When you’re making items for fun and sharing the results with family and friends, it can be all too easy to imagine yourself doing this full-time. Be it cake at the school gates for the parents, or a few candles or wax metals to friends on Facebook, or even flipping vintage finds on Vinted. But when does it stop becoming a hobby and become more of a viable way to earn a living? And should you turn your hobby into a legitimate business?
Chances are, for the most part, you can, and if you’ve found a market for what you’re doing, then you definitely should. But before you take that leap, here are a few things that people likely haven’t told you about turning your hobby into a real business.
*Collaborative Post
You Need to Register with HMRC
The trading allowance allows you to earn up to £1,000 per year from self-employment without telling HMRC. But the second you go over that threshold in a tax year (April to April), you need to register for Self Assessment by 5th October following the end of that tax year. Many people miss this threshold when money trickles in via PayPal or cash, and they don’t track their income correctly. And by this point it’s too late and it’s an instant fine for not registering, another one for not filing your self-assessment when you need to.
So once you make that decision to move to a real business, get a Government Gateway account registered as a sole trader and start filing.
You Need to Check for Permits and Licenses
This one will vary depending on what you’re doing. If you’re setting up as a freelance graphic designer, for example, then it’s likely you don’t need a permit to operate. However, if you’re making food or drinks, including cakes baked at home, then you need to register with your local council’s environmental health team at least 28 days before you start trading.
If you’re setting up a market stall, you’ll usually need a trading license from your local council for any pitch outside of a private market, and if you’re selling at fairs, you’ll need proof of public liability insurance and a food hygiene certificate.
On top of this, you’ll need to check with any relevant governing bodies and gain permission from landlords, mortgage lenders or your local council, depending on what you’re doing.
You Need Business Insurance
Every single business needs business insurance. Your home contents cover does not cover business stock liability or equipment. Let’s say a customer trips over your stall and breaks their wrist, or eats one of your brownies and has an allergic reaction, your personal policies won’t touch it. Then you’ll be liable for any costs incurred after this incident.
Public liability insurance covers injury or property damage to third parties and usually starts around the £100 mark, but this will vary depending on your business. For smaller operations, it won’t be too much more.
Then you need product liability cover if you have made something that causes harm, and if you’re working from home with stock piled up, you might also need to extend your home insurance to cover you or take out additional business contents insurance. Most insurance companies will offer bundled policies that cover all of this, so you know you’re adequately protected.
You Need Flexible Payment Options
For a small business, it can be easy to overlook the importance of flexible payments. Cash and bank accounts can often be enough in the beginning. But then once you branch out, start exposing yourself to a wider market, what happens? You don’t want to be giving your bank details constantly, nor does everyone carry cash these days.
This is especially important if you plan to sell at pop-up events. You need to be able to take card payments and allow people to pay by the tap of a phone or a card. Because if you don’t, people will simply walk away and spend their money elsewhere.
You need to look at proper credit card merchant services and understand the types of payments you can accept, how much you’ll be charged per payment, the settlement rate and the flexibility of payment options so you can provide as many choices as possible, so you’re not losing sales.
You Need to Keep Proper Records
HMRC expects you to keep records that last at least five years after the January 31st deadline of the previous year’s submission. Are you set up to do this? This means keeping records of all receipts for materials, invoices to customers, mileage logs if you use your car for business records or bank statements for the payments and expenses and many hobbyists aren’t set up to do this at the beginning.
When you make the switch from hobby to business, you need to be able to keep detailed records that help you submit your tax return and allow you to price your filings should HMRC request that you do this.
You Need Separate Bank and Business Accounts
Having your business income go into your personal accounts will lead to things getting really messy, really quickly. You need to open a separate business banking account or just a separate account at first if you intend to handle large amounts. One with providers like Sterling or Tide can be beneficial at first. Then, come tax return time, you’ll be grateful you did, as you’re not sifting through both personal and business transactions to calculate what you’ve earned this year.
Motivation Gets Harder
Lastly, there’s a huge difference between making items for fun, because you enjoy and having to do it to meet order demands or to stock up for events you’re attending. And this can be one of the biggest adjustments to make when you first make the switch. You’re not just doing it now when you feel like it; orders will come in at different times, and there will be busy weeks, slow weeks, weeks when you or your family aren’t well and you don’t want to work, but you’ll still need to be operational. It can be a lot, and the change can ruin any joy you had for what you do.
And a lot of the time, many people who turn their hobbies into a business don’t stop because there wasn’t a market, but because they simply fell out of ove with it. So before you make the leap think carefully, is this something you can see yourself doing even when you don’t want to? And do you have the motivation to push through?