It’s an interesting realization that many big businesses actually began with someone who had a hobby. This is likely to have been something they did on a daily, or regular, basis, and as a result they began to grow their hobby into something more. If you can make money from something you really enjoy, surely that’s the fast track towards life and business success?
For instance, maybe you enjoy baking cakes, and you think about selling these to local bakeries, or making bespoke cakes to order. This is a hobby which could easily turn into a small business venture. From there, who knows where that may lead? Similarly, maybe you enjoy writing, and you start doing some freelance blogging for a few people - over time this could easily turn into a freelance writing business of your own.
The key question however is when to turn your hobby into an actual business, and once you do that, does it become less enjoyable?
It really depends on how you manage it all.
When Does a Hobby Really Become a Business?
Simple - when you start to earn money from it. This needs to be a good amount of money and you need to be able to cover your initial costs, e.g. if you’re baking cakes and selling them on, you need to make sure that you’re making a profit on the items required to actually bake the cake. As you start to notice more orders coming your way, and more demand for your cakes, you can then make the decision to turn that hobby into a full-blown business.
Of course, you can keep it all part-time and use it as a side-line to your regular job; you don’t have to go trying to become the next big thing if you don’t want to, but there are many large businesses which actually began life as a small hobby. It’s certainly something to consider.
Tax-wise you do need to be quite on the ball. For instance, if you are going to make your hobby into a business, you will need to register that business as a self-employed endeavor and as a result you will need to pay tax on the money you make from it. How much tax you pay really depends on how much money you make, so if you keep it part-time, your tax bill is likely to be low. You also need to do some research into other taxes you might need to charge as part of your sales, but this completely depends upon the type of business you have and what you’re doing with it.
The best advice for anyone considering turning a hobby into a business is to get some sound business advice from a registered accountant before making the leap. He or she will be able to give you the low down on costs, taxes, and whether or not it is going to be financially viable for you.
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- The Capex Team