Starting your own business might be the most rewarding thing you’ve ever done – but it can also be risky. There is a lot of financial uncertainty involved and it’s difficult to know if the gamble will pay off.
That’s why a popular approach among entrepreneurs is to start their projects without giving up their day job. Recent research suggests that more than a third of people in the UK now run a business in their spare time – and some of them are bringing in over £5,000 a year from it.
As well as leaving your financial stability intact, starting your business as a side hustle allows you to get a feel for the market and spend time developing and testing your idea before you commit to taking it full time.
That’s not to say it’s easy, though. Side hustles certainly have their own challenges, like less free time, extra pressure on your working life and the risk of burnout.
Limiting the time you spend on your new business to evenings and weekends can also make it more challenging to secure investment. Proving that your business works, generating revenue and growing your customer base (all things investors will look for) will take longer if you’re only focusing on it part time.
We look at some of the ways you can raise funding for a side hustle and what you can do to make your business attractive to investors.
Where to look for funding
There are lots of funding opportunities to explore for your side hustle. Which of them you choose to pursue depends on a few factors, like how much money you need and what you’re willing to offer in return.
Here are some of the most popular ways to raise cash.
Angel investors (high-net-worth individuals) offer businesses significant cash injections in exchange for shares in the company. Many angel investors invest in very early-stage startups, so you may be able to find one who has dealt with a side hustle before.
It’s not just about the money here, though. Angel investors are often keen to offer advice and mentorship to the entrepreneurs they invest in. So take your time to seek out people that you think could contribute to your company in more ways than one.
Loans and grants
If you’re not willing to part with a percentage of your company, applying for a startup loan or grant might be the way to go.
Business loans from banks can be substantial, but for an early-stage business which isn’t full time yet, it’s likely they won’t be super forthcoming with that cash.
The good news is that there are lots of loans and grants out there designed specifically to support new businesses, including some government-backed options.
They involve detailed application processes and can have very specific entry requirements, but typically the interest on the loans is lower than what you’ll find at the bank.
Grants don’t require any repayment at all. Our guide to government support outlines some of the grants currently available.
Friends and family
Lots of people who run side hustles look to friends and family for investment in the first instance. After all, there’s already mutual trust there.
If you’re wincing at the prospect of asking mates and family members for money, that’s a normal reaction – but it shouldn’t stop you.
First, you may be surprised at how much capital your nearest and dearest are sitting on, not knowing what to do with. Don’t try to second-guess what people have going on in their financial lives – just present the opportunity and let them be the judges.
Speaking of opportunity, that’s how you should be viewing this. You’re not asking for favours or handouts here: you’re offering to pay back your loan with interest or hand over shares in your business. It could be a very lucrative opportunity.
Just make sure you hash out all the details of the arrangement so there are clear terms. Put it all in writing, too.
Crowdfunding sites like Kickstarter and GoFundMe allow businesses to raise funds from large numbers of people in exchange for gifts, perks or a stake in the business.
Startups with a good audience base, large potential market and compelling story can often do very well in their crowdfunding endeavours.
How to make your side hustle investment ready
Now you know where to look for funding, you’ll need to make sure your business is going to be attractive to potential investors.
Even though it’s an early-stage, part-time project at the moment, there are lots of things you can do to make it a tempting proposition.
Apply for the Seed Enterprise Investment Scheme
The Seed Enterprise Investment Scheme (SEIS) is intended to help early-stage startups raise funds to take the next step in their journey – and there’s no cost to you at all. It works by offering certain tax reliefs to investors who buy shares of your company.
You can find out about the application process and the documents you need to provide on the government website.
Write a business plan
For investors to take you seriously and be confident their cash will be in good hands, you’ll need to put together a watertight business plan.
This document should include information like the purpose or mission of the business, who its customers are, the state of the competitor landscape and details of its products and pricing.
Business plans are very detailed, so make sure what you write is clear, concise and specific. Depending on what data and information you already have from running your side hustle, you might need to do some research and collect a few figures before you can complete it.
Forecast your finances
As a business owner looking for investment, it’s key that you have detailed financial forecasts to refer to – and that you know them inside out. Investors will be keen to hear about your expected revenue and how this stacks up against your outgoings.
Use your existing sales and customer data as a base to estimate what your income over the next year will be. Take into account the growth that investment will make possible and the impact if you go full time. Investors will be looking for an upward trend, but one that’s realistic and sustainable for long-term growth.
It’s also important to carefully consider your expenses. As well as current outgoings (such as loan repayments, bank fees and supplier invoices), think about the extra costs that come with growth, like rent for premises, staff salaries and more advanced tech.
Be ready to take investors and lenders through your projections in detail and answer plenty of questions about those all-important numbers.
Focus on traction
Proving that your business already has traction will pique the interest of potential investors. Your traction could include the size of your customer base, number of social media followers or newsletter subscribers, and revenue to date.
If your side hustle is a brand new venture and you don’t have any figures like this, think of other ways you can prove that there is demand for your business. For example, beta tests, market research or competitor analysis.
Get your finances in order with Sage
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