Your friends say the stuff you make is awesome. They love it so much that they suggest you do if for money. Whether you make cakes, craft furniture or take good photos, how do you know if they are just being kind or whether you’re sitting on a genuine business success?

The key here is small steps. Head down to a local fair and see how your cakes fair. Take your furniture to a professional and ask their advice. Speak to friends about whether they’d trust you with event and wedding photography. The responses you get here will help you decide whether going solo is a viable option.

If you’ve already decided that this is your chance to become your own boss, here are the four steps you’ll need to take.

1. Create a vision

When you dabble with making money through a hobby, your business doesn’t necessarily have the deepest roots. This is because gradually falling into making money from a hobby, perhaps by accident or due to a pressing need such as redundancy, means you tend to blindly let the hobby alone lead.

When you start to consider your hobby as a business venture, you need to stop and create a vision to prevent accidental meandering which doesn’t benefit you. This means establish what you want to achieve. This will form the bedrock of smart financial decisions and systems – the lifeblood of a successful business.

This is important. We know you’ve got passion in spades, precisely because it’s a hobby, but passion alone isn’t enough. Therefore consider factors such as whether you want to maximise profits, or improve your work-life balance.

2. Create a business structure

With vision in hand, it’s time to create a clear structure for the business. This is the point of considering whether to remain (or become) a sole trader or creating a partnership or limited company. For most hobby-businesses, you’re likely to at least start business life as a sole trader.

3. Think about pricing

Now comes the tricky territory for hobby money-makers. Pricing your work is a tall order. Whilst your friends and family have enthused that they will pay for what you make, you may suddenly realise that many don’t have a realistic understanding of time or costs involved.

A clear example of this is with cake decorating. Many home bakers have friends and family telling them they should sell their cakes. You sit down to work out prices and realise that you’re easily spending around £20 on ingredients for a middle of the road cake, before factoring in your time and skill. You therefore need to be realistic on whether you can command the prices you need to make the hobby pay.

Don’t forget, you mustn’t only factor in supplies, packaging, and energy. You also need to factor in advertising, website costs and any other overheads such as insurance.

By taking all of these costs together you can establish a cost-per-unit price. From here you can work out what your actual selling price could be. It’s sensible to focus on just one or two products in the short-term and then expand your range as you grow.

For the short-term while you get established you may be able to work out your prices without factoring in VAT. With a turnover less than £85,000, you won’t need to charge or pay VAT. This can help you build the business, but be aware that you will need to hike prices as your success grows.

4. Keep business and personal separate

It’s easy when moving from hobby to business to blur the lines between your business and your personal life and finances. However, you will need to have strict boundaries not only to protect your work-life balance, but also to keep finances appropriately.

We strongly recommend setting up a separate business bank account. This is easy to do and will help you clearly define what’s ‘business’ and what is ‘personal’. This will also help you in terms of keeping accurate accounting records which are essential for self-assessment tax.

Thinking about turning your hobby into a career? What teething pains is your business having? Or are you worried about making the leap? Leave your comments in the section below or join the community convo over on Twitter by tweeting @Freelancer_News.