you can’t have the best of both worlds. Businesses demand a lot of attention, and generally their growth rate will correspond to the commitment you’re able to give to them. While your side business can grow, it likely won’t grow as fast as it would if you were working on it full-time. 
  • Additional stress. There’s no way around it. Having a job has its own stresses, and so does running a business. When you’re doing both, you’ll find yourself dealing with both the stresses that arise from your job and the stresses that arise from running your business, and whenever the two conflict, as may happen every now and then, you’ll also have to deal with the extra stress arising from the conflict.

Choosing the Right Side Business

So you’ve weighed the advantages and disadvantages of running a side business and you’ve decided you still want to start one. How do you go about choosing the right side business for your situation?

There are a lot of good side business ideas out there, but the best side businesses don’t consist of just a great business idea; they should also be a good fit for your particular circumstances. For example, home based businesses may work well if you don’t do a lot of business travelling for your day job, but an online business might be a better fit if you do find yourself travelling a lot.

Choosing the Right Business Structure

If you’ve got a good side business idea, and you think it’s a good fit for your personal circumstances, it’s time to roll up your entrepreneurial sleeves and dig into the research required to start your business, including choosing the right business structure. A side business does require less time and investment, but it’s still a business, so your first step as an entrepreneur will be to decide on the right business structure for your new business.

Most small businesses today are run as either a sole proprietorship or a limited liability company (LLC). There are advantages and disadvantages to both forms of business structures, and as with choosing the right side business for you, it’s important to choose the business structure that will work best for you and your new side business.

LegalZoom can help you start a side business as an LLC or corporation fast and affordably. The process begins by answering a few questions about your business online. We'll assemble your documents and file them with the Secretary of State.