How to Turn Your Hobby Into a Side Business…and Should You?

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For many, the easiest way to go into business for oneself is by turning a hobby into a profit-oriented enterprise. After all, your participation in a hobby gives you all of the knowledge and expertise you’ll need to potentially pull in a significant income. The problem is that there’s no specific road map for turning a hobby into a legitimate business. Most have trouble figuring out if they should even take the risk. If you’re contemplating this action, it’s important to ask yourself a few probing questions before moving forward.

Determine If It’s a Wise Move

Before you start printing up business cards, you should consider why you’re turning a hobby into a business in the first place. If your hobby is a way for you to unwind from the stress of your real job, it might not be wise to proceed. Hobbies tend to be less fun when you’re banking on them for income. Furthermore, you need to determine whether or not the required start-up capital, eventual tax obligations and risk of failure are worth the gamble.

Come Up with a Business Model

Before you charge ahead with your new venture, you need to figure out how you’ll parlay your hobby into a real business. For instance, will you be producing goods, performing services or both? How will you market yourself to the general public? How much money do you need to make for this hobby-based business to be worth the effort? Sketch out a rough game plan for your business and fill in the blanks as you proceed to avoid falling on your face.

Go Over the Profit Arithmetic

Once you have a business plan more or less figured out, it’s time to get down to brass tacks and crunch some numbers. Tally up input costs, overhead and taxes for your average anticipated transaction and come up with break-even prices to charge for your services or goods. These figures will come in handy in the beginning since you’ll probably want to charge low introductory prices at the outset. This will attract buyers that can easily turn into repeat customers if they like your operation.

Figure Out Future Requirements

Determining what kinds of supplies you’ll need when starting a business is easy. Anticipating expenses that’ll pop up further down the road should your business be successful is a little trickier. For instance, you’ll probably need the services of a decent lawyer at some point when crafting contracts and minimizing taxes. Another unknown might be insurance to protect against lawsuits from unsatisfied clients. Think about what you might need in the near to intermediate future and start saving up for it should it be necessary.

Put Together a Disaster Plan

Many a small business has been sunk in the early stages by unforeseen circumstances. You never know when a fire, an accident or a bad market will unexpectedly wreak havoc with your fledgling enterprise. At a minimum, it’s vital that you put together a reserve fund in case a massive expense that comes out of left field threatens to take down your operation. Furthermore, have a pivot plan so that you can quickly change your business’s focus if your original blueprint doesn’t work out.

Figure Out the Tax Equation

If you’re not careful, the IRS can make your life a living hell and greatly reduce the viability of your hobby-based business. Do the tax math before you get started and craft your business model so that your liabilities don’t cut into profitability too much. Obviously, this part of the process is highly dependent on the industry in which you plan on operating. Fortunately, there are many generic and effective ways to reduce your SMB tax bill such that your operation has a fighting chance.

Determine Where the Glass Ceiling Lies

In just about every industry, there’s an invisible barrier that separates the little fish from the big fish. If you’ve noticed, there aren’t any medium-sized bookstore chains in existence these days. There’s just Barnes & Noble and a few local niche book sellers. To rise above a particular level in most industries, you need serious capital and often political connections. Before getting started, it’s important to know how far you can rise with your hobby business and whether or not the glass ceiling is precipitously low.

Knowing When and How to Quit

Lastly, it’s important to have an exit strategy for your hobby-inspired business for when you’re ready to leave the game. Will you sell the business to another entrepreneur or do you plan on cashing out by liquidating assets? If your business doesn’t go as planned, it’s wise to have an idea of how you will transition to another venture or go back to working a 9-to-5. You don’t want your business to turn into a burden.  If turning your hobby into a side business seems to be the right move for you, there’s no time like the present to get started !

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