Hobby Turns into a Business | ABC Biz Loans

Hobby Turns into a Business

Not everyone has the privilege of making money doing something they love. Sometimes the casual hobby evolves into the cornerstone of a new business. Having a hobby is very different from running a small or medium enterprise. There are a lot of extra factors to take into consideration such as creating a business plan, obtaining capital, using technology, complying with government procedures and adapting to economic fluctuations. If you can manage to handle the minutiae of turning your hobby into a business, you could be in the unique position of enjoying yourself and recording profits at the same time.

Getting Started: Creating a Plan

Never underestimate the value of a detailed and realistic business plan. Even if your business is a sole proprietorship without any employees, you can create an outline for future growth and success. The business plan should include how profits and expenses will be handled along with methods to enhance the business’s profitability. It’s a chance to document the business’s values and mission. As business plans are flexible documents, they should be reviewed on a quarterly basis in light of new market information and business trends.

A business plan can be for personal use or distributed to investors as a means of funding. If you expect to show your business plan to investors, you will need to add a few extra elements. First, you will have to distinguish your business from existing businesses in the same sector and niche. Second, you will have to delineate a detailed plan for how you would use the funds to grow the business. Also, an investor-friendly business plan explains the production costs and mechanisms in a simplified way so that they understand how the business works. Identify the target market from both a geographical and socioeconomic perspective along with a marketing strategy for maximizing sales within that market. Finally, describe each product and its revenue potential as well as plans for any new products that could enhance your business.

Facilitating Success Through Technology

Technology is the best means to expand your customer base and establish a platform to sell your finished products online. In today’s world, it’s unthinkable for a business not to have an online presence. This doesn’t mean that you have to buy a domain and create a complicated HTML or JavaScript website. Even a regularly managed Facebook page explaining the type and quality of products for sale and the business’s hours and contact information will attract potential future customers. They’ll be able to learn more about the business and contact you to directly arrange large sales or shipments.

As your business expands, technology can also assist you in increasing your output and fulfilling retail demand. Unless you’re marketing the products as completely handmade, machine automation can reduce production time. Hobbies have no output requirements, so the length of time spent creating the finished product isn’t relevant. In businesses, however, customers expect the product for which they are paying to be ready in a timely manner. Not only can you automate the means of production after creating the initial design, but you can also use software to manage your tax obligations, scheduling, employee payroll, and communications. This will allow you to devote more time to the business-related tasks that only you can perform.

Community and Networking

You’re not the first person to experience what happens when a hobby turns into a business, and you won’t be the last. Get involved in local and online creative communities to network with other industry professionals and receive encouragement and support. The first couple of years of being a small business owner can be difficult. Social capital is an intangible aspect of successful businesses. You can also acquire new skills to aid you in better serving your customers and managing your business. Networking with other professionals and artisans in complementary fields can enhance the viability of your marketing strategy as well.

Procedures and Formalities

Shifting from the status of independent hobbyists to purveyors of goods has an effect on your tax status. The IRS will either tax you as an independent contractor or as a company. It’s your choice whether you want to incorporate your business as an LLC or remain a sole proprietorship. Independent contractors are required to file quarterly tax returns in March, June, September, and December while corporations file annual returns. Don’t spend your profits as soon as you make them; a certain percentage of your revenue should be set aside for taxes.

Another consequence of becoming a business owner is that you become liable for obtaining the required licenses and permits on the municipal, state and federal levels. The Small Business Administration can assist you in figuring out the local and state permits that apply to your particular business. Failure to obtain the necessary permits can be a federal crime, resulting in fines, jail time or the closure of your business. If your career requires a professional license, operate under the mentoring or supervision of a licensed individual until you are able to get a license of your own. This will help you avoid trouble in the future.

Dealing With Interest Rates

Interest rates are an abstract term for hobbyists. For small business owners, rising interest rates can have a significant impact on their lending and profits. The Federal Reserve raised interest rates in response to improved economic indicators of low unemployment and an increase in national economic activity. Higher federal interest rates correspond to higher prime rates on loans and credit cards. Borrowing money will become more expensive, and it will become more difficult for small businesses to acquire loans in the first place and meet their debt obligations. Consumers who pay more money on loans have less discretionary income, which means that they’re less likely to spend it on unnecessary products. This could reduce your profits.

Startup Capital

If you’re not independently wealthy, it can be challenging to find the startup capital for your new business. There are many sources of startup capital. You could apply for one of the many SBA small business loans. Applying for an SBA business loan is a suitable low-interest option if transforming your hobby into a business is a long-term plan. Don’t take out a loan if you’re not confident that you won’t be in business within the next five years. Another option is to use your existing assets as collateral. You could take out a mortgage on a fully paid-off property and use it to fund your business for the first few years. Or, you could use your business plan to attract investors from among your family, friend, and contacts. A silent partnership in which they provide the funds and you manage the business while giving them returns on their investment is a perfectly legitimate way to obtain the startup capital for your business to get it on its feet.

The Importance of Consistency

Product consistency isn’t very important when you’re producing items as a hobby. However, when a hobby turns into a business, customers expect a certain standard of consistent product quality. As your business expands, you won’t be able to personally produce or supervise the production of every item sold. That’s why it’s important to invest in the training of new employees and draft a set of quality control standards for the appearance and function of products. New businesses are strengthened or weakened by customer reviews. Producing a consistent product will encourage repeat customers. The steady and stable sourcing of raw materials is also critical to maintaining the consistency of the product. Don’t put yourself in the position of having to use low-quality substitutes because of poor inventory management. Make sure that your inventory allows you to fulfill existing orders with enough of a surplus to handle a few unexpected orders as well.


Once you start selling your products, you run the real risk of incurring liability. It’s advisable to have product liability insurance so that one incident or civil suit doesn’t destroy your personal finances as well as your business. If you have a sole proprietorship, you are fully liable for your company’s debts, even if that means declaring bankruptcy or selling your personal assets to meet creditors’ demands. Don’t put yourself and your family in a position where a business failure leads to catastrophic financial losses or renders your family homeless. Creating an LLC is a relatively swift formality that isolates your financial liability in the business to the assets and cash actually invested. It’s the best measure of protection for your personal assets such as your home and car. If you prefer not to establish an LLC, transfer your title to the most valuable assets to trusted family members such as a spouse, children or siblings. This way you can have some measure of control over the assets that can be seized in a worst-case scenario.

Exit Strategy

Operating a former hobby as a business isn’t for everyone. It’s important to have a viable exit strategy to shut down your business at a minimum cost if running your own business isn’t working out for you. If you’re leasing office space, make sure that your lease contract doesn’t have a penalty clause for early termination. When starting out, sign lease contracts for short periods such as one year or six months. Only sign long-term agreements when you’re relatively sure that the business will be viable in the long run. Depending on the sector that you’re in, having leftover inventory can be a problem. If your leftover inventory is perishable, then order from your suppliers on a monthly basis rather than on an annual basis. If you’ve taken out loans for your business, use your business assets as collateral in case your business closes before you can pay back the business loan. Have plans in place for dismissing employees in a considerate manner and with plenty of notice.

In conclusion, transforming your hobby into a business venture carries a lot of important financial and practical considerations that you should analyze before taking the leap. Starting your own business is a significant decision that shouldn’t be taken lightly. When you do start, having a business plan, contacts and the right technology can make the first few years run more smoothly. Acquiring startup capital through investors or federal loans is a sign of long-term financial and emotional investment in your business. Even so, the business should be separate from your personal finances to the greatest extent possible. I hope for the best yet prepare for the worst. As the business does start to take off, you can use the profits to pay off the debts or expand the business further.

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