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4 Tips To Transition a Hobby to Business

When entrepreneur Megan Duckett first moved to Los Angeles, sewing was just something she did on the side. But after a few freelance gigs doing sewing jobs for local companies, Duckett began earning some serious money — more than she was making in her day job, according to She wound up quitting her job and opening her own sewing business that brought in 6.2 million in revenue in 2011 alone.

While not every hobby can be spun into a multi-million dollar enterprise, plenty of moms take on a hobby only to find there's some money to be made from their efforts. When the money starts to roll in, it's time to ask an important question: Is your hobby actually a business? Here are four tips to help you answer that question while making the transition to a business state of mind.

Identifying a Hobby-Turned-Business

Does money happen to come every now and then, or are you consistently raking in dollars? There's nothing wrong with a hobby that occasionally brings a few bucks in, but if you have a track record of profits — for example, if you're making money at every jewelry show you host — then you're probably running a business, at least by the Internal Revenue Service's definition. This is particularly true if you depend on the income, even if only to supplement existing household income. Probably the easiest way to make this distinction is to answer this question: Have you made money in the past, and do you expect to do so in the future? If the answer is yes, your hobby is now a business.

Crunch the Numbers on Your Earnings

Once you've decided your hobby is a business, consider its viability. This could involve making tough decisions as you look at your expenses now and down the road. Consider adjusting prices to improve profit margins accordingly. For example, you might decide that, as a business, it's now important to invest in marketing efforts. That will come with an increased cost, and if you want to remain profitable you might need to adjust prices. Of course, this can be tricky, since a young business should be more focused on developing a consumer base instead of maximizing profits. Ultimately, The Wall Street Journal recommends you consider a proposed price for your product and decide: Will people pay for this?

Improve Your Accounting

When you're running a business as an individual, keep your finances organized. The best way to do this is by separating business expenses and earnings into separate accounts from your personal finances. You can then use bank statements and your own personal accounting to make sure spending and revenues are where they should be. Plus, a business profile with your bank will be a great asset if and when you need loans or other bank support for your business.

For that reason, a business checking account and an American Express business credit card can be very helpful in establishing credit and better managing your finances. Some business credit cards may even offer points or other rewards programs that you can put toward your business.

If you're ready to start tracking business spending and expenses, QuickBooks is a popular software solution used by many different businesses. But newer solutions are coming in mobile app form, such as the Xero Accounting Software app, which lets you edit and monitor expenditure in real time.

Get Online

Most small businesses can create great marketing for themselves in one simple way: By getting online, and more specifically, by getting on social media. Facebook, Twitter, Pinterest and other platforms can be a great way to promote your business and develop a consumer base. These outlets are free and easy to update, and they can create a following that delivers sales time and time again.

Of course, you'll need to consider which platforms will be most useful to your business. If you would benefit from highly visual marketing, Pinterest may be your best best, while Twitter works best for publishing linked content. Facebook, on the other hand, is accommodating to both types of marketing. And you can manage multiple social profiles through various apps and interfaces, including TweetDeck and Hootsuite, so you don't have to visit half a dozen sites throughout your day.


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