When a Hobby Becomes a Business

I am currently helping one of my friends get his business up and running. Something interesting happened...

I was told early on that as I progressed through my MBA coursework, friends and family would begin asking me to help them with their business ideas. My professor must have been speaking from experience because that's exactly what has been happening. Unlike many people who may be put off my it, I actually welcome it.

An F/A-18 Hornet Launching From the Flight Deck of an Aircraft Carrier

Recently, one of my friends wanted to formalize his motorsports repair business. I say formalize (see previous blog post) because he was already in business working on his client's motorcycles and ATVs. To this point, we've formalized nearly all aspects of the business operations and my company has assumed a one-third ownership stake in his new Limited Liability Company, Berzerkers Cycleworks.

Prior to this point, his profits were primarily from the labor cost of regular maintenance or upgrades. There was no income on the cost of the parts that were being used because they were all being purchased by the customer at retail cost. This is one of the first aspects of the Berzerkers that we reorganized.

Over the last week, I've been working with various distributors for everything from performance exhaust to saddlebags and seats to secure dealer privileges. As of now, we've been approved for about half of them with the other half pending.

What this will do for the Berzerkers is allow it to sell the parts at a markup and widen (or, in this case: create!) its margins. This is in addition to a new labor pricing structure that we creates which better reflects the market rate for labor while still providing a discount to the customers when compared to larger competitors. Combined, Berzerkers is now making a profit on both the labor and the parts.

Setting up the accounting has been fairly simple and cost-free. I opted to use GnuCash, an open-source accounting software tool that just about beats the socks off of nearly every online accounting company that seeks to increase your costs of doing business (looking at you, QuickBooks). Going with GnuCash was a simple question of tradeoffs and ensuring that they always benefit the company (which I previously wrote about). Don't fall into the trap of paying for unnecessary products and services early on if you can avoid it.

As of this week, Berzerkers Cycleworks, LLC has officially completed its first full maintenance on a customer's motorcycle and already has some customers in line for upgrades and other repairs. Business is, as you would say, booming!

Something has also happened in the last week that was entirely unexpected. By formalizing the business operations for Berzerkers Cycleworks, a competitor has requested to join the company and bring over all of his customers. There are reasons for both optimism and pessimism from this offer which I will discuss in a future post.

Simply formalizing the business has granted it the legitimacy that is required for customers to feel comfortable doing business and for others to join the company and bring in their clients. So, my recommendation is that if you have a hobby business, then you should formalize the business and make it work for you.

In other words...

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