Acquire New Skills
To make money from your hobby, you’ve got to be good at it.
If your skills aren’t yet up to par or they need further refinement, make an action plan for improving them. Allocate money for it. Create a spending plan.
You may need to put off your business idea until you’re ready for it.
Develop Time Management Skills
Working a full-time job, managing a side-hustle, and balancing your other responsibilities can be challenging.
Therefore, time management skills are essential for anyone who wants to successfully turn a profit from their hobby.
Use technology to manage your time.
Use technology tools such as Trello or Basecamp to keep everything organized. These tools can help you keep on track and keep up with your to-do list.
Utilize the power of social media to market yourself.
Social media is a cheap and effective way to market your services.
Growing an online presence allows you to engage with potential customers and receive valuable feedback on your product and services.
Build a social media profile.
Create separate social media accounts from your personal accounts.
Immediately start building your audience. It’s important to have a market that’s ready to purchase your offer.
Write a business plan when you are ready.
People do not plan to fail. They just fail to plan.
You may roll your eyes at the idea of doing a business plan. But this plan can be very simple. It need not be overly complicated.
A plan is a necessary roadmap for long-term growth. It encapsulates the business goals that you are striving towards.
It’s a must-have to keep your focus.
Even though this document is a must-have for startups trying to obtain funding from investors, it’s a critical document that can help even the smallest of businesses to strategically plan to make money.
You can get as detailed as you want. You’ll gain more value by adding as many details as you can.
Why is a business plan important?
When you are writing a business plan, you’ll be consciously evaluating the market for your hobby business. It can prove to yourself that it’s a commercially viable business idea.
You’ll also learn how much money you need to get started. Set goals and plan how you’ll market the business to your customers.
Define your hobby business goals.
It’s hard to tackle a vision without laying out your goals.
Is this going to be a temporary way to make some extra income?
Or perhaps are you thinking of scaling and growing your hobby to be a large business with employees you manage one day?
While it may seem counterintuitive to try to plan all details before you fully know what you want to do or how you’re going to do it, outlining your goals beforehand will make the rest of the process easier.
Adopt a business mindset that serves people.
Having a business is about serving people, meeting their needs and requirements.
When you approach a hobby business from a servant-hood perspective, it will align your thinking with your passion and interest in the hobby.
Your passion should be infectious to others. This could only be achieved when you are primarily serving your customers.
Continuously pivot your plan to achieve your goals.
As you are trying different ways to monetize your hobby to reach your goals, you need to continuously pivot your plans to achieve your goals.
Continuously trying out new things is the way to go to pivot your plan. Failures are learning experiences that will make you a better person.
Being flexible is your key to success.
It’s All About Marketing and Selling
You can be the best in the world at what you do, but if you don’t market your products and services, you’ll never get customers or earn any income.
Read up on small business marketing. Observe how similar businesses promote themselves.
If you can, set up a website for your new business.
Get comfortable using social media.
Start making connections online and offline. Attend meet-ups and networking events.
Places to Start Marketing Yourself
Think about places that you might be able to drum up business. You might start with friends and family.
Local business directories are a good place to start.
Consider advertising in places specific to your industry and target customer groups.
Create a brand and stick to it.
Your brand is your business identity. It will be what you’ll be known for.
A strong brand (personal and product/service) helps your customers recognize you. For example, people instantly know that golden arches mean McDonald’s.
Decide on a business name, logo, font, and color scheme that reflects your business’s “personality.” This could be done later on when your business is picking up.
Use them consistently on your website, social media, and other marketing.
It takes time to build a brand.
Building a brand takes time. It takes a lot of hard work.
A well-built brand can be used to retain existing customers and acquire new ones.
But it is also easy to destroy a brand – in seconds!
Take the time to build your brand and remain active on the channels where your customers spend their time. This will allow you to grow your business exponentially faster.
Create clear messaging.
Constantly strive to create clear messaging and a uniform experience for every touchpoint. Positive customer encounters and experiences will go a long way.
If you are selling the same exact type of product or service as someone else, the customer is going to choose the brand and experience that they like the most.
When you are earning additional income from any source, you must report your business income and expenses on your tax return.
This means that whether you consider something a hobby or a business if you are making money from these activities, you need to report it on your tax return.
In some countries, you may also be required to collect sales tax or goods and services tax on behalf of the government.
Separate your personal and business affairs.
Remember to always keep your business and personal finances separate. The easiest way to keep your business finances straight and clean is to set up separate bank accounts for your hobby business.
Meeting with an accountant and investing in accounting software can help you start on the right foot.
Talk to your accountant to minimize your taxes.
It is advisable to talk to your accountant or tax agent about your desire to start a hobby business before starting. There may be legal or tax issues to consider especially from a timing perspective.
There may be other personal circumstances that you may need to take into account.
Do this early to set you up for success. Unwinding messy structures and transactions can take up unnecessary time.
Do structure your tax affairs to minimize tax payments legally (not avoiding them).
Legal structures can minimize tax and maximize protection.
Do think about how to legally structure your personal and business affairs to minimize tax payments and maximize personal and asset protection.
Legally isolate and protect your personal assets and cash flow from your hobby business.
Set Yourself Up for Success
Start treating your hobby as a business and with respect.
When you’re ready to move your activity beyond a fun pastime hobby, you need to get serious about managing it as an official business. Give it the respect it deserves.
Here are some things you need to consider when launching a legal business.
Pick a business name.
Your business name marks the beginning of your new brand.
Perform a free business name search to make sure that your proposed name is available in your state or country. Then conduct a free trademark search to check if anyone has filed a trademark or service mark for your name.
Choose something that’s easy to remember. The name reflects who you are and what your hobby is all about.
Check if the website address for your name is available.
Make sure that another business isn’t already using the name that will cause confusion in the future.
Form a Limited Liability Company (LLC) to limit your legal liability.
If you incorporate or form an LLC or Limited Liability Company for your business, your personal assets are shielded from any legal claims against the business from customers and creditors.
By formalizing your activity as an LLC, it helps to show your taxman that you are serious about the business.
Get a tax ID number.
To distinguish your business as a separate legal entity, you’ll need a unique tax identification number.
You will have to use this ID number for all your company’s tax transactions.
Obtain the necessary business permits and licenses.
Depending on the specific nature of your hobby business and your country’s laws, you may be required to get one or more licenses, permits, or approvals from the relevant government agencies.
Open business bank accounts.
Once you have registered your business and obtained your tax ID, you can open a business bank account.
This will enable you to accept checks or direct debits made out to your business name.
You may also want to have a separate credit card account for all of your business payments. This will be useful if you need to buy things online using that company credit card.
Get the necessary insurance to protect yourself.
The types of insurance coverage you’ll require will depend on the nature of your business. Compare different types of business insurance to see what fits.
You’ll need insurance to cover you from being sued by anyone – your customer or third party.
Perhaps, consult with an insurance broker for further advice.
Budget for Hobby Business Expenses
When you have a business, there will be expenses that you will incur in running the business.
Here are some expenses that you might want to take note of to help create a business budget:
- Overhead costs (rent, utilities, insurance, etc.)
- Manufacturing costs
- Shipping costs
- Storage costs
- Software costs
- Labor hire or freelancers’ costs
- Advertising costs
- Administration costs
Cash flow is vital for business survival.
Lack of cash flow to pay bills and expenses is one of the top reasons why companies fail.
Always think about protecting your cash flow. Ensure that you have the cash to pay your creditors.
Pricing Your Product or Service
Think about how much you would be able to charge when selling your products or services.
Realistically, do you think you will be profitable after paying off your business expenses? If so, you’re in good shape.
When starting out, the best thing to do is to cover all your expenses from the sales you made.
Factor in your time when pricing your product or service.
The easiest way to cost your time is to take the minimum wage rate in your country.
If the general wage rate is $15 per hour, and it takes you two hours to produce the work or product, then you need to charge $30 (or more) plus all material and production costs for the product or service.
You may even want to add a percentage margin mark up to make a profit on your efforts.
If the margin is 10%, then multiply the total cost (your time cost and materials) by 1.10 to get the final sale price.
You may start with a zero margin initially. When sales pick up, you should be increasing this margin gradually.
To do so, market your product or service as an introductory offer at a zero margin. This will condition your customer to the actual market price of the product or service.
Have enough savings or personal income to start your business.
One key question you must ask – How are you going to fund the business before you start generating revenue or profit?
This may require you to frontload the business costs up-front using your personal income or savings before sales revenue is generated.
Prioritize your expenses to only incur expenses that are absolutely necessary at the start-up stage. This may mean postponing the creation of your website.
Ask yourself these funding questions before you start.
This is Part Four of a five-part series.
Part Two- Build Interest in Your Hobby Business
Part Three- Driving Sales to Your Hobby Business