While I’m on the road with limited blogging time, my friend Alex Genadinik (from Side Hustle Show Episode 3) offered to help out with a 3-step guide to side hustle business planning.
What qualifies him to talk about business planning? His business planning smartphone apps have now been downloaded more than 200,000 times, and he runs a growing YouTube channel discussing all aspects of starting a business.
When starting a side hustle business, you might ask yourself if you need a business plan, and what that plan should contain.
The answer, as with many things, is “it depends.”
Whether you need a business plan depends on the type of business you are starting and whether you will try to raise outside money for this business.
In this article I will explain how to approach business planning for side gigs and side hustle businesses.
What to Know
Since most side-hustle businesses are intended to be lifestyle businesses that provide extra income, and will likely not become billion dollar companies, fundraising from investors or bank loans becomes nearly impossible.
Nick’s Notes: Unless your side hustle has potential for growth on a massive scale, venture capitalists simply aren’t going to be interested.
Since many “formal” business plans are written for the purpose of fundraising, your business plan can be less formal, and focus on the most important elements for side hustlers:
- Your Business Model
1. Your Business Model
Many people use the term business model incorrectly.
The term business model refers to the entire scope of the business with an eye for how well the product/marketing/monetization are working well together.
The combination of all components of the business is what makes up the entire model of the business.
Nick’s Notes: Ask yourself these questions to get a general sense of your business model:
- What are you selling?
- Who is your target customer?
- How will customers find you?
You don’t need to dump a ton of cash into starting your side hustle business, but the first important element of the Financial section of your business plan is the start-up capital.
Where will the money come from? How much are you comfortable investing into the business to get it off the ground?
If your side hustle will be bootstrapped with your own savings, that means the entire financial risk is on your shoulders.
The next item in this section is a cash flow analysis statement that itemizes the streams where money is coming in and going out of your business on a monthly/yearly basis.
Nick’s Notes: Cash flow is the lifeblood of any business. Without enough cash, the business dies.
This is where it becomes important to pay attention to the payment terms of revenues and expenses.
If it costs you $100 to acquire a customer, and that customer pays you $200, it looks like you’re in great shape. But you have to pay the $100 upfront, and can’t collect the $200 for a month or two, you could run into cash flow issues in a hurry.
Here is a short video tutorial for how to create your cash flow analysis statement:
The third element of the Financial section of your side hustle business plan is the lifetime value of your customer (LTV).
When you’re first starting out, it can be a shot in the dark, but you can make an educated guess of what your average sale might be worth, and what percentage of customers might re-order in the future.
Nick’s Notes: Knowing the lifetime value of the customer allows to figure out how much you can reasonably spend on marketing to acquire a new customer.
For example, the lifetime value of a new web hosting customer can be quite high since people will want their websites to be live for years and years. Because of that, the hosting companies can afford to spend a lot on customer acquisition — sometimes $100 or more.
Here is a video tutorial for what the LTV is, with some tips for improving your lifetime customer value.
Nick’s Notes: It can be fun and motivating to project out how much money you expect your business to make, but it’s really just guessing at this point. Once you have these foundation elements in place, I think your time is better spent executing your plan than creating detailed future profit projections.
Of course, marketing and getting clients is a critical part of your business. If no one knows about your biz, there’s no way they can buy from you!
Before you begin marketing and promoting your business, the first step is to identify your target market and calculate the size of the market you will be able to serve.
Once you understand your target market, think about how you’ll promote your business. How will customers find you? Advertising? Search engine optimization?
Nick’s Notes: Remember the 4 P’s of Marketing?
Address each briefly in the Marketing section of your business plan.
These are the core elements of a business plan that every side hustler should know. No matter how small your operation, it’s still a valuable exercise to walk through these points.
Here is a video tutorial with the recap on how to plan a side-hustle business:
Nick’s Notes: Your side hustle business plan doesn’t need to be a 50-page tome, but I think it’s worthwhile to make a 1-2 page document with your notes about the Business Model, Financials, and Marketing.
At the very least, it will force you to think about your side hustle from the business owner’s mindset and look at the bigger picture and potential of your idea.