Home and Hobby Businesses: Overview

Improve your chances of success when your hobby starts becoming a business.

Home businesses are booming, and craft and hobby businesses are flourishing as well. For example, U.S. craftwork is a $13 billion dollar industry and crafts artisans now average $76,000 in annual sales. That's great news for artisans, entrepreneurs, and even Uncle Sam, who also makes money when you do. And when it comes to taxes, the tax code is full of deductions for businesses -- and you are entitled to take them whether you work from home or from a studio space.

Besides the financial opportunity, there are many reasons to pursue a home or hobby business. Perhaps you seek artistic freedom or are driven by a desire to love what you do. Maybe your family requires schedule flexibility or for you to travel less. Possibly there's just no more shelf space for your ceramic creations and your spouse thinks it is time for you to start sharing them with the world. Whatever your goals, there are some basic things you can do to improve your chances of success, and make sure you're running a safe and legal business.

• Get up to speed on business basics. If you're taking money for your art, you're in business. Make the most of what you earn by operating your business like... a business. Nolo's book, Whoops! I'm in Business, will get you going.
• Write a business plan. It doesn't have to be complex or formal, but putting your ideas on paper can help you test their viability and improve your chances for success. It can also give you a clear idea of how you want to work with sales channels and if you need professional advisors or potential helpers such as contractors or employees. Nolo's How to Write a Business Plan will give you coaching and templates. If you're already in business, a plan can still help you fine tune your business and improve your results.
• Have a clear plan for funding. Whether you're financing your efforts out of pocket or require investment to expand, you need to know where your start-up capital will come from (if you need it), whether you will be servicing a debt, and what resources you can call upon in the future. If you're seeking funding, start with friends, family and the people in your community. If you must tap into retirement accounts, read Nolo's IRAs, 401(k) & Other Retirement Plans: Taking Your Money Out to find out how to minimize penalties.
• Know how you're going to bring in revenue. How will you sell your work? Will certain services (like credit card processing) enhance your ability to sell? Is there a distribution network available to you? Will being online, attending events like trade or craft shows, licensing your work, or other opportunities boost your revenue? Are their industry norms for selling that affect your business (such as returns policies or payment schedules)? Nolo's Your Crafts Business will help you plan and prepare and coaches you on distribution alternatives.
• Keep your money. The fastest way to boost your profits is to keep what you earn. Deductions can help you reduce your taxable income to a very low number, even to below zero in your first year or two of operation. Instant help is available from Tax Savvy for Small Businesses.
• Get the right setup for your business. If you're not sure what business structure will give you the most advantages, check out The Partnership Book to make sure your business is protected in the future.
• Make sure you have the right workspace. What are the space needs of your hobby/business? Do you require storage space? Industrial strength refrigeration? Extra power? Two sewing machines? A quiet place to make uninterrupted phone calls? Can you effectively work from your home or do you need to get studio or office space? If you're renting space, be sure to read Home Business Tax Deductions: Keep What You Earn.
• Get the proper licenses and permits. Depending on the type of business you start, you may need to get a permits and occupational license from your city or state. Many cities and counties require every business -- even single-owner, home-based operations -- to get a business license (a.k.a. tax registration). You may also have to get a sales tax permit (often called a seller's permit) from your state.
• Protect your intellectual property assets. When you name a product, or your business, you're often taking the first step to building a brand. Even though you may not care too much about the names you choose, protecting your brand will be important later. Your brand can become one of your most important assets in building, and even selling, your business. And if you're a creative artist, your work product itself -- designs, writings, you name it -- need protection. Start with The Copyright Handbook.

While this list may seem intimidating, don't let it scare you. These are common needs for any business and there's plenty of help to be found to deal with them.

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