So, you are looking to get into a side hustle or maybe you want to start a business. But what the heck does that mean and what is the difference?
Before you begin, you should be aware that they are very different things. Now, both can be great ways to earn money. But at their core, a side hustle is a way to earn a little extra money and a business is a way to replace your employment income and earn a profit.
As time has gone on, the term side hustle has become more and more common. It seems like everyone has 1 or 2 side hustles going on in their free time. I mean, I have even heard of people having 5 or 6 and that is their career. You heard that right, there are career ‘hustlers’ who make all their money from a combination of multiple side hustles.
So, how are side hustles different from businesses? Hint, its not a business license.
Lets dig into it a little more.
What is a Side Hustle
Definition- work performed for income supplementary to one’s primary job
We used to just call side hustles side jobs. They are a way to earn a little or a lot of extra money that isn’t coming from your full time job. Side hustles can be anything from dog walking, babysitting, or writing articles online. It can be a great way to explore new opportunities while increasing your income on the side, hence side hustle.
There are many different kinds of side hustles. One of the most popular ways for freelancers to offer their services is a platform called Fiverr. You can find copywriters, graphic artists, virtual assistants, etc.
Also, there is network and multi-level marketing. Both of these options give you the advantage of a business infrastructure with very little risk or investment.
There are so many things that can be gained from a side hustle. You can learn new skills, network, and obviously earn a little money. But, you have to be careful not to burn yourself out. You will usually be working a full time job alongside your freelancer work and if you over schedule yourself, it can take its toll.
AI is even storming into the side hustle arena. It is the newest and ‘greatest’ tool to aid in this kind of work. Its benefits to online marketing are beyond numerous and it is changing the very nature of the way marketing works. It has become easier than ever to earn a little extra money thanks to tools like it and many others.
What is a business?
Definition- one’s regular occupation, profession, or trade preformed to earn a steady income
There are more types of businesses than you can shake a stick at. There are franchises, small businesses, publicly traded companies….the list goes on. Each one has its own benefits and assets that you can accumulate. The main point is, its where you collect your money from. You no longer earn a paycheck from someone else.
Businesses can be structured in an untold number of ways. They can be ran by a single person or employ thousands. Everyone knows what a business is, even if they don’t understand how they work beyond collecting their paycheck from one.
Anywhere you can be employed is a business including the non-profit kind.
The best part is that unlike a side hustle, a business can generate passive income at a much greater rate and the size of a business is unlimited unlike a side hustle that is limited to the work you yourself can complete.
Being a Business isn’t dependent on a minimum income level. Just like in the employment market, you can make very little or vast sums running your own business.
The point is, there are an unlimited number of ways to structure and execute a business. When you go to found your business there are multiple options, but Sole-proprietor and Limited Liability Company (LLC) are the two most popular.
Side Hustle vs Business Goals
The ideas behind a side hustle or a business are usually very different.
Like I said before, a side hustle is usually a way to earn extra money. But it can also be a way to test an idea without investing to much money or something you are just passionate about doing. You may not even have a goal beyond just having fun and enjoying what you are doing.
This contrasts in an extreme fashion with a business. Your business exists to make you money. You create it to replace your job income. You want it to make so much money you have to hire help. You want to ensure it grows and expands and you may even have big plans for it in times to come.
As a part of your goals you should understand two things regardless of which you think you have. What are the risks and what are the rewards associated?
You have to make good choices. Good choices are informed choices. So, the first step to figuring out if you have a business or a side hustle is what are the risks and what are the rewards.
The greater the risks the greater the potential rewards is a fairly famous saying. This can absolutely be true. But in context to this article, the greater the rewards, the more likely it is you have a business. After all that is the point.
A side hustle is something you should be able to walk away from at any time with little to no consequence. A business has complicated consequences if you just walk away. In fact, legally, there are almost always steps that have to be taken. It could be anything from filing for bankruptcy to selling. The point is, your business is a legal entity. Just like your children, you can’t really just walk away. You can from a side hustle.
What about resources?
There is a major difference in the amount of resources you need depending on whether you have a side hustle or a business.
That is actually the point in a side hustle. They are all about earning or doing as much as you can with as little as you can. In fact, the less you have to put into a side hustle, the more interested people will be to do it. The most successful ones are the ones that just require a little time or almost no money.
Alternatively, a business usually requires vast amounts of some resource, if not many resources. Owning/running a business requires huge personal commitments. They also require large amounts of one of two things, time or money. You either have to do the work yourself or pay someone too. You either have to provide services (time) or product (money). I could go on and on into the investments that you have to make.
The point is that you have to figure out where you want to go. What are your goals? Then you have to figure out how much you want to commit to the business and you know what you can ‘afford’ to do.
Money and The Law
The rules concerning how you handle money vary greatly between a side hustle and a business.
With a side hustle, the rules are actually pretty simple. In other words, there aren’t many. In most places, a side hustle is treated like a sole-proprietorship. What this means is you are personally responsible for everything.
The money you spend is yours. The money you make is yours. You are responsible if you don’t deliver what you promised. You could even go to jail if what you are selling hurts someone.
This means that side hustles are very flexible, but they expose you to a lot of personal risk. You gain all the reward, but you take on all the risk. Usually, you don’t have to invest a lot of money and they usually don’t cost a lot to keep them running. But if something goes horribly wrong, it is you that is named on the lawsuit and your side hustle could cost you your personal assets.
A business can operate very differently. Having a business requires legal documents. In another article I wrote, I compare starting a business to having a child. You have to have documents that lay out the rules for how your business works and licenses saying it can do what you designed it to do.
You are creating a person in a very real sense. Unlike your side hustle, if you have taken the time to create a legal entity like an LLC or corporation, it protects you from those nasty law suits I referenced above. LLC stands for Limited Liability Company and it is that limited liability that protects you. Your business is a person and as a person it is responsible for any problems that arise, not you.
What we are also talking about here is taxes. If you have a side hustle, when its time to pay the taxes, you are paying them. The businesses income is your income. It is a job at the end of the day. Its just a job you created instead of applying for.
Your LLC or Corporation is its own person. The business pays you from what it earns, but it keeps most of the money in its own pocket. So, when tax day rolls around, the business pays its own taxes on what it earned and you only pay for what you took our of the pot.
Shocking News
Your side hustle is actually a business. Shocking right?
Depending on where you live and how the rules are structured when you start to make money from a side hustle you are considered a sole proprietor as I mentioned above. Most of the time this is fine and wont change the way that you do things.
But, there are benefits from forming an LLC or Corporation, both with the law and taxes. Now, most of those benefits don’t kick in until your business is earning more than $30,000 a year. The biggest benefit is that legal protection I alluded to before.
If you have filed for an LLC or Corporation and you follow all the rules where you live, the “corporate veil” goes into effect. This can protect you and your assets if something goes wrong.
**Note: I am not an accountant or tax consultant. You should talk to one to ensure you are following all the rules for the area that you live in. Don’t just take my word for it. (https://www.irs.gov/newsroom/hobby-or-business-heres-what-to-know-about-that-side-hustle)**
Do You Want a Side Hustle or a Business?
At the end of the day, whether you keep you income provider as a side hustle or decide to go all in and form a business is entirely up to you. Be informed. Do your homework. You should consider your long-term goals and what you want to get out of it.
If you like to keep things simple and don’t want to put a whole lot of effort into it, keeping your side hustle just a side hustle is probably the best bet for you.
On the other hand, if you are dreaming big and want your passion to provide you with a full time income or even financial freedom that others can only dream of, you may want to look into how to turn your passion into your profession.
Be informed. Do your homework and live your dreams, if you are brave enough.