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Do you have a business or a hobby?

As we “celebrate” Labor Day this year, I feel super-grateful that we have something meaningful to Labor for! It’s a good time to reflect on how we treat our business – do we treat it like a business or a hobby?

Please don’t wait until tax-time to figure out if you have a business or a hobby! The IRS has on the difference between the two and I’ve included some questions to ask yourself as you get your business off the ground:

Hobby: An activity done mainly for recreation or pleasure.

  • Your livelihood is not dependent on the income provided from a hobby.
  • Little attempts are made at increasing profitability

Business: An activity with the purpose of making you a profit.

  1. Are activities carried on in a businesslike manner?
  2. Are complete and accurate books/records maintained?
  3. Are time and effort spent with the intention to make a profit?
  4. Are losses part of the normal startup phase or due to unforeseen circumstances?
  5. Are methods changed/improved with the goal of increasing profitability?
  6. Can you pass on the information needed to others in order to carry on the activity as a successful business? (ie. Is it duplicatable?)
  7. Have you been successful making a profit from a similar business in the past?
  8. Are you generally tracking with the industry averages on generating a profit?

At the end of your first year, envision this:

  • You are a successful business owner
  • Your livelihood is taken care of from the business and you have excess to re-invest
  • You keep track of your expenses
  • You are profitable

Push the hobby mentality aside and see your business thrive!

All the best,