Can I Turn My Hobby Into A Business?

It is possible and rewarding to make money from your passion. Not only is running your own business satisfying, but it can also give you access to the lifestyle you are slaving for in the office – and not in 20 years’ time, you can have it now.

Working for yourself and doing what you love means you choose your own hours, take your own breaks and holidays and set up a system that works around your lifestyle, family and interests.

It also means you can justify going to workshops, retreats and events that further your knowledge as you can claim a lot of items, including training, on your tax.

If you love your hobby as a way to wind down after work and want to keep it simple, then it’s perfect to keep as a spare time activity. If you are ready to invest some serious time, reach a lot more people and make a steady income from your hobby, it’s time to look at how you can turn it into a business.

What is the difference between a hobby and a small business?

A hobby is a leisure activity that you do in your spare time for recreation. A business is a structured, planned activity that brings in profitable income after expenses are paid.

No matter what your hobby is, the difference between a hobby and a business has nothing to do with how much money it earns. Because many hobbies have an outlay, it’s possible to spend a lot – and charge a lot – without making any kind of profit.

The determining factor between a hobby and business is the profit you earn – or intend to earn, if you are just starting out.

If what you charge only covers your expenses it’s considered a hobby, if, on the other hand, you know you want to make some significant money or consistent, paid sales on top of your expenses, that’s when you need to look into setting up a small business and getting your finances straight with the ATO.

While some small business start-ups quit their job and jump right into the deep end, others will gradually evolve from a hobby to a business as they take up more and more time and bring in a steadily increasing income, at which point the owner feels confident enough to drop their day-job.

At what point does a hobby turn into a business?

A lot of what I discuss with my business coaching clients is around their business purpose.

Every business has a purpose and reason for existence. Defining this can be difficult, especially if you are focused on dollars and sales figures. It’s important to know what you want to achieve so you can build and track your goals and have a vision for success to steer you in the right direction.

There will be a lot of big decisions to come and business challenges to navigate. Having a clear purpose gives you fast decision-making skills and outlines how you will tackle your tasks for the day.

This process of defining what you want to achieve and how you will achieve it starts early on. In fact, your purpose and how you operate is a big determining factor for whether your hobby is a business or not.

What is the purpose of what you are doing?

The following questions will help define when your hobby becomes a business. If you answer yes, you’re either already in, or moving towards a business rather than a hobby:

• Is it done with the intention of making a profit?
• Are you going to be running it like a business – organised and carried out on a set timeframe with structured communications?
• Do you plan on doing these activities regularly and consistently with a long-term commitment?

If you are getting more serious about your hobby and giving it some structure, it’s time to register a business name and sign up for your Australian Business Number (ABN).

If you do start making a regular profit on your hobby it will be considered business earnings and will need to be listed and charged differently on your tax statement. You may also need to have a certain licence or certification for some business operations that aren’t required as a hobby.

Knowing your purpose will help you define your business goals and get your business set up early, even if it’s only being worked on after work hours to begin with.

How do I convert a hobby to income?

Turning a hobby into a business will take some effort and a number of steps. While the exact steps will differ depending on how quickly you grow, what business you have and what your qualifications are, the following covers what a typical hobby-to-business start-up will need to review before making the leap.

1. Check your passion

Sometimes a hobby is a hobby because it’s a break from work. Make sure this is something you’ll still love doing day-in, day-out, for the next five years at least. As well as the parts you love, your business will require a lot of odds and ends that might not be as much fun, like admin, marketing and bookkeeping. Make sure your love for what you do will last through the times you have to work on other parts of your business – you can also outsource a lot of these tasks, but you’ll need to pay for it. It is important to know your worth and be realistic about what you can handle when turning your hobby into a business. Make sure you are passionate about your work and that you are willing to put in the hard work required to succeed.

2. Know that it’s viable

Testing your audience and how ready they are for your business is important before you quit your job and rely on your hobby income full time. Use the start-up time to experiment with different ideas, test and talk to your target market so that when you are ready to go big, you have the systems and delivery worked out.

Staying as a hobby while you work out exactly what people need can really help define your overall business direction. This is also a great way to work out the best suppliers, shipping and logistics you are going to need to make it all happen on a bigger scale.

If you need the support of paid work to get you through the start-up phase, have a plan for business growth so you can gradually step down from your day- job.

3. Put Together A Business Plan

I wouldn’t spend too long on this, because you’ll rapidly outgrow it as your business develops, but getting a plan for your business on paper is important for defining your purpose and short and long-term goals.

It’s also a great base for helping to figure out your systems – business systems are far more essential to your day-to-day running than your business plan, but it pays to get this step out of the way, especially if you are looking for funding from a lender or partner.

4. Get professional assistance

There are lots of ways you can bring professional advice into building and structuring your business. From accountants and bookkeepers to virtual assistants and website management there are people qualified and experienced to give you the right results the first time.

Another area where you can win big with professional guidance is with a business mentor. A mentor is someone who has already achieved the results you are looking for. They have overcome the hurdles personally and know what you are facing. They can present solutions that you’d only have access to in hindsight, and can help keep you on track to your initial goals and cut down on distractions and complexities.

Reaching out for the advice of a qualified business coach with hands-on experience makes all the difference to your approach, especially around goal setting, growth and scaling your business.

It’s also important to surround yourself with other business owners, just like you. Having people you can talk to about business and get genuine feedback from can help clear the cobwebs and make the journey feel less isolating.

5. Make it Legal

There are a number of steps you’ll need to complete to make your business official:

• Apply for a free Australian Business Number (ABN)
• Register for GST if you will be earning over  $75,000 in profit in a financial year.
• Establish if you are a sole trader or company
• Get the right insurance and qualifications to cover yourself legally
• Set up a separate business bank account
• Keep your records in order so you understand your financial standings
• Lodge your business tax return

A business based on a hobby doesn’t feel like work. You’ll be energised, motivated, and love what you do every day. Plus, you’ll also be learning, growing and discovering even more about your skills, reach and ability as you go.

When you know your goals and purpose and have a solid system in place you can turn your passion into an income stream, simple and easy. Best of all you’ll be getting paid to share your passion and help others achieve their goals through what you know and love.

Getting your business set up early will help get your business organised, and help you keep track of your expenses and income set up systems that will see long-term success.