Transforming Your Hobby into a Profitable Business

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Profitable Business Female Entrepreneur Hobby Business

Your considering turning your hobby into a profitable business but have a few questions you’d like answered first. We’re guessing they include questions such as:

  • How do I know if it will be successful?
  • What steps do I need to take to set up a new business?
  • Should I quit my job and do my business full time?
  • How do I know if I’ve got what it takes to run a profitable business?

As you’re thinking seriously about turning your hobby into a profitable business, you must already be passionate and reasonably confident about it. So, let us help you understand what steps you will need to take to turn your hobby into a business.

Am I Ready to Take the Next Step with My Hobby?

Before you jump into making any big decisions, there are a few questions you should be asking yourself first:

  • Will I enjoy my hobby when I have to work to a deadline to fulfil orders?
  • Do I like my hobby enough to live and breathe it 24/7?
  • Am I happy with the quality of the goods I produce and know that my customers would be satisfied too?
  • How much are you prepared to sacrifice to start up this business (emotionally, physically and financially)?

If you are happy with your answers, then the chances are that now is a good time for you to start looking into turning your hobby into a business.

Can a Hobby Become a Profitable Business?

Yes, absolutely! There is a catch, though; it requires plenty of hard work and determination. A hobby is something you do because you enjoy doing it. A business is when you sell products (which you could make by doing your hobby) for a profit.

The Ministry of Business, Innovation and Employment (along with the IRD), clearly state that if you sell goods regularly online or in person, you are in trade. This means that you are in business if you:

  • Buy and resell goods
  • Intend to make a profit selling goods
  • Are creating goods to sell for a profit
  • Offer your goods to others to sell on your behalf
  • Receive payment (cash or otherwise) for goods

If you already are or want to be selling what you make for a profit, then it’s time to get serious!

First Steps in Turning a Hobby into a Business

A profitable business is one which receives more income than it has expenses. That sounds simple enough, but it is the biggest thing new businesses struggle to achieve. A business is more likely to fail in its first two to three years, making planning and preparation before starting a business vital. To successfully turn your hobby into a profitable business, you will need to do the following:

  • Research your industry – who else is making products like yours? What do they sell them for? Is there a market for your type of products?
  • Investigate your own products – what is the time and cost involved in making each product? What can you realistically sell them for? How much profit will you make, and is it enough? What makes your products different from those sold by your competitors? Do some product testing in that you ask your target audience what they think of your product, if they would buy it, and how much they would pay. Check out how others promote products similar to yours.
  • Create a business plan – this is your blueprint which contains all of the steps you will need to take over the first year. It also lists your goals, where you will go for help if needed, your additional resources and how you will sell your products. We can help you with your business planning – just ask!
  • Investigate the rules and regulations for your industry – there are some industries including clothing, food and toys which have many compulsory regulations to follow. Not meeting these can result in huge financial penalties against you.
  • Apply for a business IRD number
  • Decide upon your business structure – sole trader or company – and set it up
  • Register for GST if necessary
  • Open a business only bank account
  • Organise your business’ resources including domain name and website, logo and graphics, social media accounts and products
  • Seek advice from a business advisor. Yes, it will cost you money when things may be tight. However, it is best to pay a small amount now and get things right from the start, than to be out of pocket for huge expenses if you make bad decisions.

You’ll also need to decide if you are going to treat your business as a supplementary income and keep your existing job. Or if you are willing to resign and work on your business full-time. There’s pros and cons for both options, and it all comes down to the level of risk you are prepared to take.

We are more than willing and able to help get your new business off on the right foot. Our business planning services team can help you create realistic goals and identify the steps needed to achieve them. Get in touch with us now, and let’s have a chat over coffee: our shout!

Taking the Next Steps in Turning Your Hobby into a Profitable Business

Most likely you’ve got a website up and going and are busy building a following on social media. Creating an online presence is an affordable way for a new business to sell and promote its products. Other activities you’re involved with should include networking both in person and online with other small business owners, following helpful business blogs (like ours), and keeping up to date with the latest developments in your industry.

It’s also essential that you keep financial records for your new business. This includes keeping receipts for expenses, details of all income received, bank records, credit and debit notes, details of wages and PAYE if required. A company structured business will have different financial reporting requirements than a sole trader, so make sure that understand what they are.

Each year you will be required to create financial statements for your business. The bare minimum of information you must include in these are:

  • Balance sheet detailing assets, liabilities and net assets
  • Profit and loss statement, or income and expenditure
  • Statement of accounting policies
  • Details of this year’s results against last years

If this seems completely overwhelming and is not the reason why you wanted to start a business, we understand. Not everyone wants to be a bean counter and spend hours drooling over columns of numbers. But we do, except we don’t drool – just drink plenty of coffee!

Our team of accountants and bookkeepers can handle your businesses’ financial paperwork and obligations for you. We love diving into tax returns, completing financial reports and identifying ways our clients can reduce their tax obligations; legally, of course.

We offer a range of tailored business accounting packages for all businesses, including start-ups like yours. We’d be honoured to help support you as you make your way in transforming your hobby into a profitable business. Get in touch with us today, and let’s chat!

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