Side hustling is a way of life in West Africa, with many people doing a little work on the side in addition to their day job to earn extra money.
Whether you are driving a taxi after-hours to make ends meet, or making money from a passion like blogging, making clothes or hairdressing, you need to treat your side hustle as a proper business.
Perhaps you hope to turn your side hustle into a full-time job one day, or maybe you simply want to continue making money from something you love doing. Either way, you’ll need to think about managing the finances of your business. If you are organised, you’ll be able to price your work correctly, record expenses and submit your correct tax return.
Here are some tips to help you improve financial management in your side business:
1. Separate your personal and business income and spending
It’s good practice to separate your personal affairs from your business affairs, even if you haven’t opened a formal company. Think about opening a basic current account so you can keep track of income and expenditure, rather than having to sort through personal bills when it’s time to do your accounts.
2. Understand the tax implications
Many side hustlers – especially those running cash businesses – don’t declare their extra income to the tax authorities. But since the Federal Inland Revenue Service is taking a tougher stance on tax collection from informal traders, freelancers, side hustlers and others who have slipped through the net in the past, now is the time to regularise your affairs.
Make sure you have an accurate view of the costs you incur and income you generate from your side hustle and provide for the income tax you will need to pay. You will follow the self-assessment process to declare your income and will be expected to pay tax based on the standard tax tables. Remember to bear in mind that you will still need to pay taxes when pricing your products and services.
3. Record your spending
The key to profitable management of a side hustle is to have a firm handle on your expenses. This is important because you can deduct any legitimate expense you incur in running the business from your taxable income. It is also essential in ensuring that you don’t run your business at a loss – especially important if you want to make a full-time job of it. Record every expense, including:
- Materials you use to make goods
- Stationery and printing
- Tools and equipment
- Electricity and telecoms
- Business cards
- Bank charges
- Rent paid for an office
- Travel costs
- Computers and software
- Wages paid to others
Equipped with a detailed understanding of your costs, you can hit the sweet spot for your pricing – low enough to be competitive, high enough to get a good profit margin. Use your accounting data to study whether you are charging enough and where you can charge more by adding value.
4. Use accounting software
Having online accounting software at your fingertips (accessible from the cloud) will help you take charge of your side hustle’s finances. It will help you record expenses, track income and understand cash flow. You’ll be able to see which times of the year are busy, what products are making money and more, without needing to wade through reams of paper or spreadsheet pages.
Final thoughts on managing finances for a side business
Staying on top of your finances is important for any business. If you can do this for your side business, you’ll be giving yourself a better chance of success. Think about where you are spending your money, buy the right equipment as and when you need it, and use your accounting software so you can stay on track.