Is it a business or just a hobby?

There is a simple way to answer this question – with a question.

Are you making any money? If the answer is yes, meaning you are making enough to pay off your business investments or loans (for me: pens, paper, camera, computer, internet service, website, domain name, phone, postage, other materials), then it sure sounds like a business and congrats.

If the answer is no, then we need another question – Do you plan on working hard enough to make money or are you happy with the way things are?

One example is model railroading – model railroading for most folks is a hobby. You can buy, trade and sell trains, but if you are always creating new models, new scenes, and new bridges, you aren’t making money or breaking even. You are doing something you enjoy, something that relaxes you – a hobby.

It’s difficult to make money on model railroading. For a choice few, however, it has become a business. They have worked hard, opened a shop, found suppliers and decided on a mark up percentage that pays the bills (electric, lease, employees, insurance, supplies). They also offer services that are unique, such as hand-made snowplows for engines or repairs for engines, cars, cabooses and tracks. They have enough money at the end of the quarter to reinvest in their business and pay off bills. That’s a business.

Another example is the writer. I have met writers that confuse business and pleasure as far as their bottom line is concerned. They self-publish books and sell them, which feels like a business as the money is coming in. But they forget the time involved in writing the book, more time in editing the book, the expense of getting the book published, gas to pick up the books, time and effort to set up and attend the book signings and writer get-togethers, cost of an effective website to get a larger audience, cost of sending off books to customers. Their time is worth something and they are spending a lot of it. They are also spending money, more than the book is bringing in. Most writers I know that have self-published have spent more than they have made – that’s a hobby.

I consider myself a business. This keeps me honest (and working harder). I write for the newspaper (among lots of other duties) and get a regular paycheck. I pay my household bills and set a little aside to invest in my business (no loans for me if I can help it (that two-year credit card bill for my camera is enough for me). I do stringing on the side and try to wriggle my way into new markets, I edit for and advise other writers, I give the occasional talk or workshop, and write completely new material whenever possible with a view to sell. After years of saving and working (and being laid off twice) I was able to save enough to buy materials for writing, office supplies, a laptop and a domain name.

My business may not seem like a business to some, since it isn’t completely freelance and I depend on that regular paycheck to continue to do what I do (i.e. I haven’t given up my day job), but it works for me and I haven’t lost the farm. I would love to be completely freelance, and with hard work and (especially) determination, I think I’ll get there.

So, what do you think? Are you making money? Are you willing to work hard until you are making money (and then work even harder)? Are you a business or a hobby?

[Admin's note:  The test that the IRS uses to determine if your venture is classified as a business or a hobby is fairly simple:   What is your intent?  If your intent is to make money, then the IRS considers it a business.  Please check with your accountant if you aren't sure which category you fall under.]

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