So what separates a hobby from a legitimate business? Well not much. In the eyes of the ATO that is. The side hustle making a profit of $10k per year is classified the same as a full-time business owner making $75k a year. As soon as you start making any money or have the intent to make any, you’re officially a business owner and need to get setup with a shiny ABN – Australian Business Number.
The big decider isn’t actually about money, it’s about your mindset and focus. Today I’m delving into the indicators that distinguish hobby-driven ventures from thriving profit-generating businesses.
First up let’s take a peak at the technical differences,
Not in business (hobby)
- One off transactions, not repeating the same sales
- You don’t seek profit
- Intend to repeat transactions
- Price to make a profit (as opposed to simply covering costs)
So you might think you’re running a *hobby*, chances are though, you’re not. And you need to get onto doing things the right way STAT! While you’re at it, here’s my handy New Biz Checklist to get you on track! Because the size or volume of your transactions are irrelevant, it’s the intent and focus of what you’re doing.
Let’s break that down some more, on how you can flip your mindset and get laser focused, to make your side hustle everything you dream of. Read on my friend!
Proactive vs Reactive
The proactive business owner anticipates and prepares while the reactive waits and responds. This mindset is woven through the fabric of every move you make in your business.
Here are some signs you’re running a business:
- You have a clear vision for your business AND a plan to achieve it
- You focus on sustainable growth
- You have systems in place to support your business operations
- You’re passionate about what you do and you’re motivated to keep going
If you can answer yes to most of these questions, then it’s time to take your hobby to the next step and build a legitimate business.
Functional vs Flippant
The way you do business is about more than dotting the i’s and crossing the t’s. The true value lies in your mindset and sense of self-worth. Treating your business as a business from the get-go demonstrates your passion.
Here are the signs your business is a functional one:
- You have a separate business bank account for accurate record-keeping and reporting
- You have a registered business name, ABN and relevant memberships to operate
- You have a solid strategy and market your business consistently
- You have invested in business software for accuracy and efficiency
- You have set hours of operation and firm boundaries in place
If you’ve ticked those boxes, congratulations! You’ve got yourself a business.
Saver vs Spender
Smart business owners understand the importance of being prepared for the unexpected. They know that when tough times hit, having a financial reserve can make all the difference in keeping their business afloat. It’s the difference between being a true entrepreneur and a mere wantrepreneur.
If you want to ensure your business stands strong, make saving a top priority. If you’ve got a set-up that looks a little something like this, you’re a legitimate business!
- Tax Savings Account: Allocate 30% of your income each month to a dedicated tax savings account. This ensures you’re prepared when tax season rolls around, preventing any last-minute scrambling or financial strain.
- Emergency Savings Account: Set aside approximately 10% of your income in an emergency savings account. This reserve provides a safety net for dramas and gives you peace of mind and the ability to tackle challenges head-on.
- Expenses Account: Establish an expenses account where you set aside money for your monthly obligations. By having this dedicated account, you can easily cover your business expenses without worrying about dipping into other reserves or personal money.
If you’ve read this whole piece only to discover you are more of a hobbyist, that’s a-ok! Despite what all the business gurus say, you are allowed to create for fun.
For business owners who want to grow their operation, remember it’s all about mindset and focus. Believing you can do it is FAR more important than simply having the skills to do it.