I’ve deliberately left this chapter until last as I hope that by now you will not only have a greater idea of how your hobby can be turned into a successful business, but also what form your business will take.Every business will be unique and have its own peculiarities. To provide all the information needed to start every business would be an impossible task and so I suggest you read what follows by way of an introductory guide to what’s involved. It may be that you will have to research further to make sure that the business you’re planning to start complies with all the rules and regulations of the day.The first thing you will need to decide is which ‘trading identity’ is suitable for your business.

Deciding On A Trading Identity

There are a number of trading identities that you can choose from including:

• sole trader
• limited company
• partnership
• cooperative.

 

It’s important to choose the most suitable trading identity for your business.

If you’re in doubt what identity to start with you could start your business as a sole trader and then change to a partnership or company at a later date. Changing from a sole trader to a company is relatively easy. However changing from a company to a sole trader, although achievable, is much more difficult and can be expensive.

Only you can decided which one suits the type of business you are planning to start.

Sole Trader

Sole trader is basically you trading as your business. For example Fiona’s Flowers, or Greg’s Hairdressers, or Paul Power Landscapes. It is the most popular choice of trading identity for those offering either a service or a small retail concession.

Some Important Advantages To Trading As A Sole Trader

• Easy to set up without any costs. You simply trade as you are, eg Paul Power trading as Paul Power Landscapes.
• Complete control over your business. You are your business, which means you can retain complete control over all your business-making decisions without having to consult other directors, partners etc.
• Easy to change to another trading identity. It’s far easier to change your trading identity from that of sole trader to a limited company. Going the other way, ie, limited company to sole trader, can be very expensive and bureaucratic.
• Accounting. Your trading accounts do not have to include a balance sheet such as you would have to provide for a company.

Some Disadvantages

• You are personally liable for all your businesses debts. This liability is unlimited and should your business fail you could end up losing your personal assets such as your home, car, furniture etc.
• Credibility. While some businesses are suited to that of sole trader and customers like the idea of doing business with a person as opposed to a company, others do not. The travel business is one business where people need to be convinced that when they are paying their deposit and final holiday payments their money is being paid to a company and not an individual.

 

A sole trader is an ideal starting point for your business if you’re simply selling something at craft fairs, exhibitions, through your own website, etc. It is also suitable for offering services, for example wedding planner, personal organiser, florist etc.

Remember that the main advantage to being a sole trader is that you can easily change to another trading identity as your business grows. My first business was Paul Power trading as Paul Power Landscapes – a sole trader – but this business is now run as a partnership.

Another advantage to you as either a sole trader or partnership is that in the event you make a loss you can deduct your losses from future profits, provided these profits are made from the same business. You can also deduct losses from other income you have gained either in the year you sustained the loss, or the previous year, including any personal income you might have.