Turning Your Hobby into a Successful Home Business
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If you’re considering whether to turn your hobby into a business, you’re not alone – who wouldn’t want to make money doing something they love to do?
In fact, the passion you have for your hobby is the same fuel that has driven many an entrepreneur before you and some of the most successful companies in business history.
But whether you have what it takes to launch and sustain a business around what is now a leisure activity will depend on several factors, a couple of which require self-awareness and research. These steps offer a few ideas to guide your decision on whether to turn your hobby into a business.
Assess the financial feasibility
This is an assessment every entrepreneur has to make before starting a business. You have to look at all the numbers – can this hobby be turned into a profitable entity?
This is particularly important if you intend your new business to take the place of an income-producing job you now have or eventually serve as a primary income in your household.
“As much as you enjoy your craft, it won't make much sense to turn it into a business if the profitability prognosis is grim for the long term,” writes Nellie Akalp, serial entrepreneur and CEO of CorpNet, on the SCORE website.
Determine if there’s a market for what you’re doing or selling
Another step a successful entrepreneur has to look at before starting a business. Is your hobby producing an item that people need or want to buy? Are there other companies that are selling what you make? And if so, how is your product or service different?
Do some research – look at online marketplaces and brick-and-mortar businesses to see who offers what you plan to sell. Check out prices and customer bases, which means snooping around the businesses that would be your competitors, including social media platforms to learn more about your potential customers.
Figure your startup costs
You’ll face different startup expenses depending on your business type, where you’ll be located and whether you’re an online business or brick-and-mortar – for example, if you’re planning a retail location, you’ll need to calculate monthly rent expense.
But figure out how much it will cost to get started – it’s one thing to run out of materials if it’s your hobby but you’ll need to be sure you’re covered when it’s your business. Don’t forget the cost of licenses or professional fees.
Consider what you’ll need to get your business set up, such as any marketing materials, including creating a website, printed materials and online advertising, as well as any other supplies you need to get your first products ready to sell and out the door.
Look at tax implications on a new hobby-turned business
The tax implications will depend on what you’re selling or making and the structure of your business as well as your city and state, as well as whether you’re home-based or planning a brick-and-mortar store.
Getting advice from an accountant before you open your business is a good idea but when it comes to reporting income and expenses on your tax returns, consider what the IRS says about your hobby vs. business. A hobby, it says, is an “activity done mainly for recreation or pleasure.” Here are a few of the factors that determine whether your activity is a business engaged in making a profit:
- Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
- Whether the time and effort you put into the activity indicate you intend to make it profitable.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
- Whether you change your methods of operation in an attempt to improve profitability.
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
Look into licenses and permits
You sure didn’t need a license to bake cupcakes or wedding pastries whenever you wanted when it was your hobby but if it’s going to be a business out of your home, check with your local government – city, county and state – to see what you might need to legally run your business in your home. Also check zoning laws.
Of course, if you’re planning to open your new hobby-turned-business in a physical location, there are sure to be licenses and permits you’ll need to inquire about as well.
Really think about the loss of the hobby as you know it
When you turn your hobby into your business, it means you’ll be losing the activity as a hobby, something you loved to do.
You’ll be doing the activity faster and, well, it won’t feel so leisurely anymore. You’ll have deadlines and money will be attached – what you once loved will become your work. It’s important – before you decide to turn your hobby into a business – that you take some time to think about how your hobby will change from your de-stressing and fun thing into a work thing.