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Can You Turn Your Hobby into a Business?

by Jim Martin

You’d like to quit your fifty hour a week job and work for yourself, but you’re not sure what you want to do. Some answer this question by turning a hobby into a business. This can be a roaring success, or a very expensive failure. If you examine the key considerations, you can probably assess your own hobby and its business potential very quickly.

The first (and perhaps most important) question is whether there are enough other people interested in your hobby to give it business potential. A subset of that question would be whether the potential local market is solid, or whether it might be better to look to the web for realistic sales. For some hobby entrepreneurs, there is a middle ground: you can sell at collectors’ meets, flea markets and antique fairs. You should keep in mind that this latter approach will involve a lot of driving and will consume most of your weekends. Another important question is whether there are ample sources of inventory for you to replace what you sell.

Let me give a few examples from my own experience. I collect old records. I have kept this a hobby, although I do buy, sell and trade to acquire the blues and doo-wop gems I’m after. I do have a few friends who have made this a business. One friend from Florida quit his job when he was forty-five to devote his full energy to buying and selling records. He spends most of his weekdays looking for new inventory. For most hobby-business conversions, it can be a challenge to find goods that are priced reasonably enough that one can turn a profit on them. Keep in mind that there may be strong competition for the goods you need. Consider how many other people are already in the business you’d like to pursue. Ken has overcome this problem by advertising heavily and by making very good offers on estates. Much of what he buys comes from referrals (and he pays a finder fee to keep those referrals coming in).

A second friend has a used record store in San Jose, but he also sells high end audio equipment, with a focus on tube-type amplifiers (which are preferred by audiophiles). He gets most of his inventory from people who bring their old records in to sell them. If you were to consider this approach, you need to understand that any category of hobby goods will range from very valuable down to worthless. Where an individual item falls will depend on its condition and its rarity. My friend declines most of the vinyl offered to him. Much of what he sees is not in clean enough condition for resale. Much of it is material that is not sought by collector’s. Collectors want jazz, old rhythm and blues and rare rock. In any hobby business, you must learn to be very selective.

I have a friend in Connecticut who supports himself selling records strictly by mail order. He publishes a sales list every six weeks, and details on that list the hours that he will man the phone and his sales guidelines. He has been pressured over the years to create a web site, but he responds by noting that most of his best customers are over 65. They are as comfortable with mail order as they are with e-trade. What works for Rico may not work for other hobby businesses. If you offer computer add-ons or smart phone apps, you will need a dramatic on-line presence.

A fourth friend, this one located in Cincinnati, covers all the bases. He has a store and a web site, and he sells at the four largest collector meets. This approach requires a lot of extra work (which Don says is worthwhile). While he sells only those records that exceed a minimum price on line (it isn’t practical to sell low priced items on line because of the way shipping costs inflate the net price), he still has a large on-line inventory that must be modified each time a record sells in the store or at a collector’s meet. He also has a system that immediately flags on-line sales so those items may be immediately removed from store stock. He has to put the web site on hold when he goes to a collector meet because he might receive orders for items he sells at the meet. Family members run the store when he is gone, but no one else has been trained to handle on-line sales.

You need to consider one hard fact when you contemplate turning your hobby into a business: it all gets more complicated. You have to comply with regulations that don’t apply to a hobbyist. You need to get all the proper permits and licenses. You have to collect sales tax on your sales. Many states, California included, require that those selling at swap meets, yard sales and flea markets collect sales tax even if they are not businesses. If you simply decide to include selling your extras as part of your hobby, you have become a business by default.

Another complication you must consider is that you must keep two sets of goods separate. You cannot intermingle what you have in your collection with what you have for sale through your business. Determining cost of goods sold will be difficult even without mixing everything up. Your business inventory could be subject to legal action (payment of store debts, etc. ), but your private collection would not be (assuming your business structure separates the two parts of your life).

A part of this is separation of home and business expenses. If you operate a small business out of that extra bedroom you have, you have to keep track of which home expenses are business related. For example, if you tell your insurance agent you are starting a business in your house, she’ll discuss all of the insurance requirements you should consider adding. You could add those to your existing homeowners policy (and save money), or create a separate insurance package (which is less complicated at tax time, and offers the additional benefit of ensuring your house does not become part of a business-related suit.

The last point you should consider is that becoming a business will change how you look at your hobby. When you have to put in the additional effort, which, for all four of my friends, includes constantly searching for new inventory. If your hobby involves collectibles, no wholesalers will offer you replacement inventory. You must find it, and that can require time and effort. I have known several record dealers who have dismantled their own collections because they lost interest wanted to get away from the rat race after a few years. Burn out is a real threat.

One other suggestion I’ll throw at you is this: before you make the jump, talk it over with your family. Very often, families tolerate hobbies but turn out to be less than thrilled at the idea of the hobby becoming a business. There are lots of reasons for this, but you won’t have even a hint until after you make the move. It is also possible that your family might have some ideas about making the business work even better, or might be willing to work in the business.

Lastly, get yourself a SCORE mentor. A Mentor, plus an evening at one of SCORE’s introductory business workshops, could make you much better prepared than most hobbyists who “go pro.”