The world of work has undergone a fundamental change in the past few decades. No longer can an employee expect to remain with the same company for a career, enjoy all kinds of excellent benefits, and retire with a nice pension. These days a worker should instead figure he or she will change jobs several (maybe several dozen) times over their working life.
This decline in employment stability leads many to ponder how to turn a hobby into a profitable home-based business. The good news is, thanks to the internet and related technology, the time has never been better.
Here are some considerations during the transition.
Differences between a hobby and a business
To turn your hobby into a business requires more than waking up one morning and declaring, “My widget collecting hobby is now my livelihood.” While you can certainly do that, and maybe it will work out, to take full advantage of being a business (like the ability to deduct business-related expenses from your taxes), you need to be able to prove to the IRS that you are, in fact, attempting to turn a profit.
A hobby doesn’t allow for these kinds of deductions.
In fact, if you show an operating loss for too many years, you lose the presumption that you’re running a profit-seeking business and may have to prove that fact to the IRS.
How do you show that a hobby is now a business?
The best bet is to procure the things associated with a business: a separate checking account and phone line, business cards, and appropriate licenses are a good start. A well-conceived and written business plan helps also.
The following are the steps for creating a business out of a hobby.
Have a plan, strategy, and define goals
The first thing to consider is the different ways to extract money from your hobby. This is the time to sit down and do some serious thinking.
- Who are your competitors and what do they offer?
- What can you do that delivers value and targets an unfilled niche in the market?
You need to figure out how to either do something different or do it better. During this strategy brainstorming phase, other factors to consider are finances and what goals (short and long-term) to set. When it comes to establishing these goals, try a SMART approach and make them Specific, Measurable, Attainable, Realistic, and Timely.
Pick a name and place
Without a great name, you’re dead in the water. Not only does it need to be dynamic, explanatory, and easy to remember, do your due diligence to make sure it isn’t already in use. Most state government websites have a searchable online business name database.
Once you settle on the perfect name, your next stop should be the U.S. Copyright Office’s website to trademark it. A name worth having is worth protecting from competitor encroachment.
Where in your house will you conduct business activities? You should set aside a room or space solely dedicated to this. Perhaps the best part about starting a home-based business is how cheaply and quickly you can get up and running.
For those with limited finances, saving the expenses of a storefront are the only thing that makes turning a hobby into a business feasible at all.
Formalize your hobby as a business
Some formalities of transitioning from a hobby into a business have already been mentioned. Here are a few others. One of the first decisions you face is which type of business entity to choose. While many people select to start as a sole proprietor, you might decide that forming a partnership or incorporating as a C-Corp, S-Corp, or LLC better suits your situation.
If you have questions, consulting a legal or tax professional is a great idea. This step, along with obtaining a Federal Tax ID Number, opening a business checking account and securing the necessary licenses (usually city and county) and permits allow you to demonstrate to the IRS your sincere intention of turning a profit.
Leverage the power of networking and build an online presence
Even if your new business is a local landscaping service, you need an online presence that includes a website and at least one social media account.
There’s no escaping the fact that, even for local businesses, the internet is where people go in today’s world to find information about products and services.
This is how you establish a public face to show to the world, build a customer base, and create a recognizable brand. Don’t overlook the power of networking as you go through this process. The old saying that it’s not what you know but who you know that makes the difference hasn’t changed.
Put yourself out there.
You never know what you’ll get in return that might help your business.
Treat it like any other job
Perhaps the most significant difference between a hobby and a job is that the latter requires constant focus and dedication in order to provide a meaningful income. Presuming you like to afford regular meals and pay for that roof over your head, this needs to be a serious effort.
Don’t just treat it like a job. It is your livelihood.
Which means you don’t just show up, put in your time, and not think about it again until the next day. As an entrepreneur, it behooves you to put in the time in the evening if necessary to study the market in order to create new products and services that will turn a new business into a profitable and long-lasting business.
What better choice in life could a person make than to turn something you love to do into a way to generate a full-time income? That’s what the preceding steps are designed to help you do.
Follow each in turn, and you could be living the dream sooner than you think. Good luck!
Lisa Michaels is a freelance writer, editor and a striving content marketing consultant from Portland. Being self-employed, she does her best to stay on top of the current trends in business and tech. Feel free to connect with her on Twitter @LisaBMichaels
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