How to turn your side hustle into a legit business

Are you looking to take the plunge and turn your side hustle idea into a legit business? The good news is you’re probably closer than you think. Take the next step in your career to become an entrepreneur with this article. 

We’ll walk you through the steps you’ll need to take when transitioning your side hustle into something legit and professional, including:

• How to set up your new business legally
• How to plan your growth strategy
• How to source business support
• How to save time from business admin and stay productive

Depending on the stage of your business, you may already be registered as a sole trader with HMRC. You’ll know this if you file Self Assessment tax returns with HMRC every year. In which case, you can skip ahead to our next section or read on to learn about other legal options for your business.

As someone with a side hustle, you’re not immediately required to legally declare your income because you’re given a ‘trading allowance’. This is a certain amount of money (currently placed at £1,000 net profit a year) that new entrepreneurs with side hustles can earn up to before they’re required to register their business with HMRC and is similar to the tax-free amount you get from your personal allowance.

If you haven’t yet, you should set up your business legally as a sole trader or as a limited company. We discuss the pros and cons of each route for your business in our article How to set up your business: Sole trader or limited company?

As a brief overview, being a sole trader provides you with lots of flexibility as you run your business, helping you focus more on getting established and less on the legal requirements placed on companies. Unfortunately, your personal finances are closely tied to your business which can be risky. In contrast, this isn’t the case for limited companies as they’re legally and financially separate from the people who run them. While this helps protect your personal finances more, there are some stricter requirements for how to run your company and what you need to publish each year. 

Use our guide to learn more and convert your side hustle into a legit small business. Note that, you can transition from being a sole trader to a limited company as your business grows.

Finally, you may also have to source a business licence depending on what you’d like to do to make money. 

Now the legal part is taken care of, it’s time to plot how you’ll grow your business. Having a realistic business plan and accurate budget is crucial to make your side hustle develop into a serious and legitimate business. Not only will it help you stay on track and manage your expectations, but it can also help your applications for business financing appear more credible and trustworthy.

As someone who’s considering taking their side hustle to the next level, you’re likely in a good starting place when planning your growth. You’ll already have a lot of insight into the value of your business from previous sales and will have a rough idea of what your profit margins are after your cost of goods and other expenses. From here, you’ll need to take a broader and more detailed view of aspects affecting your new business, including:

• What’s changed in your business that’s made you want to go legit?
• Can you reduce costs or be more efficient?
• What are your competitors doing?
• Do you need a physical shop front, online store, or both?
• How will you advertise your business?
• How much will all of these things (and more) cost?

For help with answering these questions and learning key business skills, read our comprehensive guides for your business’ stage:

• How to write a business plan
• How to budget for starting or growing a business
• How to research competition for a business plan
• How to create a marketing strategy for small businesses

If you’d like some more business inspiration, you can find our walkthrough on successful side hustle ideas and a 30-day timeline for establishing a small business.

If you’ve noticed a shortfall in your budget of what you can afford versus what you’d like to do, it may be time to consider financial support. The options you have available will slightly differ depending on how you’ve chosen to legally set up your business. 

While using your monthly profits might seem the safest and easiest option, it can stunt your growth early on as you need to save money. This can take a long time depending on the total sum you need and can cause you to miss out on business opportunities in the meantime. Other options like start-up grants or crowdfunding from friends and family (or online platforms like Kickstarter or Indiegogo) can also be relatively low-risk options but aren’t always guaranteed to work well. 

Both sole traders and limited companies can access debt financing. This is where your business uses loans or credit cards to buy what it needs and pays back what it owes (with interest) over time as it makes money. As you’re considering financing options, note that only limited companies can use equity financing. This is where you have shareholders buy a portion of the company who later receive part of the profits for helping it set up.

 Read more about sourcing funding for your business in our guides:

• How to finance a business and which are the best options?
• How to present a business plan to potential investors
• What is financial planning in business?

With so much to plan, think about, and do when setting up a legit business, there’s a lot of things pulling on your time. The Countingup app can help you gain some of it back and understand your business’ finances at a glance. 

With Countingup, your business current account and accounting software are available in one app. With a dedicated business account, you can get a more accurate picture of how your business is performing and enjoy customisable invoicing tools, expense categorisation, and real-time updates about your income and expenses.

Find out more about Countingup here and sign up for free today.