Connect with us

Types of Businesses to Start

Is It A Hobby Or A Business? 5 Things You Need To Know To Monetise Your Hobby

Pay attention to this distinction because you can bet that the tax man is going to.

Jeffrey Hayzlett

Published

on

hobby-business-start-ups

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

eating bacon

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.

2Start small

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

marketing-strategy

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.

5Branch out

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.

Jeffrey Hayzlett is the author of Think Big, Act Bigger: The Rewards of Being Relentless (Entrepreneur Press, 2015). He is the primetime television host of C-Suite with Jeffrey Hayzlett and Executive Perspectives on C-Suite TV and is the host of the award-winning All Business with Jeffrey Hayzlett on C-Suite Radio. He is a Hall of Fame speaker, best-selling author, and chairman of C-Suite Network, a network of C-suite leaders.

Advertisement
Comments

Types of Businesses to Start

6 Steps To Building A Million-Dollar Ecommerce Site In 60 Days

Jared Goetz spent only 30 minutes a day and built a colossal Shopify sales machine.

Entrepreneur

Published

on

ecommerce-site

Jared Goetz, serial entrepreneur and member of The Oracles, always had a knack for reaching an audience. At 26 years old, he’s co-founded four multimillion-dollar companies.

Whether he’s throwing the world’s largest foam party with fire breathers and circus acts (“Electric Flurry”) or selling inflatables to college students via viral campaigns (“Dumbo Lounge Sacks”), this serial entrepreneur knows how to turn an audience into a profit machine.

His latest venture, The Gadget Snob, is no different. An ecommerce store that supplies everything from jet-flamed pencils to laser keyboards, Goetz took his business from zero to $2 million in 60 days by plugging into the right audience. That’s no small feat in a competitive industry forecast to surpass $4 trillion in sales by 2020.

Goetz’s secret sauce to reaching the masses? Experimentation. As he explains, “You don’t know what people will respond to until you try a lot of things. Don’t be afraid to think outside the box.”

Related: Selling Online: Be On The Right Side Of The Law With Your Ecommerce Start-Up

Goetz shares six key components to building his million-dollar ecommerce store and turning profits in less than a business quarter.

1. Don’t reinvent the merchandise wheel

“Many owners think they have to reinvent the wheel with the merchandise they sell,” Goetz explained. Instead, he suggests focusing on products with a proven track record of success. “An easy way to spot a market trend is gauging how a product performs on social media. If an item is getting 10,000 Facebook Likes in less than a few hours, that’s a tell.”

When choosing merchandise, it’s also crucial to differentiate between commoditised and unique products. Commoditised products are widely available. Unique products are less accessible handmade or niche products that aren’t mass produced.

“If you go niche, gauge demand first. Observe what people are looking for. You might be surprised to see what’s selling.”

2. Create a formula, then rewrite it

Ecommerce comes down to a formula, Goetz says, and the outcome is affected by different variables: Product, advertisement, landing page optimisation, and customer lifetime value.

“Once you figure out what produces the best margin, copy that. Most who fail in ecommerce are 90 percent there but haven’t worked out all the variables in their formula,” Goetz shares.

For Goetz, a pivotal variable was drop shipping. “I spent a lot of time bootstrapping my earlier companies. Drop shipping was a game-changer because it allowed me to advertise before securing the inventory, yielding greater outcomes.”

3. Build a legit Shopify store

Shopify

A successful Shopify store must win confidence. “In the sometimes-fraudulent digital ecosystem, you have to earn a consumer’s trust,” Goetz says. “A money-back guarantee and free shipping guarantee are great places to start.”

Related: 5 Ecommerce Myths That Are Sabotaging People’s Businesses

Goetz also suggests choosing a theme that’s congruent with your industry. “With branding, you want to look professional, not spammy or creepy.” Gadgets are fun and technical, so his site has bright colours and precise language. “If I were running a men’s fashion store or toy store, I’d change my theme to match the merchandise and brand. Branding is key to converting customer views into sales.”

4. Find winning ads with huge ROI and scale

For Goetz, marketing comes down to one word: testing. “The only way to find out what works is to test it many times,” he says. “Test 10 audiences on each product, so you know where to invest your energy.” For The Gadget Snob, Goetz hired an ad manager to optimise Facebook campaigns. “When you strike gold with a successful ad, replicate it, but scale incrementally to ensure you’re staying targeted.” He suggests increasing ad spend 20 percent per day, not 500 percent.

When building campaigns, it’s also vital to use language that’s shareable and creative. Sales psychology is your friend. From his perspective, classic scarcity techniques have been around for centuries for a reason. “Try incorporating a quantity incentive: if you buy one, it’s full price; if you buy two, it’s 50 percent off and so forth.”

“Creating an email list is also vital. Email campaigns have a higher conversion rate than cold Facebook campaigns, and you can incentivise email campaigns with rewards. You can make money by merely pushing ‘send.’”

5. Hire a VA, then specialists

For Goetz, hiring a virtual assistant was essential to scaling. “At first, my VA helped with everything,” he says. Once his site got off the ground, Goetz hired people with specialised jobs for specific tasks.

Related: 5 Basics To Success When Starting An Ecommerce Business

He also stresses the importance of universal procedures. “Having clear onboarding processes and procedures is key to growth. Make your systems as easy as possible because while you might have 100 orders today, tomorrow you’ll have quadruple that.”

6. Get your customer support airtight

For a store to operate at full throttle, Goetz stresses the importance of customer support to maximise your profits. “You need your customer support to be airtight and available 24/7,” he says. “Online shopping goes all night and people place orders at all hours.”

To support questions and concerns, Goetz says that live chat and around-the-clock customer service is a must. “In our era of Amazon Prime, customer service expectations have never been higher, he says. “The last thing you want is a minute hiccup or technical goof obstructing a sale.”

Ultimately, ecommerce allows entrepreneurs to reach untapped markets and reap the rewards. As Goetz puts it: “My ecommerce site affords me ultimate freedom.” By following a few basic steps, you, too, can build a Shopify store to run from anywhere in the world, and perhaps even create your own million-dollar sales machine.

Related: 4 Methods For Building A Successful Ecommerce Brand

This article was originally posted here on Entrepreneur.com.

Continue Reading

Types of Businesses to Start

10 Businesses You Can Start Part-Time

Find your perfect match for a successful part-time start-up.

Nadine Todd

Published

on

57-10-businesses-you-can-start-part-time
Prev1 of 11

Start your part-time business today

Contents

  1. Public Relations
  2. Freelance Photography
  3. Corporate Videos
  4. Small Business Advertising Agency
  5. Writing, Editing and Proofreading Services
  6. Internet Marketing Consultant
  7. Web Design
  8. Tax Accountant
  9. Business Consultant
  10. Business Plan Consultant

Launching a company – even if it’s operated part-time – is all about drawing on your skills, talents and interests to create a viable business. What you know and what you’re good at form a good basis for a part-time business because these companies either become an extension of what you enjoy doing most or they are based on your strengths.

Working part-time while still maintaining a permanent job is time consuming and often exhausting, so choosing what you take pleasure in or are good at can keep you focused and motivated. The right fit is important when it comes to launching a part-time business. Selling a service rather than a product does not require large start-up costs, which means you can grow your business without financing until it becomes self-sustaining.

Are you looking for a business that you can launch in next to no time?

Read: 10 Business Ideas Ready To Launch!

Corporate Communications & Promotions

Corporate communications covers a host of areas, mainly because this is the sector that takes care of how companies look to the outside world – something that is very definitely a service, but also that is not often taken care of in-house.

If you can write, edit, have a knack for advertising, can take photographs or create promotional and corporate videos, you can offer your services part-time to companies both large and small that are in need of these services.

Prev1 of 11

Continue Reading

Types of Businesses to Start

10 Business Ideas Ready To Launch!

Where do you find a good business idea? Right here. Here you’ll find several innovative business ideas that are ripe for plucking.

GG van Rooyen

Published

on

84-10-business-ideas-ready-to-launch
Prev1 of 11

Where do you find a brilliant business idea?

It’s not as hard as it may seem at first. In fact, the idea is arguably not all that important. There’s a reason investors talk about backing the jockey and not the horse: It’s often not about the idea, but the execution.

A great entrepreneur can turn even a mediocre idea into a success; all that’s needed is a USP and great customer service.

That said, some ideas are undoubtedly better than others. And some businesses are easier to get off the ground. In the following pages you’ll find a curated list of business ideas that have reached a point where they’re just waiting to be exploited.

Prev1 of 11

Continue Reading

Trending

FREE E-BOOK: How to Build an Entrepreneurial Mindset

Sign up now for Entrepreneur's Daily Newsletters to Download​​