Are you in business or just passing the time with a hobby that happens to earn you some nice extra cash? Is there a difference? How can you tell when you've crossed the line? Why is it important to know?
It is important to know the difference between a hobby and a business for several reasons. First off, if you are making money with your hobby you could be doing better by growing it into a full-fledged, dedicated and focused business. You could be doing more of what you like and earning enough money to support yourself. But there are also more serious issues at hand. If you think your business is just a hobby, and your government disagrees and thinks you are in business, you could be ignoring some very important responsibilities. Let's take a look at the difference between a hobby and a business and talk about how you can find out more to decide which you are in.
Hobby Or Business?
By definition a hobby is something that you do for pleasure and relaxation, a regular activity that you do because you like it. A business on the other hand is a line of work, or a company or organization. Often people who have a hobby and somehow end up making money with it will think that they are in business. But talent alone does not make a profitable business. A business is much more involved than a hobby.
There are two basic defining lines between businesses and hobbies. They are, legal and organization. And you should be aware that even if you don't consider what you do to be a business, some authorities and tax agencies might.
Getting It Right Legally
From the perspective of the government, your level of income and/or time in a business is what normally determines which category your activity falls under. For some, there may be more defining terms as well, such as legal partnerships and corporations. In any case, you will need to be clear about what your legal status is so that you know what your legal responsibilities are.
Status and responsibilities will vary depending on where you live and do business. Start off by contacting the taxation agency for your country, or researching on their website. There, you should be able to learn whether you need to file any legal documents, and/or how to claim income. Another good resource for this type of information is your accountant or a tax attorney.
Planning To Succeed
Real businesses are not haphazard, leaving their success to circumstance; they are planned and organized entities. It is true that not all businesses organize themselves well, but if you are thinking about turning a hobby into a business then you need to make some fundamental decisions and plan the business accordingly. You will have to do more than find time to enjoy your hobby; you will have to see to all aspects of running a business, including marketing, legalities, promotion, selling, record keeping, market research and more.
Success in small business is not only a matter of generating revenue. It is also a matter of planning and research and dedication to develop a sustainable stream of income. To do that, you need to be clear about what your intentions are, as well as what is required of you legally. When you want to do more than have fun with a hobby, you need to take those extra steps to transform your passion into a sustainable business.
By Donna-Marie Coggins