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