From Hobby to Business… 5 Steps in the Right Direction
This is the third day in a row that you are late for work. This is not your “norm” and you wonder why you cannot get to work on time. You find your mind constantly drifting, daydreaming about muddling through five o’clock traffic on your way to your favorite pastime.
If you can relate to the above scenario, then you may want to think about turning your favorite hobby into a business. By no means should you quit your job right now, but it may be time to think about creating your foundation. Use these five quick steps as a beginning to making your dreams a reality:
- 1) What’s in a name? Choose a name that will identify or promote your product or service. I lived in a city where an attorney was an avid coffee lover, so he named his coffee shop “Sufficient Grounds.” The name being a play on words for both his legal career and his hobby. Before you get too comfortable with a name, check with your state to see if anyone else already has that name.
- 2) To Incorporate or not, that is the question. Once you have decided on a name for your business, you will then need to determine the business structure you will use. Your choices are Sole Proprietorship, Partnership, Limited Liability Company (LLC) or Corporation (C-Corp or S-Corp).
Sole Proprietorship is the simplest form and requires the least amount of paperwork. You are the only owner; however you are the most exposed personally to the business’ debt and/or lawsuits. Sole Proprietorships for tax purposes are “pass-through entities” therefore income is attached to your personal tax return.
Partnerships have more than one owner and a small amount of paperwork (a partnership agreement which is not a requirement, but is suggested). However, just like the sole proprietorship, liability is unlimited and income is attached to the personal tax return.
Limited Liability Company (LLC) differs from partnerships because you are required to file paperwork with the state (normally the Secretary of State) which is articles of organization in the state in which you are organizing and each state that you plan on doing business. Liability for a LLC is as its name suggests limited, unlike a partnership or sole proprietorship. Again, profits and losses are indicated on the individual member’s personal tax returns.
Corporations are entities in and of themselves. Corporations are created by filing an articles of incorporation with the state of which you plan to conduct business. There are two types of corporations, one is a “S” Corp which is a “pass- through” as well for income tax purpose and the “C” Corp which allows for double taxation, the corporation is taxed and then the members individual dividends are taxed. (Please consult an attorney for help in deciding which business structure works best for you.)
- 3) They have your number. Once you have chosen a name and decided on your business structure, you will want to get an Employer Identification Number (EIN) or as it is commonly known a Tax ID. This is the business equivalent to a social security number and is needed to obtain a bank account in a business name or to apply for credit in the business name (although most creditors want an individual guarantor for a credit line). If you are a sole proprietor, you can still obtain an EIN. Go to the IRS.gov website to apply for your number.
- 4) The space of which I occupy. By now you should have decided on the space in which you are going to conduct your business. There are two types of office space, the first is your “brick & mortar” office, this is your traditional office space (or store); it could be in a shopping center or a stand-alone business. Included in the “traditional” office space has become the home office, in which a designated room or area of your home is used for your business. The second type of office, the virtual office, because of technology advances has made it all but easy to have a virtual office, where you don’t have a designated space, your office is anywhere you can transport your laptop or tablet. More and more businesses and stores are using this low cost way to start their business.
- 5) Ringing the Bell! A business cannot be successful unless you have clients/customers to purchase your products or services. How do you let them know that you are in business? This is where a “good” marketing plan is needed. There are books and articles in abundance on marketing your business available at your nearest library. I suggest you review a few and then purchase your favorite. It is worth saying that marketing plans and methods vary based on personalities and comfort levels, but there are a few things that are needed to be competitive. As an entrepreneur you will need to invest in the following: A professional website, A Facebook account, a Twitter account and a Linked-In account just for starts.
These are just 5 quick steps to move your hobby to a business. This is by no means the only steps nor a thorough explanation of the steps, which is outside the scope of this article. But this will allow you to start thinking as you’re stuck in traffic.