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From Hobby or Side Hustle to Business

I have noticed that, undoubtedly, there are always individuals in my circle of family, friends, and acquaintances trying to interest me in their presentation for a new MLM style venture or to purchase products/services for which they earn a commission. Then, on a rare occasion, there is that one individual whose hobby, such as jewelry making, has grown into an additional source of income while they are doing something they feel passionate about.

The first group actually have what's called a “side hustle” that they may or may not expect to become a complete replacement of their main income and job. The second group are individuals whose hobby has become a side hustle or small venture. However, with consistent hard work and commitment, both sets of individuals could one day arrive at a point when they realize they are actually running a full-fledged business.

I refer to the first set of individuals—with the side hustle—as active entrepreneurs; they are continuously seeking to increase their income with any attractive business opportunity that presents a chance of achieving their goals. The second group—pursuing their hobby or interests while earning from their efforts—I call passive entrepreneurs. Their driving force, motivation, and purpose is the interest or passion that brings them personal satisfaction as well as financial compensation.

Whichever category one falls into, they will want to do well; so, periodic intentional assessments of their situation in relation to their activities is beneficial. Primarily, it will be important to consider whether or not their activities are best structured as a formally registered. This would include a choice of business structure, operational procedures, development of processes, resources, financial planning, management, and all the other aspects that relate to putting a business enterprise on a sound footing.

This is probably an easier choice for the active entrepreneur, whose trajectory is more likely to have been building a successful enterprise. However, this may not be so clear-cut for the passive entrepreneur, whose choice will be considered in terms of an expanding business detracting from the clear pursuit of personal fulfillment and satisfaction that comes from their hobby. I also recognize that not everyone wants to turn their side hustle or hobby into a major or official business venture. But, if and when the issue is tabled, a number of factors needs to be taken into account. Below are what I consider to be three of the main elements that should be fully analyzed.

3 Factors To Consider When Deciding:

  1. Tax Liability and The IRS: Whether your activities amount to a hobby or actual business will impact your tax liability. The IRS publishes guidelines contained in Internal Revenue Code Section 183: Activities Not Engaged in for Profit. The document is merely a guide—not law—that goes into great detail over the nine factors the IRS looks at when deciding whether you are running a business or merely pursuing a hobby.

  2. Profitability and Sustainability: If you are going to establish a business, then realistically determine, "Has there has been a consistent, sustainable, and increasing profit generation over a reasonable period of time that indicates business viability of activities and acceptable ROI?"

  3. Benefits to Customers and Clients: Is there a pool of potential customers who will positively benefit from the product or service you provide? If the answer to this question is yes, then further research will help to determine the potential for growth, profits, and the satisfaction of service. Establishing a business organization can be a way to benefit a greater number of people and to do so with increased personal rewards from making a difference.

Of course, there are other factors that can influence your choice to launch and run a successful business such as increased responsibility, commitment, and financial risks. The experience of a side hustle or a hobby that involves production or delivery of goods/services; customer care; budgeting; and money management among others is a good trial run for deciding what to do for your future.

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