the lovely heather allard from the mogul mom posted this question on facebook a number of weeks ago and i haven’t forgotten it, it has been there festering in the back of my mind. it is such a good question. but do you know the honest answer? do you really know and understand the characteristics of running a business?
to find the answer i have used some information from the australian tax office (i am sure your country’s tax site would have similar information, but i thought this was a pretty good start!) as well as some examples and ideas of my own. do you have more characteristics to add? i’d love to hear from you in the comments.
is the money earned assessable?
- in australia you can earn up to your personal limit of $6000 with your hobby without having to file an income tax claim. so that is a pretty good guide – if you are earning less than the personal threshold amount in your country/state/whatever then you are probably either doing just a bit of work or charging just a small amount for your services, or both. sounds like a hobby to me.
do you have the purpose of profit AND the prospect of profit?
- yes, you might say you have the purpose of profit. but have you really looked at your pricing and finances? have you figured out your true cost of doing business? do you value your work enough to charge what you are worth? are you really serious about making a decent living doing this work?
consider the size, scale and permanency of your activity. is it consistent with other businesses in your industry? will it allow you to make a sustainable profit?
- obviously if you are just starting out your size & scale may not be there. but what are your true intentions here? have you looked at your monthly and yearly profit goals? are they achievable at the prices you have set? can you do the work required, in the time you have available, at the prices you have set to meet your financial goals? can you do this activity long-term?
is there repetition and regularity to your activity?
- do you have consistent work to do each day, week, month, and year? is your work schedule regular, predictable and reliable? or are you doing bits and pieces here or there, whenever you have extra time or when work comes your way?
is the way you operate your biz consistent with industry norms or similar businesses?
- i will give you an example in photography. if you are charging peanuts for your session fee & giving clients the digital files, that is NOT consistent with industry norms. this might be fine for those practicing or portfolio building, but that is a hobby. not a biz. so have a real, honest look at what other similar businesses are doing. if you are undercutting prices to get clients, and undervaluing the products and services offered in the industry, then the answer here is no.
is your activity carried on in a business-like manner?
this is indicated by business records, books of accounting, separate bank account, licences, qualifications, registered business names.
- this is pretty self explanatory. if you do not have a registered business name, a formal accounting service, a separate bank account for your biz, or the licences and qualifications standard in your industry, you are running a hobby.
i am going to add a few other items to the ‘business-like manner’
do you have a professional brand?
- if you have a self-designed or clip art logo, an email address that is not dedicated to your biz, a name that you have not registered or purchased a domain for, a business card that looks like you printed it yourself while the ink was running out, or an otherwise overall ‘look’ that screams ‘homemade’, ‘amature’ or ‘inconsistent’ then the brand you have already started creating for yourself is not professional; it does not say ‘yes, i am a real business.’
do you have a place to do business?
- do you have a brick & mortar storefront? a website with your biz domain name? are you selling your stuff consistently at markets or in shops? do you have an ecommerce store on a site such as etsy, madeit or ebay? if your only spot for doing biz is on facebook, that still screams hobby. but if you have a link on that page to show that you have a ‘shop’ at some other location then people will take you more seriously as a biz.
do you undertake regular business promoting activities such as marketing, advertising, PR?
- does your biz exists solely on word of mouth? have you undertaken specific actions (paid for or otherwise) to promote your biz widely, beyond your group of family or friends? do you have a plan for marketing, promoting or advertising your biz?
please note: this is not a judgement or a criticism of your biz. for 2 years i purposely ran my ‘biz’ as a hobby. i did NOT want to make more than my personal limit for taxes. i wanted room to learn my craft and figure out the industry. i also did not know if i would like doing my work as a business; i had no idea if it was going to pan out or not. and i have no regrets about doing things as a hobby first.
but i did get to the point where i was ready to have a real business. 2010 was my year for building a business out of the hobby that i honed and developed. and if you are serious about having a business then i want 2011 to be the year i help you build your little biz. a real biz, based on the characteristics above.
so be really honest with yourself here. are you running a hobby or a business? if the answer is hobby and you are comfortable with that, then all the power to you. (but please don’t get pissy if i disagree with your comments or remind you that my advice about biz doesn’t necessarily apply to you. my posts here are for people who want to build a business. that might be you one day!)
but if you are serious about building a business then have a closer look at that list. which of those areas do you need to work on to really run a business? what is one action you can do this week that will take you one step out of your hobby comfort-zone and into the realm of doing business?
add your planned action to the comments below, i will help you be accountable for taking that step!
do you know someone who can benefit from this list of characteristics of a business? please retweet, share this post on facebook or forward it by email.