What is the difference between a hobby or a business?

The difference is: 

If you are selling goods or services and making money (profit) at your venture, then it is a business. If you are providing goods or services and giving it away or just barley breaking even — it’s a hobby.  

There is no dollar threshold to cross or any sales numbers you must achieve to be considered a business. All you need is a reasonable expectation of making a profit and proving the profit motive. If you are profitable year after year, there’s no argument you’re in business. But if you have losses year after year, the IRS may view your activities as a hobby.

Hobbies that literally anything that provides value to others could potentially be monetized and turned into businesses. Would people buy from you? If so, you really could create a profitable business. If you can do something you love and get paid for it, that’s not real work right? But before you go and quit your day job, I want to encourage and caution you at the same time. There is a big difference between making some extra pocket change at holiday time and running a small business full-time.

Every year millions of people believe they can turn their hobby into a business. A very high majority of them fail in their new venture. WHY?

Quit talking and begin doing The problem is that many of us are afraid to take action, even when we know we have a marketable skill, because we are afraid of failure. We fear that if we attempt to monetize a hobby and fail, we’ll no longer feel joy or satisfaction from the activity at all… or others will regard us differently.

This can be a scary proposition that may prevent many talented individuals from pursuing their dream. If this sounds familiar to you, then listen up.

Trying to monetize a hobby isn’t easy, but on the other hand, it certainly isn’t rocket science. With a little preparation and strategic execution, you can enjoy a positive result. 

Here are some tips on how to get started in profiting from your hobby:

  1. Do a Self-Assessment. Do you have the energy and stamina to crank out your hobby in volume enough to make it a viable business? Make sure you don’t ruin something that brings you joy. People pursue hobbies to blow off steam. If you add a lot of pressure, you could blow your stack. Do your research to make sure there’s a paying customer before you bet the farm on your hobby. Successful businesses require dedicated work and responsibility. It’s easy to take the fun out of your hobby if you do not plan well.
  2. Be sure you'll still enjoy your hobby if you're doing it for money. Making money from your hobby may mean meeting deadlines, pleasing demanding customers, and doing your hobby even on days when you don't feel like it. You'll have to manage marketing and finances. Be sure you're willing to juggle all these balls before you turn your hobby into a business. When you leverage your passions and your own personal experiences, you become far more likely to develop a solution that other people are searching for.
  3. Know Your Goal. Do you want a full-time business so you can quit your day job? Or are you just looking for a little extra cash to cover expenses? The more you'll depend on the income from your hobby-business, the harder you'll need to work at it.
  4. Start Your Business as a Side Hustle. You need to first test the waters while you are still working to make sure you have a viable revenue model for your small business. Don’t quit your JOB before making sure your hobby could be a business.  Save all the money you can — I mean really save — not leftover change. You need to save enough money to cover 4 to 6 months of expenses, which includes your personal income.
  5. craft toolsGet really good at what you do — before you quit your job. To make money from your hobby, you've got to be good at it. If your skills aren't yet up to par, make a plan for improving them and put off your business idea until you're ready.
  6. Brainstorm all the ways you could make money from your hobby. You may need to do more than one thing to create a financially sustainable business. For example, if you're a quilter, you could sell your quilts, but you also could teach quilting classes, open a quilting shop, or design and sell quilting patterns.
  7. Adopt a business mindset. A hobby is something you do at your leisure. When you make it a business, you must show up to work. Think of your hobby as your second job and make it a priority in your life. If you want it to become your main source of revenue someday -- or at least a sustainable second stream of income — then you have to give it the attention it deserves. Carve out time to work on your hobby, read about the industry, learn about sales and marketing and dedicate yourself to steady improvement. This is how to achieve positive results.
  8. Write a business plan. When you write a business plan, you'll evaluate the market for your hobby-business and prove to yourself that it's a viable business idea. You'll learn how much money you need to get started, you'll set goals, and you'll plan how you'll market the business to your customers.
  9. Maximize your time. For many people, working a full-time job and then spending extra hours pursuing a hobby isn’t practical. Between kids, significant other, friends and social requirements, you simply don’t have enough hours in the day. In the initial stages, you’ll have to get creative about how you use your time. Perhaps you need to wake up an hour earlier than you’re used to and get some stuff done before your regular job.
  10. Learn about marketing. You can be the best in the world at what you do, but if you don't market your business, you'll never get customers. Read up on small business marketing and observe how similar businesses promote themselves. Set up a website for your new business and get comfortable using social media. Start making connections online and in your community.
  11. Build an online presence. In business today, everybody needs an online presence to generate activity. This means creating and maintaining a website, social media profiles, and everything else that goes into branding yourself as a professional. Keeping consistency in the way you present yourself will give you a more established image, which in turn will result in more fans.
  12. Create a brand and stick to it. Your brand is your business identity and what you'll be known for. A strong brand helps your loyal customers recognize you, just as people instantly know that golden arches mean McDonald's. Decide on a business name, logo, font, and/or color scheme that reflect your business's “personality" and use them consistently in your website, social media, and other marketing.
  13. networkingNetwork. A few people will stumble across you online, but a lot of business success happens via word of mouth and networking. You have to be prepared to be active on this side of self-promotion, as well.
    • Find clubs, conferences and groups in your specialty that cater to other professionals in the niche. You’ll learn a lot at these events and get the chance to mingle with people who are at the same stage as you, and preferably a little further. Just be sure you have an elevator speech prepared for moments like those.
    • Start networking like it’s a new job. Reach out to all your contacts from college and any business associates to update your contact database. Spend time on at least one social media site to gain insights about your target customer. Use your downtime to do internet research for sourcing vendors and suppliers and to confirm your target market.
  14. Get your first customer — even if you have to work for free. Your first customer will give you confidence in your business idea and will make it psychologically easier to market yourself. If necessary, do your first job for free in exchange for a nice review or testimonial. You won’t go from hobby to a million-dollar business in a matter of days. Your number one goal in the beginning stages is to get your first sale. Your first sale is the hardest and most important sale you’ll ever make. While you may believe in your product, it’s important to remember that other people have no reason to believe in it. You haven’t proven yourself yet. Hustle hard for that first sale and then turn one sale into two, two sales into four and so forth.
  15. Put your finances in order. You must report your business income and expenses on your tax return and pay quarterly estimated taxes. You may also be required to collect sales tax. The easiest way to keep your business finances straight is to set up a bank account for your business, to keep business and personal finances separate. Meeting with an accountant and investing in accounting software can help you started on the right foot.
  16. Use Low-Cost Business Resources. Once you decide that starting a business is for you, there are many books that you can read to develop your plan. You should also make an appointment with your SCORE chapter, which can provide online and face-to-face counseling.
  17. Check Out Your Local Library. You can get plenty of market research data help from the business librarian at your local branch. Also, find out information on legal entities, sales taxes, business insurance and small business accounting systems.  There is also opportunity to learn about any business licenses or regulations that you will need to comply with to start your business.

entrepreneurTurning your hobby into a full-time business is a great way to become your own boss. Why not work at something you love to do? Just do your research before you start your business. Take the time to write business plan. You’ll need a lot more customers than the 30 people that buy your jewelry to replace your full-time salary. Make sure there’s a market for your goods and services, and start saving money. And remember to give yourself 12 months to develop a plan to become your own boss.

We all have those things we’re most passionate about—so why not turn your hobbies and interests into a career? As you follow these steps, you’ll begin the journey of turning your hobby into a business that can bring you even more satisfaction in the years to come.

A SCORE mentor can help you determine if your hobby makes a feasible business and guide you in the planning steps. Click here to schedule a free mentoring session with a mentor in the Phoenix Valley near you.  


About the Author(s)

 Steve   Feld

Steve Feld is a Certified SCORE Mentor and a business coach.

Business Coach, Feld Business Growth
What You Need to Know to Turn Your Hobby into a Business