Thousands of American entrepreneurs supplement their income by starting and maintaining part-time small businesses. The circumstances and goals of these owners run the gamut, but many enterprises are operated out of the home and used to supplement income derived from other sources (a full-time job, retirement benefits, etc.).
But not all people start part-time enterprises from economic necessity. Statistics indicate that many individuals—and especially people with higher levels of education—launch part-time entrepreneurial ventures to make use of skills that may not be tapped in their fulltime work. Finally, the ability and desire to launch a business on a part-time basis is often impacted by family considerations; in some instances, the cost of raising children may serve as an incentive to start a business on the side. In other cases, a parent may decide that the hours involved in looking after his or her children precludes the possibility of a part-time business. Many owners of part-time businesses, however, contend that if the desire is there, a part-time venture can be managed by most people.
Part-time businesses are also regarded by many entrepreneurs as a sensible option in situations where the ultimate success of the venture seems unclear.
Part-time entrepreneurs can… limit their risks compared with those taken by individuals who plunge in full-time, wrote David E. Gumpert in Working Woman. “For one thing, part-timers don’t have the same pressure to produce cash flow, because they can hold down a job at the same time and operate out of their homes. For another, part-timers can go more slowly and learn the skills of running a business as they go along; they have the luxury of making errors and revising their business concept as they proceed.”
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Keys To Establishing A Successful Part-time Business
Experts point to several important factors in creating and maintaining a profitable and healthy part-time business venture: Recognize importance of full-time job. It is vitally important for entrepreneurs who already have a full-time job to make sure that their part-time business does not interfere with their obligations to their employers.
Moreover, it is important for part-time business owners to make sure that their employers do not begin to perceive that the side business is taking priority, for in the final analysis, your ability to meet the demands of both businesses is irrelevant if your employer begins to feel—fairly or not—that the arrangement is detracting from your job performance. For this reason, part-time business owners may want to weigh the likely reaction of their employers before even publicizing the existence of the part-time venture.
Type of business. The nature of a part-time venture is often an important factor in its long-term viability.
Certain businesses can be more easily maintained without unduly complicating regular job obligations. “Service businesses often allow for this kind of flexibility,” explained Gumpert. “Men have for years carved out entrepreneurial opportunities as part-time plumbers, electricians, and carpenters. Women [are] discovering similar opportunities in such areas as consulting and teaching.” Retail stores and manufacturing establishments, on the other hand, are far less conducive to part-time businesses.
Scheduling flexibility. The individual’s full-time job is flexible enough to give him or her the time and resources to take care of the entrepreneurial business’s needs during normal business hours or during particularly busy periods.
Realistic workloads. Entrepreneurs launching parttime business ventures should also be wary of overextending themselves. Many individuals tend to take on more part-time work than they can easily handle, especially during the first few months of operation, when they have less experience in estimating the time involved in executing various tasks. While finances are often a factor in establishing a part-time business, most part-time entrepreneurs do not begin a venture with the expressed intention of turning their life into a chaotic rush of impending deadlines. Complications associated with underestimating the amount of time a given project or assignment will take are also typically compounded if the entrepreneur in question has significant family obligations (child or elder care, for instance).
Scaling back existing businesses. Small business researchers also note that some of the most successful part-time businesses are those that were formerly fulltime endeavors. Indeed, many full-time entrepreneurs choose to scale back their hours after a certain number of years. They may do this for any number of reasons; some simply reach retirement age and wish to relax a little more, others decide to start a family, and still others may decide that they wish to spend more of their time traveling or indulging other interests (including other promising entrepreneurial ventures). In many instances, switching a business from full-time status to part-time status can actually strengthen the enterprise’s hourly productivity. For example, the entrepreneur who decides to turn his 50-hours-a-week venture into one that requires him to spend half that amount of time on the business each week will naturally do his best to maintain relations with his best clients, while letting less valuable or more problematic clients go. As many business owners will quickly attest, having greater freedom to pick and choose who you do business with can be a most valuable side benefit of going part time.
Public perception of business. Some customers, especially if they are other businesses, may be wary of contracting with part-timers. The most effective way to counter the perception held in some quarters that parttime business owners are less reliable and responsive (because of obligations to their full-time employer) than full-time entrepreneurs is simply not to advertise your part-time status. Of course, you also should not lie about it if the issue comes up.
Owners of part-time businesses should also consider the potential tax ramifications of their activities—important as soon as the business begins to make money. Unless the business owner looks at the implications of his or her own net income early, the tax consequences later may be very painful, and the better the business the greater the pain. The ideal way of dealing with unexpected expenses come April 15 of the year following, the owner should calculate roughly what he or she would owe in taxes if the business income was added to regular income from a job.
The difference between regular withholdings at the job and the extra amount likely to be payable should be submitted to the state and federal governments in the form of estimated quarterly tax payments.
Part of minding the taxes is also minding permissible deductions from income. Owners should make sure that they take full advantage of such deductions. Gumpert noted that “part-timers get the same tax advantages [as full-time entrepreneurs], including deductions for travel, entertainment, home office, and related expenses, plus deductible retirement plans.” How exactly home-based business tax deductions can vary depending on whether the business is a full- or part-time venture. The IRS requires that a home office be used ‘exclusively and regularly as a place of business to meet or deal with patients, clients, or customers’ in the normal course of the business. The word ‘exclusively’ is very important because it means any room or space designated as a home office must be used 100 percent for business in order to qualify for the deduction.
Making The Leap To Full-time
Many part-time entrepreneurial ventures eventually expand into full-time businesses. Indeed, business owners who nurture their side-businesses into enterprises that are capable of covering their living and business expenses often waste little time in giving their employer two weeks notice and devoting their full attention to further expansion of their own business. But experts caution small business owners not to leave their long-time employer prematurely. For example, Entrepreneur pointed out that would-be full-time business owners can schedule health exams and other routine medical procedures while they are still covered by corporate insurance, and that they can sometimes convert existing health coverage to post-job use. In addition, entrepreneurs thinking about leaving their full-time jobs to devote their energies to their own businesses should first determine if they are enrolled in any benefit plans that will vest or increase in value in the near term.
Entrepreneurs are also urged to organize their credit situation to their greatest advantage before leaving the security of their job. “Pay off or pay down the balance on your credit cards while you’re still generating a steady income,” stated Entrepreneur. “This helps your credit rating and enables you to finance various start-up costs.”
Finally, many entrepreneurs take out a home equity line of credit before leaving their full-time job. According to Entrepreneur, “having a line of credit to draw upon is invaluable during the first two years you’re in business, although you probably won’t qualify for one once you leave your job until your business has been successful for more than two years.”