Some people want to keep their hobbies as just that, hobbies; with no added pressure to make money or be successful at them. There is absolutely nothing wrong with that. Many people, however, want to take their creative passion to the next level and turn it into a hobby that makes money. If this is you, read on because I’m going to give you the technical steps to start your own creative business today and turn your passion into a hobby that makes money.
Why Start Your Own Creative Business
There are many reasons someone might want to turn their passion into a hobby that makes money. My initial reason for starting an art business was so that I could write off my art supplies on my yearly tax return. I was going to buy them anyway, and sometimes I spent quite a bit of money on them. Why not get some of that money back at the end of the year?
The next reason was that after years of practicing art for the relaxation and fun of it, I had accumulated a large collection of art pieces (some good, some… eh… not so good). I didn’t want to throw them away, and I didn’t want to hand my clutter off to my friends who may or may not have had a place to put my artworks.
Not that there is anything wrong with giving artwork to friends and family, but I usually paint my gifted art specifically for the person I gift it to. To me, giving my practice art away felt more like the adult equivalent of my kids asking me to put their drawings up on the fridge. It’s cute when my 6-year-old does it. Not so cute when you’re 35.
So, I decided to put my work up for sale in various forms and see what would happen. So, for these reasons, I needed to start a legitimate business for my art practice.
Your Creative Passion
Those were my biggest reasons. I wanted to write off my supplies, and I wanted to sell my work. But there are plenty of other reasons someone may want to turn their passion into a side hustle.
Perhaps you could use some extra income. The best place to find a good side hustle is in a hobby you already love and have been growing in. Perhaps there is a gap in the market for what you can make and you know people need it. Whatever your reason, you have come to the right place.
Also, don’t forget to download my FREE Checklist on Starting Your Creative Business in 2021 to help you get started on your creative business path!
The SBA and other government websites give several steps to creating a new business including doing market research and creating a business plan. But as a practicing creative, I didn’t start with either of those things.
In fact, I have started several businesses in my life, including a successful martial arts school that I still run with my husband, and I did not use the SBA’s steps for any of them. So, do you need to worry about all of that? My opinion is that unless you are starting a large, expensive corporation, your path to entrepreneurship can be far less complicated.
As an artist, market research is what you will do at the beginning of your business journey, anyway. Some research will be helpful, but don’t get bogged down in this step at the beginning. At this stage of your journey, you don’t need to get stuck in analysis paralysis. Market research will come. For now, just get the ball rolling.
Your Creative Business Plan
As for a business plan, it is important to have a plan for your business, but a formal business plan is often unnecessary. If your business will someday require you to get a loan or pitch to investors, you might need a business plan.
However, most creative entrepreneurs don’t need a lot of capital to get started with selling their wares. Many small businesses can skip the formal business plan and write out a simple creative plan instead. For more information, check out my blog post on Planning A Creative Business.
So what will you need to get yourself started? As an artist, musician or other creative individual who wants to start your own creative business, the process is simple. You may have even sold a few art pieces or services already. However, there are a few technical steps that you should complete before you start selling products or services.
You CAN take your creative dreams to the next level and set yourself up as a serious business owner. To do this, you will need to set up your DBA, business entity, and bank account. Today we will go over each of these technical steps so you can turn your passion into a hobby that makes money and get your creative business up and running properly.
Get A DBA
What is a DBA?
Before you can file any official paperwork, you need to decide on the name of your new business. It’s a good idea to come up with a few options in case the name you choose has already been taken in your state. Then, for most small businesses in the United States, the very first document you will need is a DBA or “Doing Business As” license.
These licenses reserve the name of your business in the state or county that you will do business in and allow you to conduct business under a fictitious or “trade” name. Examples of good DBA names would be “Dreamers Den Artwork” or “Melodious Music”. (I made these up. I do not know if these names are taken or represent real businesses.)
If you want your business to include your personal name, you may not need a DBA in your state. An example of this would be “Angie Smith’s Art”. (Again, this is a made-up example) If you are unsure, check with your state office to verify the requirements for business owners in your area.
Where Can I Get One?
I found a handy web post that gives a quick description of the different state requirements and links to those state websites here: Digital.com – Want To File A DBA In The USA?
You can also call your county business office and ask them directly. In my state, I had to go down to the local county courthouse and purchase a DBA for $25. I recommend doing this yourself when you are first starting your business rather than hiring someone else to do it. It’s a simple process, but most professionals will charge an extra fee to do it for you.
Once you have your DBA license, you are technically a business. Congratulations!!
In most states, even if you do nothing else, you will still have the legal right to hold business transactions. However, I recommend that you move on to the next steps in this process. They will set you up for success in your business from the beginning.
Get A Business License
Depending on which state you start your creative business in, you may need a business license. Some states do not require this step and allow you to continue your business with just a DBA. However, other states require licenses and permits in order to conduct business, make sales, and even do business out of your home.
Make sure you check with your state, county and city offices to make sure you are getting all the licenses that are needed to do business in your area. I found a handy website that will help you find the resources that are required for each state here: Nerd Wallet – How to Get A Business License.
Choose Your Business Entity
Once you start your own creative business, the IRS and State Comptroller will require you to report your business activity at least once per year. Your business entity will determine the taxes you must pay on your sales and income.
There are several kinds of business entities, each with different fees and benefits. The two that most artists and creatives choose between are Sole Proprietorship and Limited Liability Company. What is the difference?
A Sole Proprietorship is the simplest kind of business entity to have and the least expensive to set up. It means that one person will run the business and that individual handles all business income and taxes.
A Sole Proprietorship means that all business assets and debts also belong to the owner. You can usually claim your income from your Sole Proprietorship on your personal tax return each year.
Limited Liability Company
A Limited Liability Company, or LLC, is a little more complex. An LLC is a legally separate entity from the owner. This means that all the assets and debts of the company are also separate.
This set up offers a certain amount of legal protection in the event of a legal dispute. However, the process to set up an LLC is a bit more complicated and more expensive than a Sole Proprietorship.
How To Choose
When you are choosing your business entity, think about all the things you will want your business to do for you now and in the future. If you just want your business to sell your creative wares, then a Sole Proprietorship will probably be just fine for you.
However, if you intend to one day have employees and head extensive projects involving lots of people, an LLC may be the better choice. An LLC will offer you a higher level of legal protection for yourself and your family in case something goes wrong.
Either way, it is much easier to start with the correct entity from the beginning than to change your mind after you have already established your business.
Make sure you have fully considered both options. If you would like further reading on the pros and cons between the two types of entities, let me know in the comments and I can delve deeper into this topic in a later post.
File Your Paperwork
Once you have decided on your business entity, you will need to file your entity paperwork. If you choose to open a Sole Proprietorship, you will not need to file entity paperwork with your state unless you expect to bring in large sums of money in the first year.
Employer Identification Number
I do, however, advise you to apply for your Employer Identification Number, or EIN, with the IRS. Your EIN, also known as your taxpayer identification number, identifies you as a business.
You will need to provide this number anytime you file taxes, apply for a business loan, or request wholesale pricing on supplies and equipment.
As a Sole Proprietor, you have the option to skip this step and use your Social Security Number instead of an EIN. However, I advise against this because it leaves you more open to identity theft and will make it harder to prove you are a legitimate business when you open business accounts with banks and supply companies.
Paperwork for an LLC
If you choose to start an LLC, there are a few more steps involved. In addition to applying for your EIN, you will also need to file your Articles of Organization with your state and create an Operating Agreement.
Whereas a Sole Proprietorship is pretty easy to start on your own, I recommend hiring a professional business attorney to help you set up your LLC. Yes, it will be a little more expensive to do it this way, but a professional will make sure that everything is filed correctly from the start which could save you a great deal of money in the future.
Open Your Business Bank Account
Now that you have your entity paperwork, you will need to open your business bank account. When you have a hobby that makes money, you need a place to put that money.
I have met several small business owners who have chosen to use their personal bank account for business transactions.
I beg you… DO NOT do this!!
Why You Need A Separate Account
When it comes time to file your taxes at the end of the year, it will be a nightmare to try to sift through all of your bank records and separate the business expenses from the personal expenses.
Plus, if you make mistakes at this step you may send up a red flag that could cause the IRS to order an audit. Not to mention the IRS or State office may charge you fees and penalties until you completely resolve the issue.
It is always a good idea to keep your personal transactions and business transactions in two separate accounts. Your tax professional will thank you.
Find the Right Bank
Before you open your business account, I encourage you to check out several banks in your area and look at their business banking practices.
Business bank accounts usually have different requirements than personal accounts. Some banks will charge you a monthly fee, while others may waive those fees if you meet certain requirements. Certain accounts may also give you rewards for specific types of purchases and will offer easy online banking.
You should look at each bank’s policies and find the one that will be the most beneficial for your creative business needs.
Once you have chosen the bank that is right for you, you will need to bring in your DBA, your EIN and any other paperwork that the bank requires to set up your account.
I encourage you to open both a checking account and a savings account under your business name. Your checking account will be for business transactions and your savings will be there for you to put back a percentage of each sale to pay for your taxes at the end of the year.
Turning your passion into a hobby that makes money does not have to be a complicated or confusing endeavor.
These are the technical steps you will have to follow to start your own creative business: Get your DBA, file for local and federal business licenses, set up your business entity, and get your business bank account.
Now you are ready to get started! Don’t forget to download your FREE PDF Checklist for Starting a Creative Business in 2021. Best of luck to you on your business journey!
If you would like more information on the process of starting a creative business, let me know in the comments. Also, join the Madly Mused newsletter and keep an eye out for our exclusive Professional Membership as soon as it becomes available.