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You've been a crafter and a maker, since like, forever, and now your friends and family are beginning to notice the amazing creations you're dishing out and are desperate to part with their hard-earned cash to own one. Now could be the perfect time to dip your toes into the world of business and make some money out of that wonderful passion and skills of yours.
But is the world of online selling really for you?
It sounds scary but there are lots of benefits when turning your hobby into a brand. Below are just a few of the steps that you can take to turn your hobby into a business today, and a brief outline of the differences between hobbies and businesses and the legal and financial implications of making that change.
Most hobbies have a marketable angle. If you are a musician you can sell your tunes, compositions, or even sell your skills as a teacher. If you hand make things, there are dedicated marketplaces online and offline at your disposal.
Before you look any further into starting your business, please ask yourself what your motivations are and question whether your idea is actually viable. For instance, you may need an area in your home to dedicate to your crafting on a larger scale, or you may need a dedicated storage room to keep your products or equipment that you might need. Is this really a possibility for you?
Before we get carried away, let’s define the difference between a hobby and a business.
A hobby is a thing that you engage in after work hours or in your spare time, but you also may exchange the results of that hobby for cash.
Don't forget that any income you generate from your hobby could be taxable, so you will need to declare this when the time comes. The true difference between a hobby and a business boils down to tax law. The laws vary from country to country and will depend on many factors. For example:
In Canada, you can certainly earn money from your hobby, but it gets into a bit of a grey area if there is shown to be an intention to earn a profit, so check with the CRA.
Again, In the US, the IRS will look into your intention to turn a profit and will class it as a taxable business if you have profited from your hobby in at least three of five consecutive years.
In the UK you can earn up to £1000, without deduction of costs or expenses, in one tax year without declaring. The tax year is from 6 April in one year to 5 April in the next year.
If this all sounds like a bit of a nightmare, do not fear, because the benefits of switching your hobby to a business can actually balance the negatives. For starters, did you know that business owners can claim expenses like material costs, a portion of utilities (for home-based businesses), or other specific expenses applicable to the particular business, whilst hobbyists cannot? And in some cases, if your annual income from the business falls under a certain threshold you may be exempt from paying certain types of tax.
One thing that must be said however is that keeping your business finances organized is key for success when filling out your tax returns. So if you are a bit casual with your paperwork skills maybe rethink or make preparations for the demands of running your hobby as a business?
Please Note: I am not a legal professional, so please use this information as a guide only, it is important to check with the revenue agency in your country or indeed consult an accountant or lawyer before you launch your business and also when you file your taxes, especially the first time you submit accounts.
You may love your craft or product but have you tested the market sufficiently to know that you could make the sales you need to turn your hobby into a profitable business? Of course you don't need to think about scalability necessarily, you could easily run your business at a level where you are making a handsome profit to live comfortably without the need to go stratospheric!
It's worth remembering why you started your hobby in the first place. Perhaps you started creating or crafting as a means to unwind after a stressful day of work? Will you be lost without this outlet if it becomes a full time job?
How will you deal with potential criticism of your products? Customers, vendors, and retailers can add a pressure that you won't have experienced before. You thought that you were your worst critic - but when you have a customer who is very unsatisfied with one of your carefully made creations, how will you deal with this rejection? Basically, you have to ask yourself if your hobby is something you will still enjoy if it becomes your full-time position?
It’s often a good idea to keep your hobby running as a small business alongside paid work. This allows you a little flexibility and to test the waters before deciding whether to go the whole hog and become a fully fledged business owner. Side hustles often turn into great early retirement plans as you make that transition to an income source that’s more flexible and with fewer hours.
Running a business can be as creative as creating the items you want to sell. It may all sound like a mine field from a business perspective, but there is a wealth of information and many social communities out there that are successfully running their small and medium sized businesses that started out life as a hobby. The quickest and easiest way to launch your online store is with a system such as Sellr. We are always here to help with any questions that you may have when you are first starting out.
This is an exciting time for you. Give it a go and see where it takes you!
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