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Turn Your Hobby into a Money-Making Business

You’re passionate about the hobby, so you’ve already cleared the first hurdle. With a little business education, the question becomes, why wouldn't it work?

If turning your hobby into a business sounds too good to be true, stop and think about why it could work. You’re passionate about the subject matter, so you’ve already cleared the first hurdle. With a little business education, the question becomes, why wouldn’t it work?

If you need further reasons to believe, how about the success story of one of the largest public companies in the United States? Harley-Davidson was started from a hobby two guys names Harley and Davidson turned into a business. How about the story of a man named Craig in California who started a business from a small message board he was running — Craigslist. Don’t let old wives’ tales fool you: You can create a legitimate — and successful! — business from beloved hobby activities. 

If you’re considering turning your hobby into a business and generating hobby income — or even if you’re just looking to get a tax break on your hobby expenses — keep reading.

 1. Test your market.

Before you get too far,perform market-testing. This is an absolute must for any successful business, even if it is a business for tax purposes. This critical first step involves testing your product or service before you produce and sell it. Who is the ideal person to buy your product? How much disposable income will they have? How will you show your product to these people? 

In addition to the demand for your product or service, you’ll also learn about the customers you can expect to complete a purchase. You can even ask how much customers would be willing to pay, and how they would prefer to purchase (online vs. brick-and-mortar store). It’s also a smart idea to ask about marketing and advertising during this step. A couple of key questions include:

1. Which types of marketing work best for you? Emails? Texts? Social posts? Mailers?

2. How often do you prefer communication? Weekly? Monthly?

3. What’s the part of my product/service that’s most intriguing to you?

Remember that creating any kind of business usually requires some kind of monetary investment — usually in advertising. Look at what your competitors are doing, and try to gauge whether or not they are successful.

2. Understand the Tax Implications

If the market looks promising, it’s time to consider the prospect seriously. Starting a business is more than saying “I’m a business!” and calling it good. Once your hobby income becomes a real business, there are potential tax liabilities. 

First, since the passing of TJCA in 2018, you can no longer deduct your hobby’s expenses, though you must still report any hobby income on your taxes. You must be a formalized business. Furthermore, any itemized deductions must be both ordinary and necessary. Some examples include the cost of web services, cost of materials, consultation fees, and banks fees, etc. 

Remember, however, that if you are running your own business, you are responsible for paying the self-employment tax. If you expect to pay more than $1000.00 in taxes, you’ll be paying these quarterly.

At that point — and we cannot emphasize this enough — it is in your best interest to hire a certified professional accountant. They will be able to tell you how much income tax you will owe, help you understand any business losses, and more. Doing so can save you hundreds (if not thousands) of dollars in fees!

If that setup still sounds good to you, then it’s time to move to the next step.

3. Draft a business plan.

Chances are, you may need a small business loan to get your business up and running. Our guide on How to Write a Business Plan for Loan can get you started. Even if you don’t plan to approach lenders, this is a good idea. The exercise of putting together a business plan will help you understand whether you’re ready to commit to the business, how many customers you’ll need before your business becomes profitable, what kind of marketing will need to be done, and more. 

If you are interested in attracting outside investors, a legitimate business plan gives lenders or banks clarity about your potential. They will use it to determine whether to lend you money. They need to see that you’ve identified your business strategy and business structure and put in place marketing plans for your target market to make your business idea viable and sustainable. They want to see you’re poised to turn a future profit, not just create a better tax return for yourself.

Again, read our full guide on writing a business plan for more details. For now, know that writing a business plan is a key step in the process of starting your small business not only as a future resource, but an exercise of commitment.

 4. Develop your brand.

If you’re a creative person, this is the fun part! Some business plans suggest a brand section, so you may end up building your brand and business plan simultaneously. Start by thinking about your product or service. What makes it unique? Are you the first of your kind to make this type of candle? Do you use high-quality ingredients so your focus is on cookie quality? Do you make one-of-a-kind products specifically tailored to a customer’s wants and needs? These type of questions will help you narrow down your three uniques. You can then use your three uniques to focus in on what kind of brand image you want to project.

How to get started: Once you’ve defined the type of product or service you are, you can work on a logo to be the first visual impact of your brand. Not a designer? Not to worry. You can hire a graphic designer to make a logo for you. From there, compose a communication or marketing strategy that includes key messages. This goes back to number 1 above, as you’ll want to use the information you gleaned from your market research when you develop your plan. Use those key messages in all of your communications so your brand is easily identifiable, consistent, and clear. You may want to consider business cards, too – either hard copy or electronic. The idea is to get your name out there and be consistent with your brand when you turn your hobby into a business. 

 5. Register your business.

At this point, you’ve written a solid business plan, developed a business model and brand, and performed market analysis. You’re ready to complete the necessary paperwork to have a real business.

Congratulations – your dream is getting real now!Where you need to register your business depends on what type of business you’re starting. As a hobbyist, your best bet is probably an LLC or a Sole Proprietorship, but if you’re not sure, the U.S. Small Business Administration website is a great starting point.

Where to register: Visit the “Register Your Business” page on the U.S. Small Business Administration website.You’ll see helpful links to federal, state, or local agencies and can filter by which state you live in. It’s best to check with your city, too, as you may need to pay federal, state, and city taxes.

You’ll also want to set up a separate business bank account for your small business and start tracking business expenses and possible tax deductions. Now is the time to ensure you are detailed and scrupulous with your financials and that you’re tracking business transactions and business income once you’re up and running. Remember what we said above about hiring a CPA? 

6. Create a web presence.

No matter where or what you plan to sell, you’ll need to be online. If you’re comfortable building your website, then do so. But for many of us, it’s best to use a template or hire this task out. For a simple site, many people use Wix.com or Weebly.com. These plug-and-play website builders make it so anyone can get a site up and running quickly and easily. You’ll also want to engage your customers with basic social media sites on Facebook, Instagram, and any other social outlet your customers use. 

Remember that you don’t have to do everything. If the majority of your customers are coming from Instagram, focus there. If the majority come from search engine results, focus on that marketing funnel instead.

 7. Add a sales platform.

Now, you’ve got a website but you need to add the components so your customers can shop for your product online. Again, this is another step where unless you’re a developer, you may want to enlist the help of a professional or use an easy tool like Shopify.com to perform your online sales. 

Pursuing Your Passion

According to a survey by Guidant Financial and LendingClub, “23 percent of small business owners said they went into business to pursue their own passion, and among owners of profitable businesses, 42% said they did so to find personal satisfaction in their work.”

Clearly, if you’re looking to turn your hobby into a small business, you’re not alone. We wish you all the best in your hobby-to-business venture! Let us know if you ever want to simplify your business administration. Guidant is here to help!

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