by Janet Harrison
If you had all the money in the world, what would you choose to do for work?
That’s the question we’re supposed to ask ourselves to identify what we’d prefer to do for a living. Maybe your response to that question indicates that you’d like to become a photographer, for example, or that you’d like to make jewelry. Identifying your dream job is surely encouraged; there’s a good chance, however, that you’re not quite ready to quit your job and pursue your hobby full time. That’s because you likely don’t have all the money in the world to do so.
But there’s no reason why you shouldn’t at least consider whether the possibility exists that you could make money by turning your hobby into a home business. Sure, you can’t expect that such a business would take off overnight. But who knows? Maybe after a few years, you’ll actually be able to quit your proverbial day job and focus your efforts on making a living while doing something you love.
Before you make a decision, you must ask yourself an important question: Are people willing to pay for what I make?
Prior to launching a home business, you have to be sure that there’s a market for the items you make or the services you offer. Ask your friends how much they’d pay for a bracelet you made, for example. Once you’re comfortable with their responses, it’s time to ask a stranger how much he or she would pay. Satisfied with that answer? It might be time to begin looking into starting a business on the side.
In order to establish your business, you need to be able to prove that you’re trying to make a profit. If you lose money year-after-year and aren’t turning a profit, the IRS could very well view your business as a hobby, limiting your deductions as a result. Here are some tips to help establish your profit motive:
• Create a business plan that clearly defines the fact that you are indeed trying to make money.
• Run your business like a business. That is, keep records of all your expenses and all of your sales.
• Make decisions to increase profits. After all, the goal of a business is to make money, so make sure your actions work toward that goal.
If you begin to realize some level of success, you might want to consider incorporating your business or establishing an LLC so as to reduce your personal liability. In doing so, you’re able to protect your personal assets—like your home, your car and your investment accounts—from creditors.
On top of that, you’ll also appear more serious to those on the outside. The IRS will see that you mean business and might be more inclined to view your operation as a business than a hobby. Customers might think the fact that you’ve incorporated or started an LLC lends you more credence. Additionally, it might be easier for you to get business loans, as banks and other investors might also take you more seriously.
Turning your hobby into a business might be a fun way for you to bring in some extra cash. After that, who knows? The sky could very well be the limit.