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9 Steps to Turn Your Hobby Into a Business

Your personal pastime could become a source of income

pottery business owner
GETTY IMAGES

Maybe you make wonderfully fragrant soy candles. Or perhaps you love to spend your free time designing jewelry, taking photographs or carving masterpieces out of wood. Now, people are asking to pay you for what you make. Is it time to turn your hobby into a business?

There are a few telltale signs that you might be ready to take your leisure-time activity to the professional realm, says career coach Caroline Castrillon, also known as the “corporate escape artist.” If there’s demand for what you make and the thought of turning your pastime into a business excites you, your hobby may actually be a good opportunity to dive into business ownership. You also may be ready to go pro if you’re already occasionally selling what you offer and requests are ramping up through word of mouth.

If you’re thinking about turning your hobby or talent into a business, here are nine steps to get started.

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1. Stick with your day job (for a while)

It’s usually a good idea to keep your full-time job—at least at first, says certified SCORE mentor Patti Williams. “You cannot run a business if you can’t pay your power bill or you can’t make your car payment,” she says. As you develop your hobby into a business, make sure you have enough money to support your family until your venture gets off the ground.

“Chances are your income stream will be volatile for a while as you make the transition,” Castrillon adds. While a typical “emergency fund” is three to six months’ expenses, you might want to have more of a savings cushion — perhaps a year’s worth of expenses — before you commit to your business full-time, she recommends.  

2. Find your market

You don’t have a business until you have someone who’s willing to pay you, says Ross Buhrdorf, CEO of ZenBusiness, a business formation and information website. While it’s a good sign if you’ve had some inquiries about buying your goods, you still need to explore whether there are enough potential customers to make it worthwhile, he says. Look at competing businesses to figure out whether there’s enough opportunity for yours, too, as well as how many sales you would need to make to cover your costs.

toy train hobby shop owner
AARP

3. Mind the legal matters

As you move from pastime to professional, you’ll need to consider matters like the legal structure of your business, insurance, taxes and other issues. Williams suggests starting with an organization like SCORE, which pairs entrepreneurs with mentors to help them answer thorny business questions. You might also consult AARP’s Small Business Resource Center for the 50+ or your local Small Business Development Center (SBDC). Websites like ZenBusiness can also help with legal formation.

If your hobby is making products that are regulated, such as food or cosmetics, you’ll also need to understand U.S. Food and Drug Administration guidelines, as well as state and local regulations. You should also understand your state and municipal requirements for business licensing and operations to ensure you’re in compliance.

4. Write a business plan

Williams admits to being a “huge business plan proponent.” The plan doesn’t need to be long. She has a one-page version from SCORE that she gives to her clients to get started. But the plan can help the aspiring entrepreneur answer key questions about the business, its financials and its operations, she says. “We start with that, and then we have them come back in. Then we start to step into those specific areas that they may see as a weakness,” she says. Working out the specifics of their business on paper allows potential business owners to identify and address issues before launch, which heads off potentially expensive missteps, Williams says.

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“Make sure it’s an endeavor that can eventually provide financial rewards,” Castrillon adds. “If you can’t make a business plan work, then it’s probably not worth the risk.”

5. Get your pricing right

Your product pricing will have an impact on everything from your business’s profitability to how your products are perceived in the market. To get pricing right, Castrillon recommends doing some competitive analysis. For market-oriented pricing, look at who is selling items similar to yours, and how much they are charging. Alternatively, cost-based pricing is when you calculate your total costs and add a percentage markup. Either way, be sure you understand how much you need to charge to recoup expenses like labor, supplies, insurance and other costs you’ll have as your business grows.

6. Find the right channels

There are a variety of options when it comes to selling your products, as well, so finding the right channels is also important. “If you’re selling jewelry or crafts, you might want to consider Etsy, eBay or Amazon as a sales channel. No matter what, I recommend creating your own website where you can also sell your items,” Castrillon recommends.

You may also choose to sell directly at events, such as festivals and fairs, or even sell your creations wholesale to retailers, catalog marketers or other e-commerce sellers for resale. The right choice depends on a variety of factors ranging from demand for your product to your own production capabilities.

7. Keep good records

Business owners need to keep accurate records of income and expenses for everything from cost analysis to tax liabilities, Castrillon says. This will be especially important as you transform your hobby into a business. For example, supplies you bought as a hobbyist are not tax-deductible. However, once you are operating as a business, different rules apply. Be sure to consult a tax professional or business adviser to help you understand how to differentiate your hobby expenses versus your business expenses and understand your income, sales, and other tax liabilities.

Castrillon also recommends opening a business credit card account to keep expenses separate; this can make filing taxes easier. Accounting software may also be a good investment, she says.

8. Get the word out

To sell consistently and grow your business, you’ll need to let customers know about your products, Buhrdorf says. Test different marketing and promotion methods. You might experiment with advertising on social media or through paid search, which means that when people search for products on Google or other search engines they might get ads from your products or website.

Consider starting a customer and prospect email list and building a community on social media. You also could encourage word-of-mouth from satisfied customers through referral incentives, cross-promote with another business, or even buy leads on potential customers from other businesses, depending on what you’re selling. As you try more options, you’ll begin to learn what works best for your business.

9. Don’t lose your passion

In the end, be sure that you’re not turning something you love into a stressful chore.

“To be successful, you should have a real passion for what you do. The biggest question is: will you still enjoy your hobby once you introduce the pressure of revenue generation and deadlines? If the answer is yes, that’s a good sign,” Castrillon says.

If you’re truly ready to turn your hobby into a business, you might enjoy the best of both worlds: making money doing something you love — something you would do even if you weren’t paid for it.