Before trying to boost your income with a side business in Singapore, make sure you can handle these invisible costs.
With the economy being tight, many Singaporeans want to start a side business to supplement their paycheque. But it’s not so easy as putting in capital and treating obvious expenses as liabilities.
The truth is, earning a side income in Singapore can rack up unexpected costs. Make sure you have backup cash for these:
1. Time is an Expensive Investment
Many forms of side business do not require much cash upfront, at least not at first. Examples include blogging or taking part in Multi-Level Marketing (MLM) schemes. The initial dollar cost can be quite low, or even $0.
But remember that time is money. A blog article that takes you two hours to write is not “free”, nor is it “free” to spend three to five hours every weekend trying to sell something.
Remember, while you are spending your time on that, you could be doing something else. You could be working on something that makes you more money, or you could be spending time with family and friends (the reason for having money in the first place).
In order to calculate the value of your time, here is a crude but functional method:
Work out how much you earn per hour at work. For example, say you earn S$4,000 a month, and work from 9am to 6pm, five days a week (about 180 hours a month). The value of your time, as you sell it to your employer, is about S$22.20 per hour.
This is time you could be spending on doing what you want, but you give it to your employer in return for a salary.
Now, if you were to spend five hours a week trying to sell MLM products, you are basically investing S$111.10 per week (the value of five of your hours). If you spend two hours a day writing in your blog, every day, the value of the time you give is about S$311 a week.
So before putting your heart, soul, and weekends into your side business, do this exercise to see if it’s worth the effort.
2. Your Expenses Can Rise Over Time
Expenses are not just things you pay for, but things you could end up paying for. A good example of this is a side business that provides services.
For example, you agree to use your van to help move goods (we assume you have all the right licenses). Someone offers to pay you a fixed amount of S$2,000 a month, to ferry stuff from their workshop to their store for the coming year. You sign a contract.
Now what happens if petrol prices happen to rise 20% in two months? The cost of ferrying the goods goes up, but your income won’t. You signed a contract and have an obligation to keep providing the service for the same amount. Regardless of how much more expensive it becomes to do it.
This is why it’s important to think through your long-term agreements. You could end up taking on hefty obligations, which remain long after it’s profitable for you to fulfil them.
Always think twice before signing something if your costs are variable.
3. The Opportunity Costs Can Be Expensive
Opportunity costs occur when you cannot pursue a more beneficial business relationship due to an existing one. For example:
Say you agree to do graphic illustrations for a website on fashion. They agree to pay you S$1,500 a month, which is decent side income, for two or three drawings a month. It seems like a decent deal, so you sign their contract.
However, you don’t consider factors like a non-compete clause: the contract may state that, while you work for this client, you cannot work for any other fashion publications.
A while later, another fashion website comes along and offers you S$2,200 for the same deal. You’ll have no choice but to turn it down, due to your existing agreement. In effect, you’ve paid an opportunity cost that amounts to some S$700 per month.
This is why you should be extremely careful of the terms in a contract: always be clear on what it stops you from doing. And when negotiating a price, think twice before “lowballing” your competitors. You may get a contract because you’re cheap, but that contract could also lock out the possibility of better income.
4. Don’t Forget the “Buffer” for Refunds
At some point, you may encounter a customer who is unhappy with your service or product. They may want to return the item, or demand a refund for services not rendered.
Now we don’t have room to go into the legal implications. Suffice it to say most small businesses, like your side-income job, won’t pursue the matter legally and just give a refund (it’s a lot cheaper).
But do you have a buffer for this? Many side-income businesses operate (wrongly) on the assumption that they will never need to give a discount. But the cookies you bake may get returned, and the pet owner may be unhappy with the way you walked their dog.
Be ready to fork over a refund at some point. This is not so bad for businesses that are prepared (e.g. You set aside a lump sum for refunds as part of your operating costs). But if you let it catch you off-guard, it can quickly eat into your cash flow.
5. You May Have to Pay for Your Own Equipment
Say your side-income relates to painting someone’s cafe with wall murals, or helping someone to make YouTube videos. These are things for which you will probably need specialised equipment.
Before you dive into this side-business, be aware that not all clients have the needed equipment. Some won’t even have so much as a computer for you to work from. If you sign a contract to do the work and then realise you need to buy all the tools yourself, you could end up paying a hefty sum.
For this reason, you should always be clear on what you’ll need the client to provide. If necessary, factor it into your costs. Buying your own video editing software or providing your own lighting can quickly destroy any potential profit.
You can use a personal instalment loan to get your side business started, if you are sure you can pay the instalments on time every month.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.