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Essential Steps For Turning Your Hobby Into A Business
by Nellie Akalp
July 29, 2021

Doing what you love for a living—it can’t get any better than that, right? But is it possible or remotely practical?

Transforming your hobby into a profitable business can be accomplished when you do your due diligence and get your legal ducks in a row.

But first, I recommend you ask yourself two tough questions to discover if you really should take steps toward turning your passion into your livelihood.

“Can I see myself doing this for a living?” You might love immersing yourself in your hobby on weekends, but will you feel the same way when it’s your full-time gig rather than an optional pastime? Think about it, and answer honestly.

“Will the numbers work?” As much as you enjoy your craft, it won't make much sense to turn it into a business if the profitability prognosis is grim for the long term. I recommend talking with your SCORE mentor to work through your projections, and assess how financially feasible your hobby will be as a business.

To legitimately turn your hobby into a bonafide business, you'll want to tackle the following tasks:

Make sure your business name is available.

Begin by checking with your state’s Secretary of State office, or do a corporate name search to see if anyone else has already claimed the name you want to use. If that’s all clear, continue by doing a trademark search to make sure no one has already filed for a trademark on the name.

Decide on a business structure.

Unless you file for a different legal structure, your business will be considered a sole proprietorship. A sole proprietorship offers simplicity because it comes with few business compliance requirements, but it does not shield your personal assets from the financial and legal liabilities of your business.

To better protect your personal assets, consider forming an LLC (Limited Liability Company) or incorporating your business.

To decide which legal structure will make the best choice for your business, I recommend talking to an attorney for guidance. Tax treatment varies from one structure to the next, so also consider consulting a tax professional who can offer insight. After you’ve chosen your business structure, you might save some time and money by asking an online business document filing service to handle the paperwork for you.

Register your business name.

If you incorporate or form an LLC, your business name will automatically be registered in your state. If you decide to operate as a sole proprietor, however, you will need to file a Doing Business As (DBA) if you want to use a fictitious name for your company. For example, if you want to call your business “Laura’s Vehicle Repair,” filing a DBA will allow you to operate your business under that name in your state. Also, it will make it illegal for other sole proprietors in your state to use that name.

Get an Employee Identification Number (EIN).

Most banks require that you have an EIN before they let you open a business bank account. And if you have employees or incorporate your business, the IRS requires you have an EIN. Fortunately, EINs are quite easy to apply for through the IRS, and they’re free of charge.

Open a business bank account.

If you structure your business as an LLC or corporation, you’re required to have a separate bank account for your business. And even if you’re a sole proprietor, it’s wise to always keep your personal and business finances separate! Doing so helps eliminate any shades of gray when it comes to tracking and reporting your business’s income and expenses on your tax returns.

Obtain the proper licenses and permits.

Certain types of businesses need to secure licenses and permits to legally run their businesses. Depending on the nature of your business and where you’re located, federal, state, county, and local licenses and permits might apply to you. Do your homework to find out which you'll need, or you could find yourself on the hook for fines and penalties. 

Know what you need to do to stay compliant.

Besides the must-dos involved in legally starting a business, you also need to pay attention to certain ongoing compliance requirements. These will vary depending on your business structure, your state, and your type of business. The possibilities include annual reports, corporate meeting minutes, articles of amendment, renewals of licenses and permits, and other business filings. If you don’t keep up with the business compliance items that apply to you, you risk fines and could lose the legal protection your business structure provides.

Hobby Or Business? Which Will It Be?

With an understanding of what's involved in legitimately going from hobby status to a for-real business, you're better prepared to make an informed decision. Keep in mind that the IRS does have some rules that may decide for you. Take care that your hobby doesn't already qualify as a business. If it does, you’ll want to start tackling the above steps sooner rather than later!

If your enthusiasm hasn’t waned after envisioning yourself doing your hobby day in and day out and your business appears viable, you’re ready to consider what’s next.

About the author
Nellie Akalp
Nellie Akalp is a passionate entrepreneur, business expert, professional speaker, author, and mother of four.
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1165 Herndon Parkway, Suite 100
Herndon, VA 20170

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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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