Business or Hobby – Which Do You Have?
Are you operating a business or are you enjoying a hobby? It is up to you to decide if you running a business or if you are indulging a hobby. I’m not just referring to the IRS definition of hobby versus business. The IRS has a fairly straightforward litmus tests for determining whether or not you have a business. No, I am referring to how seriously you treat your business.
There are certain activities that you should be engaged in to insure that your business will be successful as a business and not straddle the fence between hobby and business. Usually hobbies are taken up because there is an interest and a passion for the activity and, in truth, most people get some kind of enjoyment from and have a passion for their business, too. In fact, many entrepreneurs start their business from the passion they had for a hobby. Their hobby – their passion – allowed them to see that there was a need and even a demand for their product. Not a bad premise for a business. However, IRS aside, there are a few things you should be doing in order to succeed at your business.
To increase the odds of your business success and to ensure that your endeavor is not viewed as hobby, a few items are listed here. Some of them pertain to the IRS definition of business and, of course, you should always consult your tax accountant for advice. Others items are generally viewed as best practices for achieving success in your business. Consider your answer to the following questions to help determine whether you have a business or hobby:
Do you have a business plan that you could take to a bank or other funding source to seek additional revenue?
Do you have a business strategic plan that clearly outlines your goals (especially your monetary goals) and how you intend to reach them?
Do you spend money on marketing and advertising?
Do you invest in continued education?
Do you have insurance for your business?
Do you keep accurate and detailed records of expenses, travel, etc.?
Can you access the services of a lawyer or a tax accountant?
Do you have a clear vision of what success looks like?
Do you make changes if you see that the current way of doing business is not yielding the results you were anticipating?
Do you seek the expertise of outside sources if you need additional assistance to get your product or services out?
These are just a few of the questions to ask yourself in order to determine whether you are truly taking your enterprise seriously or whether you are just engaged in a hobby. If you are lacking in any of the criteria, ask yourself why you and if there is there anything you can do about it. Adopt as many of the activities in the questions as you can.
Nearly everyone wants to succeed whether it’s with a business or a hobby, however, you should be very clear about how you view and classify your endeavor. That will play a major part in determining your success. If it’s a hobby, no problem. Have fun with it! If it’s a business, you can enjoy it, too, but most of all, make a profit!