How to Turn a Hobby
into a Profitable Business at Home
Ten Start-Up Tips from Barbara Brabec
If you’re looking for extra cash, your hobby may be a sweet little business just waiting to be born. You already enjoy the pastime, and chances are that you already have the knowledge and skill set upon which to build a successful part-time business at home.
YOUR OPTIONS for what to do, make, or sell are endless, but consider that many of today’s most successful home businesses have been based on an individual’s talent for art, or a handcraft such as woodworking, stained glass, pottery, jewelry making, sewing, knitting, or designing. Other profitable hobbies may revolve around one’s expertise in writing, working with computers, photography, entertaining, speaking, cooking, music, gardening, pets, or interior decorating. How much you can earn will depend not only on your skills and knowledge and what you have to sell, but how and where you try to sell it.
Begin by educating yourself to your options and marketing possibilities. Look for the support of those who have already done what you want to do. Join organizations to expand your networking opportunities. On the web, you might want to get involved in social networking sites such as Facebook, Pinterest, or Twitter. Subscribe to ezines offered by websites that relate to your particular interests, search for related articles, and read home business books to get detailed information on how to manage a business, do PR and advertising, price products and services, and find markets. Once you’ve decided what you want to do to earn extra income, lay the proper legal and financial foundation for success.
Ten Home Business Start-Up Tips
STEP 1: Find out about zoning regulations, licenses, and permits. Generally, unless a neighbor complains, zoning officials have no way of knowing what you’re doing in the privacy of your home, so don’t make noise or create traffic or parking problems. Warning: If you rent or live in a condominium, your lease or title papers may specifically restrict any kind of business, thus the operation of one could invalidate your tenant’s or homeowner’s insurance policy.
Licenses and Permits. As soon as you begin to sell anything from your home, you automatically become a “homebased business owner” in the eyes of city officials. In their zeal to fill city coffers, many communities now require all homebased businesses to get special licenses or permits that may cost from $25 to $100 a year or more. TIP: Check with your city or country clerk to be sure, but a permit is not generally needed if you are simply selling what you make at fairs and shows or in local shops.
STEP 2: Acquaint yourself with IRS regulations. First, learn the difference between a “hobby business” and a “real business.” (See IRS Publication 334, Tax Guide for Small Business, at IRS.gov.) You may call it “extra money,” but the IRS will call it “profit or loss from business” and expect you to report all your income and expenses as a Sole Proprietor on Schedule C (Form 1040).
STEP 3: Register the name of your business with local officials. If you operate under any name other than your own, you are using a fictitious or assumed business or trade name that must be registered with local authorities. Contact your city or county clerk for what you need to do to accomplish this. (Failure to do so could result in a fine, but more importantly, it means someone else could steal your business name.)
STEP 4: Open a checking account for your business. The IRS requires a clear separation of personal and business income and expenses. Do not try to operate your business out of your personal checking account.
STEP 5: Call your telephone company. A separate business line used to be “the law,” but now with so many people working at home and doing business on the Web, the telephone company apparently has better things to do than worry about work-at-homers who use a cell phone or their residential number for both personal and business use. Your primary concern should probably be whether you want to broadcast a personal home phone number on the Internet because you’ll be giving away a lot of privacy that way. (Also talk to your accountant about the deductibility of your phone costs on your Schedule C Form.)
STEP 6: Obtain a Retailer’s Occupation Tax Registration Number. If you sell anything directly to consumers on the retail level, you are required to register your business with the Department of Revenue (Sales Tax Division) in your state—unless you live in one of the few states that don’t have a sales tax. Note that hobby sellers are not exempt from this law, regardless of how few sales they make.
STEP 7: Learn about federal regulations applicable to your business. All businesses must comply with federal regulations relating to consumer product safety, copyright laws, and Federal Trade Commission rules, for which information is readily available on the Web. If your hobby relates to art, crafts, sewing or designing, however, there are several other little-known regulations you should know about that can’t be discussed here.
STEP 8: Set up a good record-keeping system. Use any system that works for you. The IRS requires no special kind of bookkeeping system for businesses; it simply requires one to keep accurate records on all money that comes in and goes out.
STEP 9: Make sure you’re properly insured. Tell your insurance agent that you plan to run a business at home, because anything used to generate income might be exempt from coverage on a personal policy unless it has a “home office” provision. Your computer system, office equipment and supplies, plus all the tools, equipment, raw materials and other supplies related to your business activity should be covered either on a rider or a separate home business policy (available from many companies). Other considerations relate to personal and product liability and car insurance that you can discuss with your insurance agent.
STEP 10: Decide how you’re going to promote your business. Regardless of what you plan to make, do, or sell, a presence on the web is desirable today. Many websites such as eBay and Etsy allow sellers to market their wares without need of a website or blog, but setting up the latter is no longer difficult or expensive. The how-tos of doing this are readily available in articles and e-Books on the internet or in books from your library or bookstore. (If you’d like to set up a WordPress site, email me for how to get a quote from my excellent and very affordable webmaster.)
Finally, a word about lawyers. There is no need to consult a lawyer when starting a homebased business as a sole proprietorship. While an attorney will be happy to charge you a big fee for answering a lot of small business questions, you can get the same information and more from any small business book. Do consult an attorney, however, if you decide to form a partnership or corporation, negotiate a contract, enter into any kind of long-term agreement, make a licensing or franchise arrangement, or buy property. While an attorney is needed to fight an infringement or a trademark or copyright, you don’t need one to file a simple copyright form.
Don’t forget to make a written plan. As a wise man once said, “If you don’t know where you’re going, you might miss it when you get there.”
This article, adapted from one of Barbara’s home business books, was first published in Bottom Line/Retirement in 2013. Updated in 2021 for republication on Barbara Brabec’s World.
Cashing in on Your Creativity: Two Ways to Look at It. An article that fits most everyone’s need today to both make and SAVE money. Includes Barbara’s creative suggestions for saving money with info on bartering.