Turn your side project into a money-making business

Let's be honest, being part of the web industry is great, isn't it? Many of us are privileged in working for ourselves or as part of a small business. By and large we are all passionate about what we do and enjoy working on client projects. They are fun, fulfilling, occasionally give us scope to push the technological boundaries - and ultimately enable us to pay those all important bills.

In spite of this, it's hard to think of anyone - be they designer or developer, or a mix of both - who isn't tinkering away on one or more side projects in their own time. The joy of creating something that is truly your own is very appealing. A project where you call the shots; a project where you can try out new ideas; a project whose success or failure depends solely on your input.

However, many of us struggle to turn that side project into something that can actually generate money. In fact, generating an income from a side project is often perceived as something of a pipe dream... but it doesn't have to be. What could be better than earning a living doing something you truly love? Over the last couple of years, we've seen more and more people turning their side projects into not-so-side projects. Products such as Perch, Codebase, 8 Faces and, of course, 37signals' Basecamp all started out as small-scale ideas and have all gradually turned into profitable enterprises.

Take away the pain

The common factor in all of these projects - and almost all side-projects - is that they are products, as opposed to services such as client work. This move from selling a service to selling a product is often a radical departure when you're used to dealing with clients rather than customers. But we're going to show you how to take away the pain from that transition - and show you how easy it can be to give up your day job, focus on making some exciting new products and ultimately make money from doing what you love.

Our decision to form Viewport Industries and stop doing client work to make products (both physical and digital) wasn't the result of us not enjoying client work; we've both had some fantastic clients. It was down to feeling a lot more passionate about doing our own thing and realising that in order to do it well, it had to be our sole focus.

Like many, we were never told how best to go about the process, but making it up as you go along is not necessarily a bad thing. Our approach has been proven in part by the success of 8 Faces, so it was a case of applying that to multiple products and under the banner of a new company. What follows is not intended to be a prescriptive guide of how to start a new business, but a series of steps that have worked well for us so far.

Setting up a UK-based business

So you've got a great idea you're passionate about, you've identified your potential audience, you've worked evenings and weekends to build up a cash cushion, and now you're ready to start dedicating daylight hours to your project. What's next?

If you're working solo, you can either register with HMRC as a sole trader or incorporate as a limited company (LTD) with Companies House. If you're working with another person, you have the option of forming a limited liability partnership (LLP), a limited company - or the often-overlooked co-op. Limited companies tend to be the obvious choice for most people as a company is very much its own entity, entirely separate from the directors who run it. That's what we went for with Viewport Industries Ltd, assigning ourselves a straight 50 per cent split of shares.

Setting the ground rules about ownership and profit share at the beginning might seem a little hasty, but all being well it should act as a safeguard against resentments creeping in and affecting your project at a later date.

Getting a company bank account

Once you've decided on your structure, the next step is setting up your company bank account. Even if you haven't formed a limited company, it's advisable for your business to have its own bank account - it keeps everything separate from you as individuals. Most banks are keen to get new businesses on board early and offer free banking for a limited time period, as well as free business advice and a dedicated business manager.

While we all live in a virtual world it's very reassuring to be able to call up 'our man James' in our local branch of HSBC. Additionally HSBC is one of the few UK banks to provide feeds to Xero, the online application we use for all of our invoicing, reconciling and accounting.

Speaking of accounting, we recommend getting an accountant before almost anything else in the set-up process. Not only will your accountant then have a complete view of the company right from its inception, but he or she can usually also help with getting it all set up - as well as handling the burden of all the legal paperwork. Getting bogged down in accounts is not the best use of your time: it's one thing where it's definitely worth putting your hand in your pocket.

A question of VAT

Depending on your product(s) you may wish to consider registering for VAT before commencing trading. Currently levied at 20 per cent in the UK, charging VAT will effectively raise your prices by a fifth for those who can't claim it back. But registering will enable you to claim back VAT on your company expenditure, so may be worthwhile depending on your outgoings. Remember that as your revenue hits a certain threshold, you'll be required to register for VAT anyway.

You should also note that certain items are exempt - physical books and magazines fall into this category, but digital books and magazines do not. Be sure to check HMRC's website to find out which product types you should be adding VAT to, and speak to your accountant on how to handle VAT charges to different territories.

On VATable products in the Viewport Industries shop, we charge VAT to all customers in the UK, we charge VAT to customers in the EU unless they're able to provide us with a valid VAT ID, and we charge zero VAT to the rest of the world.

Setting up a legitimate online shop

With all mundane but essential business matters squared off, it's time to open up your online shop and start trading. Whether you're selling physical products, digital products, or - like us - a bit of both, the process is essentially the same and there are a variety of services to help you sell online.

By far the most common option is the simple PayPal 'buy now' button, although it's still extremely easy to build your own shop by utilising a free WordPress theme/plug-in such as WooCommerce, or hosting your shop with a service such as Shopify or Big Cartel.

While adding a PayPal button to your site is free, most services will attract a cost. WordPress plug-ins such as WooCommerce will charge a fee for payment gateway integration, and services such as Big Cartel and Shopify are based on a monthly subscription cost. Many offer free plans that enable you to test the system, but it's worth looking into the option that suits you best.

One of the difficulties we've encountered with PayPal is that the fees are taken directly from each transaction. This can make reconciliation a little difficult, because the amount invoiced is never quite the same as the money received. This was one of the primary motivations behind our decision to go with a set-up that charged us for fees in arrears, as well as maintaining a higher level of control over our transactions.

Going pro: merchant accounts

Merchant accounts might sound a little scary, and setting everything up can be a bit of an arduous task, especially when very little is written about them... but that's why we're here!

Before doing anything, write some terms and conditions, as well as a privacy policy, and put these on your site. They should touch on your policies regarding delivery, refunds, tax, cancellations and currency, and most banks will need to see these - as well as your physical contact details – before being able to give you a merchant account.

Essentially the merchant account itself (which you can request from your bank) is only one part of the equation; for everything to work, we had to employ the 'holy trinity' of a merchant account, (from HSBC), an ecommerce site, powered by the excellent Shopify, and a payment gateway in the form of Cardstream to glue them all together. Both Shopify and Cardstream offer full PCI Compliance, which means it's far easier to obtain a merchant account from your bank.

The likes of PayPal and Google Checkout are easy to set up. But given the recent problems with PayPal freezing accounts, we felt a more pro-level solution would be better in the long run, and the money would always go straight into our bank account, with fees from the three services invoiced completely separately.

Running costs

Selling goods online using a set-up similar to our own - having a merchant account, a card processor, and an ecommerce platform - will require monthly payments, usually based on percentages of your sales. Each service might also charge a flat monthly fee as well as a one-off set-up fee. It's worth looking into exactly how much it will cost you, but don't be too put off by these extra costs, as they might still be less than the all-inclusive fees from services such as PayPal or Google Checkout.

Launching the product

We hope you've enjoyed our overview of setting up a business, getting bank accounts and accountancy sorted and setting up a robust, pro-level ecommerce solution to sell your products. Now it's time to put your feet up and watch those sales flood in! Or is it?

Success is great, but also means shipping goods, replacing items lost in the post and dealing with customer support requests – a task that may have you begging those clients to return! But if you're prepared and seek the help of others to share the load, even arduous tasks need not be too stressful.

Nothing can compare with the joy felt by making your own products and seeing them in the hands of customers who genuinely love them.

Words: Viewport Industries

Keir Whitaker and Elliot Jay Stocks have recently left behind the world of client work to focus on creating a range of physical and digital products for the discerning web professional.

This article first appeared in issue 228 of net magazine - the world's best-selling magazine for web designers and developers.

Liked this? Read these!

• Our favourite web fonts - and they don't cost a penny
• The best collage maker tools
• Brilliant Wordpress tutorial selection