For as long as you can remember, you’ve been building wooden birdhouses or sewing tote bags or hand pouring candles from scratch—simply because the act of making brings you joy.
But over time, you’ve become somewhat of an expert at your craft, prompting friends and family to “ooh” and “aah” over your work and strangers to demand, “Take my money!” Maybe you’ve even dabbled in selling, either through a local marketplace, online selling sites, or to friends for cash.
It’s probably time to ask yourself: Could this hobby become a business? There are many factors to consider before taking the leap.
There are several benefits to turning your hobby into an honest-to-goodness brand. Here, we’ll outline the differences between hobbies and businesses, the legal and financial implications of making the switch, and the steps you can take to turn a hobby into a business today.
How to turn a hobby into a business
There are some fairly common hobbies you can monetize—selling finished handmade goods, like knit wool mittens at a craft market, for example. But most hobbies have a marketable angle. Musicians can sell samples or teach guitar classes. Gamers can join the creator economy and build a business around streaming. Gardeners can grow seeds into seedlings to sell or harvest fruit to make jams and pies to supply local restaurants.
To turn a hobby into a business, there are a few questions to ask yourself about your motivations and the viability of your idea. You may also need to make changes to your workspace, ride a business learning curve, and consider funding options. We’ll get to that later. First, let’s define the difference between a hobby and a business.
Hobby vs. business: what’s the difference?
In some cases, a hobby and a business can be one and the same. Your hobby is the thing you engage in after work hours and in your spare time, but you also may exchange the results of those hobbies for cash.
In the eyes of the government, that hobby income is real income that you may need to claim. The true difference between a hobby and a business comes down to tax law. The laws vary from country to country and depend on many factors. For example:
- In Canada, it’s possible to earn money from a hobby, provided your earnings are far outweighed by your material costs. However, if there is an intention to turn profit, you may be entering a grey area with the CRA.
- In the US, the IRS looks at the intention to turn a profit and history of profit. If you have profited from your hobby in at least three of five consecutive years, the IRS will see this as intentional and, therefore, qualify your activity as a business.
While claiming income may seem like a hassle or a downside, the benefits to upgrading your hobby to a business can balance the negatives. Business owners can claim expenses like material costs, a portion of utilities (for home-based businesses), or other specific expenses applicable to the particular business—hobbyists cannot. And in some cases, if your annual income from the business falls under a certain threshold you may be exempt from paying certain types of tax.
Once you make the distinction that your hobby is now a venture, tracking and organizing your business finances will set you up for success at tax time.
🛑 Note: This information is general and not intended to replace the advice of professionals. It’s important to check with the revenue agency in your country or consult an accountant or lawyer before you launch your business and when you file taxes.
Questions to ask before starting a hobby business
Before you take the necessary steps to turn your hobby into a business, there are a few questions to ask yourself to understand if the move is right for you.
Does your hobby have the potential to become a viable business?
Your hobby may be close to your heart, but are there others who share your love of this craft? Validating your product idea through research will help you determine if there’s demand for what you’re offering and if you are bringing value to the market. This is also where you ask yourself if your hobby is sustainable as a business—is it something you can scale?
Your business doesn’t necessarily need to scale exponentially. If you’re in it for the love of your craft, a business can serve as a way to pay for itself or generate a little extra spending money.
Are you in it for love, money, or both?
A common pitfall for those who turn their hobbies into businesses is that the thing that once brought distraction from work and stress can suddenly become work and stress. When your craft is a hobby, you only answer to yourself. Expectations from customers, vendors, and retail partners can add pressure. Is your hobby something you will still enjoy if it becomes your full-time gig?
Your business doesn’t necessarily need to scale exponentially, however. If you’re in it for the love of your craft, a business can serve as a way to pay for itself or generate a little extra spending money.
Will your hobby become a side hustle or a full-time business?
It’s possible to keep your business small, running it on the side while you still work. Consider whether this is enough or if you plan to scale your hobby into a full-time business. It may also become your early retirement plan as you transition to an income source that’s more flexible with fewer hours.
Bernie Rothrock offered to manage his brother’s alpaca ranch as a way to keep busy after retirement. What started as a hobby became a small business selling socks made from alpaca wool.
What’s your learning curve?
As a creative, you may not know where to start, from a business perspective. Luckily, there are several platforms, like Shopify, that can help you launch a business quickly, without prior experience.
Turn your hobby into a business and try Shopify free for 3 days
Hobby to business in 8 steps
Now that you’ve either determined that you are in fact an accidental entrepreneur or you want to become one, let’s make it official. Here’s how to turn a hobby into a business in eight steps:
1. Determine your business model
You’ve likely mastered your hobby if you’re at the stage of levelling it up to a business. What kind of business can you run, based on the nature of your craft? Determine if you will run your business from home, if you will run it solo or with a business partner, and if you need to outsource or hire for any part of the process. Will you sell finished goods or services? Do you plan to sell online or in person? Or maybe some mix of the above?
Writing a business plan will not only answer these questions, but will also help determine things like required funding, launch timeline, and any additional needs. If you choose to seek outside funding, a business plan helps frame your pitch to investors.
Note that as you grow, your business structure may change. When Kerry Butt’s candle-making hobby brought her more joy than her main source of income, she leveled it up. Now her business, Red Sky, is her sole focus.
2. Develop your brand
Say you’ve been dabbling in jewelry design, maybe gifting or selling your pieces to friends. As you transition that hobby to a business, your work should be anchored to a brand. A brand defines everything around your product or service, including what you stand for, your brand voice, visual guidelines, and your brand story.
A strong brand will inform your website, branding assets like logo design, social media content, and packaging.
3. Consider funding options
If your business is born from a hobby, you likely already own much of the equipment required to produce your product. However, in order to transition, you may need to upgrade machinery, buy supplies in bulk, or even transition rooms in your home to dedicated workspaces.
Hobby businesses are usually conducive to a bootstrapping method—or funding the business on your own by investing profits back into it.
For example, if you’re a fitness buff looking to parlay your love of movement into virtual classes, consider that you’ll have upfront expenses for lighting and camera equipment. In some cases you may need to apply for a loan, small business grant, or capital offer, start a crowdfunding campaign, dip into your savings, or seek other types of funding.
Hobby businesses, however, are usually conducive to a bootstrapping method—or funding the business on your own by investing profits back into it. As you grow your sales, you can use profits to slowly upgrade equipment.
4. Streamline your processes and workspace
Tinkering with furniture making in your garage as a hobby is one thing, but is the space set up in the most efficient way to transition to a woodworking business? You’ll be spending more hours in the space than you did as a hobbyist.
Consider ergonomics (a better chair, anti-fatigue mats), the flow of your workspace (how things are arranged to produce assembly-line style), and whether or not your space and processes meet legal requirements for ventilation and safety.
When Melissa Butler started making lipstick in her kitchen, she was still working on Wall Street full time. When she decided to leave the financial industry and make a real go of her small business, she realized her kitchen lab was no longer sustainable. The Lip Bar operations moved to a factory, allowing Melissa to scale and follow beauty industry regulations.
5. Choose your sales channels
The right sales channels can help you reach the right audiences, even if your marketing budget is low. If you make handmade goods, set up your own website so you have ownership over your brand and email list, but also try selling on a marketplace like Etsy, where handmade buyers can discover you.
If you’re a hobbyist online creator, like a comedian, or you sell virtual class subscriptions for DIY home renovations, consider channels where your personality can shine. TikTok has been a springboard for several influencers-turned-brands—and you can now sell on TikTok with Shopify’s integration.
6. Launch and market your brand
It’s time to launch! If you’ve been at your hobby for many years and have had support from family and friends, start with these loyal fans to help promote your new brand through word of mouth. Treat these folks as your first customers and nurture the relationship as such. Set up social media accounts and a Coming Soon page in advance of your official launch to generate buzz and grow your email list and followers.
💡 Tip: There are several organic marketing ideas for creative small business owners with even smaller budgets.
7. Set boundaries
Hobbies often integrate seamlessly with life—knitting in front of the TV, gaming in your bedroom—but if you’re considering upgrading to a business, those spaces may no longer work for you. Separating your work spaces from your life spaces will help you create boundaries and maintain a healthy work-life balance.
8. Set yourself up to scale
Embrace optimism and blue-sky thinking: your hobby-turned business could catch on, leaving you scrambling to meet demand. That’s the dream! Don’t get caught by surprise and risk annoying your new fan base with slow customer service and sold out products. Consider how you will scale at each sales milestone: one, 10, or 50 sales per day, for example. Get help early, even if it just means outsourcing your least favorite tasks to a VA or part-time employee so you can focus on the big picture.
At every step in building Jaswant’s Kitchen from a hobby and passion for food into a full-fledged business, the Kular family adjusted operations to match their scaling business. As you develop your own hobby business, look ahead two, five, and 10 years—can your business scale, and what will you require for it to do so?
Craft your life around what you love
There’s nothing more relaxing and satisfying than losing yourself in your favorite hobby. When you know, you know. If you’ve ever wondered how to harness that feeling and turn it into your livelihood, you’re at an exciting crossroad.
As a creator or as someone passionate and skilled at your favorite thing, you already have an important advantage. You have the product, you have the knowhow, you have the drive. What’s stopping you from taking the next step?
Hobby to business FAQ
How much money can you make before a hobby becomes a business?
In the eyes of the government, hobby income is real income that you may need to claim. The true difference between a hobby and a business comes down to tax law. The laws vary from country to country and depend on many factors. Check with your local government to find out how much you can earn before you are required to claim it on your taxes.
Do I need to register my hobby as a business?
The short answer is no. In many regions, you can operate a business without a license. But this depends on the industry, too—some industries require specific licenses (say, if you process meat products). Check with the government agency that regulates small businesses to see if your hobby business requires any sort of licensing. Registering your business is usually a good idea either way as it generally comes with certain protections.
Should I turn my hobby into a business?
You should turn your hobby into a business if the advantages of doing so outweigh the challenges. Many hobby businesses are easy to convert into businesses that allow you to make money on the side from home. It is a personal decision to convert a hobby into a business and one that should be informed. Do your research to see what, if any, modifications you’ll need to make to comply with law and file taxes.
What is the most profitable hobby?
Profitability of your hobby business comes down to having a solid business plan, the right pricing, and an interested market for your product. Any hobby can be profitable provided you have those elements in place. While high end custom furniture could fetch high price points, you’ll be selling fewer of these than $8 knit mittens. Invest time in a financial plan to determine how much you need to sell and what retail prices to set in order to turn a profit.