Case study on researching a side hustle and forming an LLC
Chapter one of The Entrepreneur Experiment.
Today in our side hustle case study we will cover the first months of thinking about and researching an online side hustle. Then after the story you will find a practical guide.
I’ll share exactly what I did and why. That will show you not only how to research your idea. Also how you can form an LLC, what it costs and what else you need to do.
So that you have the real picture and the info you need if you’re considering a side hustle.
We will wrap it up with a conclusion on what resulted from all this and I’ll answer any questions.
Part 1 – The story (case study)
How Accidental Mentor was born – a change of life strategy
Let’s go back to Feb 2018. My goal over the previous 4 years had been focused on early retirement (F.I.R.E). Back then after a hectic couple of years moving country and working like crazy, I finally made it to my financial targets (at least on paper). I now had time to come up for air and consider what I would do after I retired.
Seeing as by then I knew so much about it – I decided to start a blog about early retirement planning. A solo hobby project – it would give me something to grow into.
So, in a flurry of proactiveness, I did some initial research and got inspired to start it even before retiring. I even went as far as forming a single-member LLC, opening a business bank account and funding the account with an initial $3500.
Shortly afterwards work got crazy busy again. The initial momentum for the idea slowed and I was left with essentially a paused LLC. I almost shut it down but with no cost being incurred I decided to let it sit for a while.
This is not the way you should start your company…
My day job was full-on at the time. I was consumed with building growth, managing a team and implementing the strategy. But, In my spare time, I was undergoing a period of fundamental re-evaluation of my life strategy.
On paper, I was financially in good shape. My goal of early retirement was finally in view. I would need to fulfill my business commitments until the next equity event – then choose which mountains to go live in.
I’m 46 and with early retirement a real possibility I started to think deeply about what I would do with my time. I went through a process of self-analysis considering my values and beliefs. I started to sketch out my hierarchy of needs!
It became clear that I’m at the point in my life when self-actualization is one of my remaining needs. That’s defined as ‘achieving one’s full potential including creative activities’.
But defining what my full potential and creative outlet would look like took some serious thought. It boiled down to when I’m old and looking back on my life what would make me proud and cause no regrets.
It turns out that the answer is helping people – through continuing to work.
It’s funny, when I was younger I always believed I couldn’t wait to stop working. I’d trot out the familiar refrains like ‘if I win the lottery I’ll quit tomorrow’.
But, as I approached the point of actually achieving that freedom I realized that a lot of my feelings of accomplishment came from my career. Now I had the ability to do whatever I wanted – what I actually wanted was to do a more satisfying type of work. work that helped others to help themselves – work that enabled people to grow – work that did not only chase the fastest revenue growth.
I also saw a way to help with environmental & sustainability issues. Using business as an enabler – more powerfully than just changing my behavior.
What came out of my life strategy review was the following…
Learning and self-improvement are my life long objectives – true north.
– Financial independence – (in process)
– Live in an awesome Location – (pending)
– Do something I love & never wish to retire from
– Be proud of who I am
Jump into the future and what’s that look like?
– Being an accomplished expert
– Having a good character reputation
How to be proud of who I am? What I really care about?
– Helping people
– Helping the environment
Options that can help give back
– Public service
– Business leader – an easy choice for me
– Politics (no thanks)
How would that help?
– Great employer
– Developing people
– While changing the environment for the better.
There you have the framework for my middle-aged life strategy (you should have a written life plan as well)
In a snapshot – build a business based on social responsibility and sustainability
Quite a change from just retire early!
But that’s life! Always in a state of flux, change is one of the few certainties. Happiness and motivation are never constants, that’s why life strategy reviews are important.
In July I took my first time off of the year to go see our daughter graduate.
As happy a time as it was, I could sense my daughter’s stress at needing to find a job and make money to establish herself. I also felt it was a good time for her to learn about subjects they don’t teach you about in most schools. Things like Investing, self-development, preventative health strategy, entrepreneurship.
I made her a deal. I’d provide her a monthly allowance if she would research and write weekly assignments on the topics I gave her. I hoped that she would learn something for herself from being exposed to these subjects. Even if the learning was only minimal. It still felt a better solution than providing free financial support.
This is when I started thinking about tying together my new life strategy with helping my daughter in a more fundamentally practical way. We do learn best through experience.
I now had a long term strategy but I also had short term commitments to my current business ventures. Commitments I wanted to keep. Not just for financial reasons but for the responsibility I felt towards my colleagues and our jointly developed plans. It may not ultimately be the company I want to end my career at, but it’s still a great company right now and I love what I do there.
The obvious solution was to start sowing the seeds of my future goals now. Grow them slowly and part-time while involving my daughter. So she could gain entrepreneurial experience without great risk.
So the next question was what do those seeds of business look like and how do they need to develop to grow into the type of company I want to run in the future?
The answer to that will be explored in Chapter Two
- Initial Research & business case
- Forming an LLC
- Get a tax number
- Open a business bank account
We will touch on these subjects again in more depth in future chapters and especially in ‘how to’ guides. But for now, my intent is not just to tell a story in these narratives, but to also show you how I did the practical things
Initial Research and business case
It starts with an idea
My early idea was a very simple one – a blog about early retirement – a subject I was well versed in having been actively pursuing it for 4 years.
This follows conventional wisdom, chose an idea to work within that you have a strong interest in or passion for.
My early research was not around the niche so much as blogging in general. I quickly discovered blogging was a business. So I delved into that idea – was it viable, what resources would it need and what impact would it have on my current life.
The way I evaluate any new business idea is by first learning as much as I can about it and then writing a simple business case to myself.
Where do any of us go to learn things these days? Search engines. Ask Google, and there are a million blogs about blogging as a business. Search YouTube, and you will find as many short videos about starting your blog and making money as you can ever wish for.
While the videos are good for snippets of info and inspiration – the blogs are where you learn numbers and stats.
When I’m learning a subject I record on my Google drive everything useful I consume.
You start a spreadsheet or a document. Paste the link to the content you find useful. Note a brief description of what the content is and use comments to highlight the bits you want to remember or use.
If you don’t record it somewhere or write it down you will forget it and lose most of the valuable information. Being left with just an impression is not enough.
Once you have a solid base of information start to arrange it into a usable form.
A business case should be short – It’s not a business plan…
It’s made to provide the minimum amount of information to inform a go or no-go decision on proceeding with an initial idea.
I use a template and I write the biz case primarily for myself and any other decision-maker. It starts with a summary that is generated after the main body of work is complete. The template asks some basic questions. Not specifically numbers based at this stage – it’s more about the case for investing further time and effort into the idea. I’ll link to the template I use in a google doc.
It’s good practice to go through this exercise – especially if you need to have buy-in from somebody else – like a significant other. Even if it’s for yourself it will help crystallize your thoughts and feelings on the idea.
The result of my early business case was…
That the idea of a blog was viable for a part-time solo project with low overhead requirements. It would be a slow way to start generating any revenue. A lot of marketing work would be needed if it was to become more than an obscure hobby.
I decided that was going to be okay because revenue was not a primary motive for the blog and I had time on my side.
You should consider what your aims are and your time frame – because blogging will take some time to make money.
Forming an LLC
I’ll do a detailed guide on forming an LLC at a later date – including why you should consider one, plus implications and alternatives.
For this summary version, I’ll tell you what I did and why.
Why an LLC
I knew I wanted liability protection before even starting blogging (you may not need this). I chose an LLC for several reasons, simplicity, cost, and functionality. A Limited Liability Company provides a level of liability protection beyond that of insurance (as long as you comply with the rules and the law).
It’s also a simple pass-through tax entity – so no payroll service needed and has straight forward governance requirements. The formation is comparatively fast and cheap, and ongoing costs are low.
It has the flexibility to evolve into a more complex structure if required in the future. One of the few downsides is Fica tax treatment, you pay both the employee and the employer rates for a total of over 15% in many cases. But I already have more income than the employment taxation limits – so paying both taxes would be a non-issue for me. Another reason for you to keep the day job.
In my situation for this project, it’s a no brainer to use an LLC
If it is not a simple decision for you – this may be a good time to invest in professional advice. A business tax advisor is best able to take your overall financial situation into account. Then if necessary seek advice from a lawyer, especially if you have a complicated situation.
Where to be located
So where to register? A search of the internet will show you that states with strong company protection laws or anonymity for business owners are popular locations. But it depends on where you live and operate your business from. I’m based in New York, and because I operate my business in NY I’m required to comply with state law. This means even if I first incorporated in Delaware for example, I would still need to file in NY as a foreign business. Effectively that is double the cost for no real gain. So to keep things simple, often it’s best to register in your home state.
What addresses to use
First privacy. Most people don’t want their home on the company documents or as a correspondence address. But they also don’t have business premises to use as an alternative. The cheap solution is to get a post box with a real street address. Some Post offices and UPS stores offer this service.
Next, you will need a registered agent service. A registered agent will allow your business to be correctly notified of any official correspondence. Like legal and tax matters. If you don’t have a physical location in the state where you’re registered, then you need a registered agent. A PO box is not acceptable for this requirement and again you probably don’t want your home address to be used.
Cost from $150 up to $300 for a national option.
One basic national option is NW registered agents. A good premium option for this, as well as other law services, is LegalZoom
Time to file
Usually, you can register your company online with your state’s official website. During the process you file ‘Articles of organization’ you will need your addresses, phone number, email, and the filers name. In NY it takes 5 minutes and $200. You receive a filing receipt and a copy of your articles of organization. Keep both safe, you will need the filing receipt to open your bank account.
Alternatively, your registered agent will take care of all that admin for you – in exchange for a small administration fee.
Both NW registered Agent & LegalZoom have all-inclusive services.
Do it yourself or outsource it – the choice is yours.
Congratulations – you created a business entity!
You may own the business but it stands separate and you should do everything from this point on to keep it so. Do everything in the name of the business. Whatever you do don’t mix your personal finances with the business finances – that means getting a business bank account asap.
Employer Identification Number (EIN)
First, grab an EIN – it’s an employer identification number. You should have one even if you don’t plan to employ anybody because using your social security number is not keeping you and your business separate. Getting an EIN is easy and instant, it’s free, online and there is just no reason not to.
Go here to get yours.
Business Bank account
Bank choice comes down to cost, convenience, and preference. I chose Bank of America – because I have my personal account there and have always been happy with the service. Some banks allow you to open online checking accounts, but you still have to send in your business documents for verification. I found it easier just to make an appointment and take the documents with me. The major consideration is how much you will fund the bank account. Often you can avoid fees if you hold a large enough balance. I sent $3.5k from my account to my business account.
Again, once it’s funded consider the money the property of the business. Don’t raid your business account for personal spending – we will get into how to pay yourself later when you’re making revenue.
- Get an address with a PO box
- Engage a registered agent
- File your articles of organization with the state.
- Get an EIN
- Open a bank account
Six months is a long time to consider, define and decide what you are going to do. Yes, I could have fast-tracked it – but sometimes getting a decision right for you takes some time. The result was a clear point of departure into a new business venture.
Take the time to get this part right so you don’t have to pivot to a new idea in the future.
The right time to start a company depends on your need to have liability protection. For most people without significant assets – insurance and caution may suffice in almost all cases until you have revenue flowing in. For those with assets, a limited liability structure can be an additional layer of protection. It helps with peace of mind for a reasonable cost.
Whatever you decide – do something – the most important thing in this journey is to start.
Disclaimer – I’m not a lawyer or tax professional, this piece is my opinion and not a recommendation. You should not consider any material to be professional advice. Seek a real professional opinion on your situation before you act on any information shared by this website.
Let me know in the comments if you have any questions. I’ll be answering all I can and engaging in any interesting comments.