The Home or Hobby Business: An Overview

How to improve your chances of success when starting a home business

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Home business is booming, and so is craft and hobby business. Craft work is a $13 billion dollar industry in the United States, and crafts artisans now average $76,000 in annual sales. Even better, 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 opportunities, 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 obligations require you to have a flexible schedule or 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, Running a Side Business: How to Create a Second Income, by Richard Stim and Lisa Guerin, will help you start off on the right foot.
  • 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 whether you need professional advisors or potential helpers such as contractors or employees. Nolo's How to Write a Business Plan, by Mike McKeever, 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, by Twila Slesnick and John C. Suttle, 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 there industry norms for selling that affect your business (such as returns policies or payment schedules)?
  • 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 Deduct It!, by Stephen Fishman, and Tax Savvy for Small Business, by Frederick W. Daily (Nolo).
  • Get the right setup for your business. If you're not sure what business structure will give you the most advantages, check out Nolo's LLC or Corporation? How to Choose the Right Form for Your Business, by Anthony Mancuso. If you decide to create a partnership, you need Form a Partnership, by Ralph Warner and Denis Clifford (Nolo), 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? For help deciding whether working at home makes sense for you and your type of work, get Nolo's book Work From Home Handbook, by Diana Fitzpatrick and Stephen Fishman. If you decide to rent commercial space, be sure to read Negotiate the Best Lease for Your Business, by Janet Portman and Fred S. Steingold. If you decide to work from home, you can save a lot of money with Home Business Tax Deductions: Keep What You Earn, by Stephen Fishman.
  • 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 certificate). You may also have to get a sales tax permit (often called a seller's permit) from your state. For more information, see the Licenses & Permits for Your Business area of Nolo's website.
  • 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 Trademark: Legal Care for Your Business & Product Name, by Stephen R. Elias, and The Copyright Handbook, by Stephen Fishman (Nolo).

While this list may seem intimidating, don't let it scare you. These are common needs for any business, and Nolo resources can help you with every step on your path to business success.

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