How to Turn Your Side Business into a Small Business

How to Turn Your Side Business into a Small BusinessSmall businesses get better tax breaks than hobbyists, reports the Small Business Administration. As a hobbyist, you must pay tax on any income earned from your activities, but are limited in your deductions. When performing an activity with the intent of making a profit, you are considered “in” business.

Hobbyists, go a little further and become a business-in-fact with all of its tax and legal benefits.

Telltale Signs you are Running a (Real) Business

  • Your garage and/or spare bedroom are so full of supplies and inventory that you can’t park your car or find your way to the window.
  • Your sales have grown, along with your need for supplies and related expenses, and you’re making a name for yourself, your products and/or services (branding).
  • Your supplier tells you that to be able to order in larger quantities and to get price breaks, you’ll need a state tax ID number (obtainable only for registered businesses).

If you’re making money, congratulations — you’re already ahead of many start-ups.

Turning Hobby into “Hobby Lobby”

  • If you haven’t done so by now, create a name that reflects on what you do or sell.
  • Decide whether you want to be a sole proprietor, partnership, LLC or corporation. You should consult with an attorney for advice about how to set up your corporation or partnership, as this will affect your business taxes as well as legal liabilities.
  • Register the business with your state. The regulations and procedures registering vary by region, so check with your local county licensing board or Chamber of Commerce for how to proceed with this.
  • Open up a business checking account and get a business credit card to separate your business from personal expenses. This is an important factor in keeping the local, state and federal tax folks happy. Good rates and deals abound, online and locally, so it pays to shop around for the best business credit cards. Having both a checking account and credit card tied to your business may also give you better purchasing power for supplies, entry into trade shows, increased protection when claiming tax deductions and provide additional proof you are running a business.
  • Once you’re registered and have a name and ID number, a business checking and credit card and legal form of ownership, set up a website, and if applicable, a shopping cart. Many hosting sites offer these for free or at reduced rates, if you can’t afford a professional web developer at this stage.
  • Set up a recurring billing system and payment service to keep track of expenses and incoming payments. Services like Chargify help small businesses organize and manage recurring revenue. Setting up a billing system makes it easier for you to charge for products, issue refunds and keep track of revenue.
  • Let your customers know about your site though a campaign that includes online and offline marketing. Don’t forget to get involved in social media (the modern day word-of-mouth).

Good luck with your “new” business because in today’s marketplace you will need all the help you can get!

Author: Ryan Harrison is a small business marketing consultant based in Phoenix, Arizona who specializes in digital branding and content marketing.