This is the third part in series of articles about why converting your hobby into a business is great idea.
You can read Part 1 of converting hobby into business and Part 2 of converting hobby into business.
It is indeed a great idea to take what you love to do most and convert it into a business. However, any series on starting your business is not complete about the risks that come along with it.
A business is after all a business no matter which way you approach and how much you are passionate about. Converting your hobby to a business is prone to all challenges that any other business is. Let us take a look at how your hobby business can have similar challenges to any other business
- Like any other business, your business is also prone to business cycle
- Small scale makes it difficult to expand business
- Less likely to be funded from outside
- Lack of expertise in other areas may harm business
- Cash flows and profitability needs to be managed
- Costs if not managed correctly can escalate fast
- Difficult to manage once business expands
Business cycle, the demand supply equation affects even large sized business. If your product is seasonal, then it might suffer from cycles in your business area. For e.g. if you create a product based on mangoes, chances are you will have sales only in summer when mangoes come to market in their best condition. Or if you run dance classes for kids, they might be able to attend only when there is a holiday at school.
There is not much difference in how a business cycle impacts small business to the way it impacts large business
See the study here
If you are only one person you will find it very difficult to run your business and also do the other necessary activities like paying bills, taxes, management of resources, networking, marketing etc. It does get overwhelming at times and you might feel burnt out when you have to do everything.
In US around 6 millions small firms are facing cash flow problems and have difficulty raising cash.
A small business till it achieves some scale probably will not be funded by banks or venture capitalists. Since it is small in nature, profits are not very high which means it will have difficulty attracting funds from external sources
A business needs multi dimensional activities and different skill sets. You need to learn about government related formalities, learn about advertising and marketing, networking and many other things. If you hire external agencies, you might have to pay for additional costs. If you are not familiar with certain aspect of running your business, it may harm your business. For e.g. not following proper tax laws can lead you into trouble.
Any business, profit or non profit, large or small needs to manage the cash flow effectively. In the starting phases , you will see only money outflow and very less inflow. You need to know how will you survive until you have the sales to fund your business.
A worrying number of small businesses believe they do not have enough cash reserves to survive another economic downturn
See the study here
Most of the times, while calculating costs for running a business, we tend to not include (sometimes forget) expenses that can swell to a high proportions. It can throw the whole budget into chaos and turn your business into non-profitable. Sometimes, incorrectly assumed costs can inflate to ruin your business plans
There will be inflection points when you need your business to expand. At that time you will need employees to help you out. From that time, probably you will have to drop your hobby or teach it to others so that you can concentrate on other important business activities. You may however not enjoy this new role a lot and would like to work on your core business areas. It is tough and challenging to manage your business at those times.