The Difference Between a Hobby and a Business

Many entrepreneurs end up as small business owners because they loved doing something and they realized they could make money doing it, but making money off something isn’t enough to qualify it as a business. Nor does it have to be your main source of income in order to be considered a business. If you have a day job and a side hustle that’s making you money, that side hustle can still be considered a business… if you treat it like a business. The question is where is the line that determines when a hobby stops being a hobby and starts being a business?

Are You Making a Profit?

I started out by saying it’s not all about the money, but money is a factor in determining whether you’ve gone from a hobby to a business. For example, let’s say you’re making jewelry that you sell online. If you’re selling them at such a low price point that you’re just breaking even after buying supplies, then it’s still a hobby and not a business. If, on the other hand, you’re selling them to make a profit, and you’re actively trying to make a profit, then you’re in business.

That’s not to say you can’t suffer a loss as a business and still be a business. Most businesses don’t make a profit for the first two years, and even after that, there are things outside of your control that can affect your income, the current pandemic being just one recent example. But as long as you’re actively trying to make a profit from your business, and you adjust the way you do things during lean times to try to make a profit, then it’s no longer a hobby.

The IRS has specific requirements businesses need to meet in order to be considered a business, so be sure to consult with your tax professional to make sure you’re meeting all those requirements before tax time comes around.

Incorporating

Incorporating your business is one of the best ways to demonstrate how serious you are. Even if you’re not working on your business full time and it’s not your main source of income, incorporating is a way to show you’re serious about growing it into a viable business. It’s also a way to protect your personal assets if something goes wrong in your business and you become liable for losses and/or damages.

Branding

Branding your business is another way to demonstrate you’re serious about it. While your name can certainly be an important part of your business, branding involves using more than just your name. It involves a logo with recognizable colors and a recognizable font that you consistently use in every aspect of your business, from your invoices to your social media profiles.

​Hiring a business coach is also a great way to demonstrate you’re serious about your business. If you want to see how a coach can help take your hobby to a business, reach out now to schedule a free clarity call to get started.