Those of us who actually are entrepreneurs are always thinking outside the box, pushing boundaries and looking for ways to solve a pain point for our customers.
Others rebel against the corporate environment, and some are pushed toward entrepreneurship by circumstances.
The economic downturn of 2008 was one of those big circumstances – a big one. The recession pushed many professionals, young and old, to find alternative ways of employment when jobs were in high demand, but short supply.
Many became freelancers – entrepreneurs in their own right, which in turn gave them the opportunity to pursue their passion outside the corporate bubble. What resulted was the rise of the “freelancer economy,” which today accounts for 55 million freelancers – up from 53 million in 2014, according to a Freelancers Union survey. Currently, freelancers make up 35 percent of U.S. workers and collectively earn $1 trillion.
The younger, 18-to-24-year-old, segment of those workers are more likely to freelance than are their baby boomer elders. And pursuing what was a hobby as a job is something both generations have long done and continue to do successfully. However, they should proceed with caution, because like any other business endeavor, there are legal issues to be aware of, one in particular being the “tax man.”
In fact, your tax liability will be affected depending on whether your work is classified as a hobby or (as the IRS classifies it) an actual business.
So, how do you know if it’s a hobby or a business? That’s something you need to answer objectively, to avoid headaches down the road. Here are some checks and balances to help you determine that:
- If it’s a hobby, all income is reported, but deductions are limited to the income taken in. Deductions may be claimed only as miscellaneous itemised deductions, and only the amount in excess of 2 percent of your adjusted gross income (AGI) may be claimed.
- If it’s a business, all income is reported, but a number of expenses may be offset. If you are profitable, you are able to shelter income and put some money aside for an emergency fund, retirement, etc.
As we near tax season, it’s important to know that any income from any activity is reportable and taxable. And, even if it’s a hobby, you need to run your business like a business and pay close attention to your profits and losses.
According to Liberty Tax Service’s Brian Ashcraft, “If you take a loss on a business for more than three years, the IRS considers it a hobby, and it is not eligible for preferential tax treatment. The IRS assumes that if an activity isn’t profitable for at least three of the prior five tax years, including the current year, then losses from that so-called business cannot be used to offset other income.”
Knowing which tax pitfalls to avoid is key for any business. So, whether you’re a millennial looking to start a business or a retiree trying to boost your income, here are five ways to help you monetise your hobby.
1Pick the right hobby
If you’re serious about monetising your hobby, make sure you’ve picked the right one. Personally, my hobbies involve eating bacon, hunting pheasant and clearing brush – fun for me, but not very profitable endeavours. I tried my hand at a pheasant farming business, and it failed spectacularly. Not because there wasn’t a market for it – I’m from South Dakota, so yes, there is a market – but because the birds drowned in a rainstorm.
If, unlike me, you have more mainstream hobbies like photography, music, writing or crafts that are easier to monetize, you might be onto something. If you’re a photography buff, for example, you could sell your pictures on a number of websites, like Shutterstock, or join a community like Kodak Winning Fotos. That company’s CEO, David Young, told me, “Turning a hobby into a business requires critical insight into your passion. I think we’re naturally reluctant to question passion, usually for fear of diminishing or tainting the high we feel without thinking.
“Don’t be afraid to explore the root drivers of your enjoyment. It’s essential for transforming a hobby into a successful business.”
Meanwhile, if you’re a crafty entrepreneur, you could sell your wares at sites like Etsy or Café Press. If you’re a musician, you could start a business teaching neighbourhood kids to play the guitar or the piano, or launch an afterschool programme teaching music to underprivileged kids.
It’s great to dream big and have lofty goals, but idealism without a dose of realism doesn’t work all that well. Apple started in a garage, so don’t think you need a fancy operation in order to be profitable. Also, remember that if this is your hobby, you don’t have to immediately turn it into a full-time job.
Dream big, but start small. Freelance a few hours a week; see how the demands of your hobby align with the realities of the industry. If your hobby, and all its demands, is still enjoyable after you’ve done it for a while, that’s a clear signal to start growing your hobby into a business.
3Make marketing a priority
People think about marketing as something for “down the road” or “when we’re more established,” but you need to start your marketing on day one. Heck, I would say have a marketing plan before you start.
A marketing plan should be part of your overall strategy. If you have a sound marketing strategy prior to launching, a plan further helps build a little suspense and anticipation.
Getting the word out about your new business is key, if you intend to make any money. You need to leverage every contact – every client, acquaintance, friend, family member, co-worker, teacher, mentor, etc. Some might even hire you and help you spread the word. This could turn into referrals, and next thing you know, you might have people looking to hire you.
Word of mouth is probably the oldest way to advertise, and still one of the most effective.
4Treat it like a business
Just because it’s a hobby doesn’t mean you don’t treat your work like a business. It’s okay to have fun and love what you’re doing, but if you’re not going to be serious about it, you may as well quit pretending. I love what I do so much that I would do it for free if I could; however, I also take seriously my conditions of satisfaction, one of them being, “Make money.”
One way to keep yourself in check is to establish the number of hours you’re dedicating to turning your hobby into a business.
Stick to that schedule, at least at the beginning. If you start slacking and cutting corners, that’s a bad way to start. If you’re going to break the rules, you have to know what the rules are, first.
If you have a hobby that you could branch out on, consider that option. For example, a photographer can always do more than take photos and sell them. A photographer can establish himself or herself as a thought leader by promoting personal skills and knowledge or giving lessons.
If you’re an artist, there’s more for you out there than selling your paintings or playing your music. So, teach others; mentor; teach the business behind your hobby.
I am a marketer by trade, but I have also been in business for a long time and have learned many lessons that I like to impart to others.
As a National Speakers Association Hall of Fame member, I do a number of keynote speeches around the country, teaching others the business side of things. I practice what I preach. I live by the adage, “Adapt, change or die.”
There’s more than one way to do things and the more avenues you can pursue to monetize your hobby, the more successful you’ll be.
This article was originally posted here on Entrepreneur.com.
A 7-Step Guide To Starting Your Own Trade Business
With that sorted, it is time to get on with the more exciting operational stuff.
Skilled tradesmen are always in demand. Whether you are a plumber, electrician, cabinetmaker, refrigeration expert, tiler or builder, there is a ton of work out there. For many, the best way to make the most of the opportunity is to open your own business.
Where do you start? The first step is to register your business with the Companies and Intellectual Property Commission (CIPC). Look for a catchy name that is easy to spell and memorable – you do not want customers to struggle. The CIPC will tell you which names are taken. It is also a good idea to do a trademark search before deciding on a name. Register with SARS and make sure that all your tax affairs are in order.
It is a very good idea to get a good accountant right at the early stages of the game. They can also help you set up the legislative requirements for running a business. The National Small Business Chamber is a non-profit organisation that offers a range of services to its members that aim to help them grow faster, save money and receive the support they need.
With that sorted, it is time to get on with the more exciting operational stuff.
1. Finding customers
You want to find customers in order to grow your business beyond the ones you already have. These days, that means a website and some smart online marketing.
This can be as simple as setting up a Facebook page and any one of several other social media sites (like Instagram and LinkedIn). These services are at no-cost to you and allow you to quickly build up a following of loyal customers. You can share ‘jobs well done’, so prospective customers can see what you are capable of, while your contact details are easily accessible. In due course, consider some paid averts on relevant social media platforms and perhaps a website of your own. It is a good way to get potential customers on board.
At the same time, list your services in community newspapers, noticeboards and newsletters so everyone in the area can easily see that you are available and what it is you do. Also, keep your eye on social media community groups – and ask family, friends and existing clients to refer and/or recommend your services when an opportunity arises.
Finally, there are many government initiatives and non-profit organisations whose aim is to help small businesses succeed – with a particular emphasis on black-owned businesses. This help could range from facilitating access to finance, all the way to mentorship. Spend some time finding out what help is on offer. The SME Movement site also has this kind of information.
2. Stay focused
For those just starting out, there might be a temptation to take any job that crosses your path. Rather stick to your area of expertise to build a reputation based on proven skills. If you are an electrician with a little plumbing experience, for example, tackling a piping job could cause more trouble than it is worth. Every trade is different and you are an expert for a reason.
Leave the other work for experts in those fields – but build up relationships with them so that you can refer work to each other.
3. Ride on your qualifications and references
You have spent a lot of time getting certified. Let your customers know about your qualifications and experience by putting it on your Facebook page, your invoices, e-mails and other communications. The same goes for references; these are valuable and provide evidence of your ability to get the job done. Ask for a reference when the job is complete and then on to social media it goes. The good news with social media, by the way, is that these references do not ever go away.
4. Stay on top of the paperwork
The good old days of doing business on a handshake may be behind us. Providing quotes, contracts, invoices and records of payments electronically makes paperwork a whole lot easier by creating a digital archive where physical copies aren’t needed, but it serves the same purpose, when it is formally recorded, it is far easier to see what has been agreed to, done and paid for. Do not skimp here, even the best customer service provider relationships can go awry if verbal agreements are all you have to go on.
5. Register with your trade association (and invest in CPD)
Being a member of a trade association (like Master Builders, the Institute of Plumbing or other professional bodies) lends credibility to what you are doing. It also provides access to new customers should larger contractors need to sub-contract. Your trade association also formalises training and continuous professional development (CPD).
6. Get business insurance
All too often, this crucial coverage is ignored by those starting out on their own. You want to protect tools and equipment on the one hand and you also want broadform public liability to safeguard yourself, your employees and your business against third party claims should something go wrong on the job. It provides cover in connection with your normal business activities and also your liability if any employees are injured in the course of work.
Putting the right insurance in place can mean the difference between staying in business for the long term or folding the minute the tools grow legs and disappear.
7. Deliver good service
Do not forget that every job is a potential reference and, at the very least, is your entry into that client’s network of friends or business associates. Concentrate on giving good service and actively request feedback so you can remedy any shortfalls. A take-it-or-leave it attitude may be relaxing, but it will prevent your business from growing to what it potentially can be.
MiWay is an Authorised Financial Services Provider (Licence no: 33970)
The Ultimate 101 List Of Business Ideas To Start Your Own Business In South Africa
Want to boost your income on a part-time basis? Looking for a new business to start and grow into an empire? You’ve come to the right place. This list of business ideas will help children, adults, men, women and even people in rural areas think about ways to become an entrepreneur.
Are you looking for that one idea to spark a business that will make you money? We have one hundred and one just for you!
Whether you’re a stay-at-home mom or dad looking to pursue your passion part-time, a nine-to-five employee seeking a side gig, a creative who’s keen on innovative and flexible moneymaking methods or a student at any level in your education, looking to start your entrepreneurial journey early…we’ve got the best ideas for you to choose from to kick-start your very own business, today.
This comprehensive slide show below is just what you’ve been waiting for to take your first step into financial independence. Read on to find your perfect fit and discover more about how to get started.
What You Need To Know When Starting A Tech Business
For the tech entrepreneur, the majority of your intellectual capital will reside in your software, code, databases, websites or mobile applications.
Protecting and managing your intellectual capital starts with finding, identifying and classifying your most important human and intellectual assets. Once you know what you are looking for, you can then determine whether you have the rights you need over those assets. If you don’t, you can then go about securing those rights and then select the best methods of protecting them.
Intellectual capital, intellectual assets and intellectual property
In the industrial and manufacturing industries, the conventional forms of capital needed to start and grow a business were real estate, factories, plant and equipment. But in today’s knowledge economy, these physical assets have largely been replaced by ideas, knowledge and creativity as the new drivers of value.
This new type of information and knowledge-based capital is known as intellectual capital. Your intellectual capital is basically all the knowledge, skills, capabilities and work product that you and your team have to offer, together with the relationships, reputation and brand equity that your business is able to attract and maintain in the marketplace.
Intellectual capital is made up of the following:
- Your ideas, insights, knowledge and creativity (intellectual assets)
- The talent, skills and capabilities of your team (human capital)
- Your contractual relationships and connections with investors, customers and other stakeholders (relationship assets)
- Your unique brand and the reputation and goodwill you have built around it (brand assets)
In the same way as we as individuals have a whole lot of information and knowledge, some useful, some useless and trivial; your business’s intellectual capital can also be categorised according to its uniqueness, usefulness or value.
Where your intellectual capital displays these additional qualities, it may qualify for statutory legal protection. These special assets, commonly referred to as intellectual property, are bestowed with rights and protections which give the owner a period of time (limited) to commercialise or exploit them without any undue or unfair interference from others. The trade-off is that after that period of time expires, the asset becomes part of the public domain for anyone and everyone to use.
Discovering what intellectual capital you have and need
For the tech entrepreneur, the majority of your intellectual capital will reside in your software, code, databases, websites or mobile applications. Copyright law without the need to register rights or comply with any further formalities automatically protects most of these assets. However, it is still necessary to identify and categorise those assets because the ownership rights and the ways to protect them may differ between the different types of asset.
At the same time, there may also be a wealth of other intellectual assets tucked away in your filing cabinets and hard drives, waiting to be discovered. These may include valuable trade secrets, know-how, methodologies, customer learning, and market research.
Once you have linked the value drivers and competitive advantages in your business with the assets that produce them, list those assets and classify them according to the structure that they take. Are they people-based or embedded in technology or documentation. Do any of them qualify for statutory protection?
The outcome should be an inventory of all your intellectual capital, classified according to the different levels of protection available as well as their importance to your business. You probably don’t have the time, energy or budget to protect everything, so taking the time to do this exercise will ensure that you separate the wheat from the chaff which will save you in the long run.
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