There's a clear distinction between having a hobby that also makes a profit, and running an official business. Common reasons profitable hobbies stay in the "hobbies" column include the need to prioritize a full-time job, worries about how the hobby would perform as a business, and concern that the hobby won't be fun anymore operating as a product or service out in the world, as a job rather than a passion.
But isn't the ultimate scenario to bring in money doing what you love?
In my case, I was already out in the world speaking and building my team when I noticed people were asking to buy a course or coaching from me. I also had a full-time job at the time. Yet I created a course and permanently transformed something I love into a moneymaking business. Many hobbyists grapple with this ideal and wonder if and when to do the same.
While it may be as unmeasurable as a gut feeling, there are some key indicators that it may be time to officially turn that moneymaking hobby into its own entity.
1. You're investing in business expenses frequently.
When I started out, I was spending most of my money on courses. I was a voracious learner and wanted to absorb as much as I could about entrepreneurship and building a business. I believe one of the most important reasons you should officially file as a business is because all related expenses -- even learning expenses -- can be written off tax free.
As of 2018, the IRS does not permit deductible expenses off of hobby income. This means that if you're making $1,000 a month selling handmade pottery and spending $400 a month on the materials necessary to make it, you aren't able to deduct that $400 a month as a "hobby expense." Depending on how high your expenses are, this can be a pivotal realization for hobbyists.
2. You have clear price points and stick to them.
Initially, I'd change the prices of my speaking and coaching engagements depending on the client. A clear differential for me was when I started to charge the same prices across the board and stop compromising on it, because I had business expenses and needed to stay firm to cover these costs. It's often a mindset or circumstantial shift that compels this turn toward set price points.
For Jessica Zimmerman, CEO of Zimmerman Events, it was because she had to support a family of five when her husband unexpectedly fell ill. She turned her floral arrangement hobby into a business virtually overnight, and has since crafted a seven-figure business model for just that.
"I learned very quickly that hobbyists don't think they are worthy of charging a certain amount, so they back down and let the client control the narrative, run the meeting, and set the tone," she shared. "A business owner sets their minimums, price points, and clear boundaries on work hours."
3. The income from your moneymaking hobby is significant.
The significance of the hobby's income is subjective, but many find it's time to make the switch from hobby to business when the hobby's income rivals or beats your income from your day job. When I started my company, it was just a side hustle. I still had a full-time job, and I didn't leave it until I was making about six figures a month for eight months in a row. Eventually, that turned into a multimillion-dollar business.
Ultimately, using income as an indicator depends on a number of factors, such as how much you like your current job. But it's a common rule of thumb that any hobby that's generating a large amount of money should be registered as a business.
4. You'd simply rather do your hobby than your day job or anything else.
Finally, it matters where your heart is. I really liked my full-time job and the people I worked with, but I felt that there was something amazing about the freedom that comes from being an entrepreneur and working from a laptop. I loved the thrill of setting big goals in my side hustle and achieving them. I see now why that's far more worth it than being in a job and having that safety net of a steady paycheck.
If these four indicators ring true for your current situation, I strongly encourage you to devote more of your time and your effort to your hobby. Turn it into a business, file its articles of incorporation, and go all in on scaling it and making it everything you hope it can be. It's been just that for me.