As the gig economy flourishes, people are finding ways to make extra income. If you’re not interested in ride sharing or renting your home, don’t fret; the gig economy includes freelancers, independent contractors, and creative types. In fact, the popularity and success of Etsy alone prove that transforming your hobby into a business can be lucrative. If you are thinking about starting a business based on your favorite activity, our tips will help you.

1. Determine Whether Your Hobby is Sustainable as a Business Venture

Just because you enjoy your hobby, don't assume it will become a profitable business. Keep in mind that trends and fads come and go, but you need your business to succeed in the long-term to protect your financial health. You also need to be aware that the IRS expects you to report income from hobbies on your tax return. There are various rules for reporting income and expenses based on whether the activity is a business or a hobby. Typically, if you expect to make a profit, then you are starting a business.

The best way to get started is to see whether there is a market for your services or products. For example, if you love to bake, you should take your sweet treats to a few local farmers’ markets or craft fairs. If you meet your sales goals, then you likely will have a successful bakery. Similarly, if you make handmade items, share them on social media and see whether people are willing to purchase them. Once your business takes off, create an Etsy store or website linked to an online store to start selling.

2. You Need to Establish Your Business Correctly from the Start

Because your income affects your taxes and finances, you need to get up and running correctly from the start. Work with a lawyer and an accountant to set up your business and taxes correctly early in the process. For example, you should create a limited liability company (LLC) to protect your personal assets from the business.

There are several other benefits of creating an LLC. For instance, you save on the initial costs of creating a C-corporation or S-corporation. You also have more flexible business rules and less paperwork with an LLC, and you’ll enjoy the relaxed requirements for compliance and the fact that you won’t be personally liable for debts incurred by your LLC. On the other hand, there are a few disadvantages of starting an LLC, including paying self-employment taxes and being limited in your growth potential because you cannot offer stock options to any shareholders.

Another aspect of establishing your business correctly includes keeping separate personal and business accounts. Even if you establish a sole proprietor LLC, you need separate business and personal assets to ensure your personal liability is limited should anyone come after your business. According to Investor Junkie, separate accounts simplify your taxes and help you track your business expenses, deductions, and income more easily.

3. Spend Money Wisely

It’s easy to get caught up in the excitement of transforming your hobby into a business and being your own boss. However, you need to spend money wisely so you don’t drain your personal accounts or put your new business so far in the red that you are out of business before you know it. Creating separate accounts is the first step toward spending money wisely and in an organized fashion. The second is choosing the best business credit card for your needs. There are hundreds available, so take your time to do proper research before making a decision. Your research could start with a comprehensive guide like Fundera’s, which breaks down business credit cards by category and provides a summary of fees and incentives for each.

You also need to stick to your business plan and manage expenses, according to Entrepreneur. Try running your business from home, at least in the beginning, to save on overhead. Opt for affordable accounting software to track expenses and assets yourself. Use social media and free website builders to market your business affordably.

You can transform your hobby into a business and make extra income. Begin by testing the market to determine whether your services or products appeal to people. Then, establish your business correctly and create separate business and personal accounts to ensure you spend wisely.

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