Financial Management of multiple projects
Here's everything we wish you knew when starting a new project (in addition to your full-time business)!
These days, everyone is starting a side project – whether it's renting extra office space, pursuing another passion, or creating products or services different from their full-time business. It's a way to make some extra money $$$ while tapping into separate areas of expertise.
Here's what to consider when pursuing a side project and financial factors to keep separate from your main business:
Business synergies
How will your main business and project work together? Are there ways that the two can collaborate to increase each other's efficiency and profitability? For instance, if you're creating products that differ from your fashion collection, can you still sell those items in your store? Whether it's cross-promotional opportunities, shared resources, or joint marketing efforts, identify ways the two can work together and benefit each other.
Financial plan
This aspect isn't just for your full-time business—you should make a financial plan for all endeavors, even side projects! Much like we discussed in our series on planning a collection, ensure you establish a budget, forecasting, and cash flow schedule so you know what money is going in and out of your business. While side projects are fun (!), your main goal should be profitability.
Bank Accounts
Before making money from your side project, you should open a bank account separate from your main business. While the two might work together or collaborate, the finances should be kept separate for accurate bookkeeping. If needed, an internal transaction can occur between the two accounts. And a reminder: if you don't have separate business bank accounts from your personal accounts, do that now!
Bookkeeping and Financial Reporting
While you can continue using your existing bookkeeping system or software, you must financially distinguish your side project from your full-time business! This will make it easier for your accountant to differentiate between the two, and understand which income and expenses go with which entity. Remember: having a separate account (mentioned in part 1 of this series) will also make it easier for you and your accountant to track everything!
Cash Flow Management
Not having enough money is the number one reason why businesses – full-time and side hustles – fail. If you don't know how much is going in and out of your business, you can't plan accurately in the short and long term. Make sure you record all your income and expenses and create schedules, so you know when to expect payments or when payments are due. It's important to constantly update your numbers so you can plan and evaluate (and re-evaluate and re-evaluate again!) financial decisions for your side project.
Investment and Financing Decisions
We always advocate, "know your cash flow!" But if you don't have enough cash to cover your expenses, devise a plan beforehand. What are the financial options in this scenario? Should you bring on a partner or investor or try to get a loan? It's so important to plan for potential scenarios before they occur. Work directly with your accounting professional (like us!) to manage your financial decisions and cash flow for your full-time business and side project.
Taxation
Everyone's favorite part of doing business! While your full-time business and side project have their own tax obligations, the main business will pay taxes in bulk. It's still important that taxes are tracked separately for both businesses. Additionally, there should be an internal transaction from the side project bank account to the full-time business bank account for their portion of the tax obligation. This will help track each entity's tax obligation and make bookkeeping cleaner and more manageable!
Profitability Analysis
The most important part of starting a side project is ensuring it's profitable and not just draining time, money, and resources from your full-time business. You'll want to consider each entity separately and then aggregate everything together (especially if they are working or collaborating together!). While the main business will pay the SG&A expenses, manually attribute the costs proportionally to the main business and side project, depending on how much they each use.
If you're ready to start a side project for your main business but still need financial guidance, drop a comment below or reach out to us at info@yotamperets.com.
