Will It Pay?
Turning your hobby into a profitable business.
Entrepreneur magazine, October 1999
It sounds like a dream: an activity you love so much, you'd do it even if you weren't getting paid. One way to make that dream a reality is to turn your hobby into a business.
But the critical first step is to determine the commercial viability of your hobby. Your friends and family may ooh and ahh over whatever it is you're doing, but when it gets down to the bottom line, will they get out their checkbooks and pay you to do more?
Kenny Burts, 42, learned how to make key lime pies in the mid-1980s because he loved them. Nearly everyone who tasted his pies told Burts he should sell them. But before he started his business, he did research to determine if there was actually a market for key lime pies, how he could best reach that market and what he would need in order to produce a high volume of quality pies. In 1989, he started Key Lime Inc., now located in Smyrna, Georgia, as a part-time venture, making about 100 pies per week; today, the company turns out 1,500 pies a day, with sales to the food service industry expected to hit $2 million this year.
"You have to do your homework and think with your brain as well as your heart," Burts says. "Make sure you've got something people want or need."
Next, determine whether there's enough long-term demand for your product to ensure a profitable business. Burts has exclusively made key lime pies for 10 years, and is only now doing research into expanding his product line to include key lime sorbet.
But key lime pies are a consumable product that people buy again and again. If your hobby is making a product that's a one-time purchase, you aren't likely to last long if that's all you have to offer, says Paul Stiffler, 34, president of Heritage Toys and Collectibles in Sebec, Maine. If you're selling wholesale, you need to understand that retailers can only carry a limited amount of inventory, and that they regularly add new items and remove older ones from their stock.
After Stiffler suffered a serious on-the-job injury in 1987, it took nearly five years for him to recover, during which time he decided he would do something he loved once he was able to work again: woodworking and carving. In 1993, he turned his hobby of "playing around with wood" into a company that manufactures high-end children's wood toys, furniture and accessories. According to Stiffler, one key to his success is his abundance of ideas and ability to constantly develop new items--that way, his retail customers are always coming back to check out new products.
Deciding to turn your hobby into a business is the easy part, says Bob Rock, 48, president of Lone Peak Productions Inc., a video, film and multi-image production facility in Salt Lake City that grew from Rock's interest in photography. With a hobby, you do things when you feel like it--and if you don't feel like working, there are no real consequences. When you're in business, that changes. Customers depend on you. It doesn't matter if you're not in the mood--you must deliver.
"You have to consider sales programs, advertising, purchasing and accounting--and deal with various state and federal entities and taxes. Then there are the cash-flow and capital considerations," Rock says. Before you start, realize you'll spend a great deal of time on tasks other than the hobby you enjoy.
Rock had been working for a camera store, calling on commercial and industrial accounts, when he realized he was selling to people who were doing what he really wanted to do. "[Twenty years later,] I still wake up some days thinking `This is hard,' " he says. But as for the chance to do what he loves and get paid for it, Rock has no doubt it's well worth the effort.
Act Like a Business
One of the biggest pitfalls of taking the hobbyist route to business ownership is failing to make a complete transition from amateur to professional. Start by taking care of the following tasks:
- Open a separate checking account for the business. Your bank account balance is a quick and easy way to see how well you're doing, but you won't have a clear picture unless you're using an account that's strictly for business income and expenses. A separate account under your business's name also helps you appear more professional to suppliers.
- Get a credit card for the business. You may not be able to get the card in the business name right away, but at least have one card exclusively for business expenses. This helps you keep your records in order and--if the card is in the business name--helps you establish business credit.
- Maintain complete and accurate records. Set up a record-keeping system from the start, and discipline yourself to stay up to date. Use bookkeeping and accounting software programs to track income and expenses, and set up a filing system for receipts.
- Document your equipment purchases. If you purchased equipment as part of your hobby and can prove the cost involved, you may be able to deduct those expenses on your tax return after you've formed your company. Talk to your tax advisor for specifics on how to do this.
Take Our Advice
- Be resourceful. This is especially important if you don't have a lot of start-up cash. Look for economical alternatives to get what you need. For example, Key Lime Inc.'s Kenny Burts couldn't afford to build a commercial kitchen (required by health codes), so he worked out a deal to use a friend's delicatessen kitchen during that company's off hours.
- Keep up with technology. "You may think you've bought all your equipment and now you're on Easy Street. Then six months later, your equipment is outdated and your clients are calling for new services that are all technology-based," says Bob Rock of Lone Peak Productions Inc. From the day you buy a piece of equipment, have a plan in mind for its eventual upgrade or replacement.
- Listen to your customers. With a hobby, you only need to satisfy yourself; with a business, you need to satisfy your customers. And your customers will tell you what you need to do to grow. For instance, Paul Stiffler routinely works with his buyers to develop new products for his company, Heritage Toys and Collectibles.
Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, (949) 474-1880, email@example.com
Heritage Toys and Collectibles, (207) 564-3941, http://www.heritagetoys.com
Key Lime Inc., (770) 333-0043
Lone Peak Productions Inc., (801) 521-5567
Jacquelyn Lynn left the corporate world more than 12 years ago and has been writing about business and management from her home office in Winter Park, Florida, ever since.