Do You Have a Business or a Hobby?

by marilyn on December 21, 2013

Do you have a business or a hobby?

 

I like this question so I decided to do some research and found some interesting things. First, the definitions:

 

A hobby is a regularly undertaken activity that is done for pleasure, typically, during one’s leisure time.

A business is involved in providing goods and/or services to customers (consumers) or clients. A business owned by multiple individuals may be referred to as a company.

 

The problem is many small business owners get so enthusiastic about their “baby,” they don’t pay attention.

 

The IRS is very specific about the difference, saying taxpayers need to think about the following:

·      Does the time and effort put into the activity indicate an intention to make a profit?

·      Does the taxpayer depend on income from the activity?

·      If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?

·      Has the taxpayer changed methods of operation to improve profitability?

·      Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?

·      Has the taxpayer made a profit in similar activities in the past?

·      Does the activity make a profit in some years?

·      Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

 

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current one (except if you are breeding horses but we won’t go there here.) 

 

If an activity is not for profit, losses from that activity may not be used to offset other income.  I’ve sold some of my paintings but realized quickly that since I don’t do it consistently, I really can’t claim it as a business. My expenses will almost always exceed my expenses. An activity produces a loss when related expenses exceed income.

 

Some hobbies do turn into businesses. (Think Mrs. Fields.) If you create your coaching business only to help people, change the world, make a difference, have fun, because you enjoy the topic, to learn more, to improve your skills, etc., then you have a hobby.

 

And if that is you, then that’s fine. I’m happy to help and I hope you accomplish your goals.

 

 

But…

 

If you created your business for any or all of the reasons above and you want to get PAID and make a living at it, you need to pay attention  to a few simple things:

 

One internet guru we know says,

 

“Wannabe entrepreneurs will find hundreds of excuses to stall and delay.

 

They’ll spend weeks reshooting their “welcome” video dozens of times.

 

They will spend months agonizing over a logo. And even more time on a tagline.

 

But none of that matters until you can answer one, very important question…

 

“Will people buy it?”

 

He’s talking specifically about internet-based businesses but what he says applies to many small business owners I have worked with. The website, the video, the logo and the tagline don’t mean a thing unless you deal with the core issue. Are people are willing to take money out their wallet and BUY your product or service. . . and why will they buy it from YOU?

 

It’s easy to get caught up in all of the things that happen before a “sale” (I put that in quotes because service providers generally don’t like thinking about selling) is made (like relationship building, blogging, social media, etc.).

 

Why do people stall? Why don’t they just get their products out there to see if it resonates with the market?

 

I am a psychologist of sorts and still can get stuck there myself. It might be fear of failure or rejection.  Or being a perfectionist.  Or not embracing abundance (i.e. the belief I can make money. Or maybe it’s all tied together?

 

The bottom line in my mind is to “begin with the end in mind.” Think about how much you want to make, the financial value you want your business to have when it matures and what your exit strategy will be.

 

Then take stock of what might be stopping you from going full out and address it.

Do you need to address some mindset issues? Do you need more skills or

knowledge? More help? A mentor?

 

I always do an annual Best Year Yet® plan to keep my business moving forward.

I invite you to do the same. Click here and sign up for free!

 

It can get frustrating when I see really smart, caring entrepreneurs spinning their wheels and not making it. Don’t be one of them.

 

Best wishes for 2014,

 

Marilyn

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