Do You Have a Hobby or a Business

Do You Have a Hobby or a Business?

There is a lot of advice claiming that finding something you’re passionate about means you won’t work another day in your life. But if you follow that advice, are you living your hobby or running a business?

Is it a Business or a Hobby?

Not every business is run full-time or for profit. And not every hobby allows you to make money. But when you start making money from a side hustle, it can become difficult to separate what was originally a hobby from the makings of an actual business.

What’s considered a Hobby?

A hobby is something that may not drastically impact your lifestyle or income. You could be working full-time on it—even paying your bills—and it might still be a hobby, not a business.

And if you have a hobby, it’s perfectly okay to be where you are now. Things evolve. You can be passionate about a hobby now and turn it into a business later, having fun doing something every day that supports you and your family.

What’s considered a Business?

A business requires more skin in the game. You may have put your savings, your children’s college funds, credit card debt, or borrowed money from a bank or family into it. You have a vested interest in making it work. But if you treat it like a hobby, you increase your level of risk.

How to turn your hobby into a business

If you’ve been investing in your hobby with the intention of making a profit or growing its footprint, it’s time to decide if you want to turn it into an official business. Without a firm plan or a roadmap, your investments can quickly spin out of control.

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If you enjoy having a side hustle that makes money on the side, that’s perfectly fine. You don’t need to create a full business. But if you’re spending more time on that money-making hobby, here’s how to convert it into a small business.

1. Set goals

You likely know what you want from your hobby. Now, turn those ideas into actionable goals. What do you hope to accomplish? What does success look like? Who is involved? What resources do you need? Answering these questions will help kickstart critical thinking to get your business off the ground and develop SMART Goals.

2. Create a one-page business plan

Establishing goals helps develop a simple business plan. Writing a one-page plan is perfect for those turning a hobby into a business. It’s quick, easy, flexible, and doesn’t require all sections of a traditional plan, but it outlines how your product or service functions as a business.

3. Reach out to current customers

If you’ve been selling your product or services as part of your hobby, reach out to previous customers to pitch your business. This can test your idea, gain initial sales, and claim positive customer reviews before launching.

4. Pick a name and register with the state

Choose a name for your business and register it with your state. Determine the business structure and apply for a federal EIN to identify your business to the IRS.

5. Get your finances in order

As a business owner, track your spending, revenue, and available cash. Set up accounting processes from the start and consider using accounting tools.

6. Get a business bank account

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Separate personal and business finances with a business bank account. Also, make sure to understand the Hobby Loss Rules to prevent legitimate deductions from being disallowed.

Additional startup elements to consider

Depending on the size and location of your business, you may need to get a sales tax license and business insurance.

Now you can go from hobby to business at any time

These basics provide a foundation for your business. Revisit your lean plan and develop a structural plan to grow your business. And remember, if you miss having a hobby you love, you can always pull back or pivot your business.

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