Updated: Jan 3
Finding your passion project and turning it into a business is a major move and can be very rewarding. But before you get too excited and start running ads, booking gigs and selling products you must follow the foundational steps to ensure you are operating legally, ethically and like a real business would.
Some entrepreneurs often make the mistake of diving in head first and learning the key essentials from mistakes they make along the way. This can prolong the growth process and make your journey even more stressful. Luckily, that isn't you and you're a strategic, plan ahead type of person. Thats is why you're here I assume.
So I made a list of the 5 essential steps to turn your side hustle into a legitimate business. Check it out below.
Step 1: Establishing A Purpose
DO IT FOR THE RIGHT REASON! It's so easy to get caught up in the idea and aesthetics of being a big business owner and living the boss lifestyle that you forget it all starts with purpose. That's why they're called passion projects. You have to do it for a reason and the reason has to align with your passion for it to work. Here is one of my favorite quotes by the great Steve Jobs.
"YOU HAVE TO BE BURNING WITH AN IDEA, OR A PROBLEM, OR A WRONG THAT YOU WANT TO RIGHT. IF YOU’RE NOT PASSIONATE ENOUGH FROM THE START, YOU’LL NEVER STICK IT OUT.” - Steve Jobs
Find your niche! This really should be the title. Thoroughly assess your passions and skills to identify what you offer and if there is a lucrative market for your idea, service or product.
Identify the WHY! Ask yourself; Is this just a get rich quick scheme? What is the underserved or unmet needs that my business can fulfill? Where do I envision my business going in the next 5-10 years?
How will my business make a difference or become a resource to the community it serves? What makes my business, product or idea unique? Who are my ideal clients and how will I reach them? Who are my competitors and what will I offer that my competitors will not?
The answers to these questions should help you develop an effective business plan and execution plan. Because you are developing one of those first...right?
Step 2: Setting Up Your Foundation
When you're building anything a solid foundation is key. A good foundation provides stability and balance to help you get off the ground. This is goes for your business as well.
Your business name is the first thing people hear, say, see and remember about your brand. Create a unique name for your business or product, and keep it short and sweet. This makes it easier to find and use when you're advertising.
Do not forget to research the name you choose to make sure it is legally available. You do not want to start your business with a name that has already been trademarked or patented unless you're planning on being sued.
Once you've legally claimed the name you will need to identify the structure of your business. I know some of you may be thinking, "is he talking about the physical location or building for your business?" The answer is NO. Your business structure refers to the category your business is legally recognized as within it's given jurisdiction.
Common examples of a business structure include
Limited Liability Corporations or LLC
Sole Proprietorship (Most Common For Freelancers & Small Businesses)
A sole proprietorship is one of the easiest business structures to form. All you need is the licenses needed to operate business in your state. It's less paper work, less government control and taxation, it gives you full management control, and is easier to get started.
On the flip side you are 100% responsible for all debts and obligations. This means if you end up in a lawsuit you are fully liable and your current assets like your car and home are up for grabs. Additional insurance may be necessary to cover personal injury or physical loss that can possibly terminate the continuity of your business.
But wait! Don't let this scare you off, if you are just starting your small business it may not be necessary to file for an LLC or Corporation just yet. A sole proprietorship can help you get started and you can always switch to a LLC or any other structure when you start doing larger projects or partnerships.
I will explain more about each business structure to help you select the right structure for your business in a later post. In the meantime you can schedule a consultation with a business attorney to find out what structure best suits your business.
Once you choose your business structure you want to apply for an E.I.N. An E.I.N or Employer Identification Number is a federal tax identification number used to identify an business entity. This 9 digit number acts as the social security number for your business. You will need this to build business credit and file taxes when you begin paying out employees.
If you are doing business in a fictitious name you technically have to register it in most states. So, for example, if your business name is Jamie Bloom who does window cleaning then you are not using a fictitious name. However, if you use Jamie B's Window Cleaners then that is considered a fictitious name because it is not identical to your name and therefore has to be registered.
Registering for a D.B.A ( Doing Business As) is a simple process and can be done at your local county clerks office or state government. Registering your name is not necessary in some states so find out if it is necessary in your state before trying to file.
Next you would need to apply for a business bank account. This will help you keep your money organized, document income, and also help when applying for loans and more.
When applying for a business checking account you will need your E.I.N. employer identification number, identification documents like a passport or drivers license, your D.B.A, organizing documents filed with the state, a business license with the business owner(s) name and some require a minimum deposit to start the account.
Some of these requirements vary by state.