Did you start a blog or create an Instagram or Tik Tok account for fun but all of a sudden discovered that your hobby is generating income? The second your side gig starts generating money, it’s time to start treating it like a legitimate business.

Treat Your Hobby Like A Business

Maybe you didn’t intend for your creative outlet to generate money but now you’re attracting clients, partnering with brands, earning affiliate income, royalties, and more.  This is so, so exciting! But this can also be overwhelming, leaving you scrambling to get your business in order. There are several steps you should take when you’re ready to start treating your hobby like a business.

1. Separate Your Business & Personal Expenses

The first thing you should do to legitimize your business is to separate your business and personal expenses. Comingling your income and expenses gets hard to track and keep organized. You need to keep things separated now so that when tax time rolls around, you won’t have to go back through thousands of transactions in your personal account to pull out your business items. Do yourself a favor and set good practices from the beginning!

2. Keep Track of Your Finances

Not only should you have a separate bank account for your business, but it is important to keep track of your business finances. This means either using a spreadsheet, accounting software, or hiring a bookkeeper to keep track of your income and expenses. Not only do you need this information to file your taxes but you need it in order to be the CFO of your business. You cannot make good business decisions when you have no idea where and how you’re spending money. How can you make accurate decisions on expenses such as: advertising, or hiring help and knowing how much you can afford to pay your assistant if you don’t know your numbers? Practicing consistent financial record-keeping from the beginning will save you so many headaches down the road.

3. Get an EIN Number from the IRS

EIN stands for Employer Identification Number. You need this for three important reasons:

1. To protect your identity— an EIN is basically a social security number for your business. When you sign contract deals for over $600, companies will send you a W-9 which collects your information like business name, address, and Taxpayer Identification Number (TIN). Your TIN can either be your social security number or EIN. You don’t want to be sending out your social security number (each time you use your SSN you are at increased risk for identity theft) so this is why I strongly recommend getting an EIN to replace using your social security number. BTW in case you’re wondering why they ask you to fill out a W-9, it is so they can send you a 1099 at the end of the year reporting your income.

2. To open a business bank account— in order to open a business bank account you’ll need an EIN.

3. Hiring Employees: If you ever want to hire employees you need to register your business with an EIN.

And luckily for you, it is so easy to do! It takes 10 minutes and it is FREE! Visit the link here which will take you to the IRS’s website to get started.

4. Make Sure You Have a Contract in Place

If you’re a business that provides services like photography social media manager, virtual assistant, business coach, etc, it is crucial that you have a contract in place. Not only does this protect you from liability, but it also lays out to the client what is expected of them and what they’re receiving in return. I am not a lawyer/attorney but I love The Legal Paige for all things contract!

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It is such an exciting time to watch your hobby grow into a business! Setting good practices and systems from the start is so much easier than going back in time and trying to get things organized and set up retroactively. Your future self will thank you for doing this properly from the start! If you need help with bookkeeping for your business, please reach out!