Do You Have a Business or a Hobby?

You’ve got an idea. You’ve scribbled it on a napkin, dreamed about it in the shower, and told your best friend. But is it a business… or just a hobby?

Before you go setup your  LLC or go to the bank for a business loan, ask yourself the real questions. What exactly am I selling? Who am I selling to? How will I deliver it?

Real businesses solve real problems, for real people, at a price they’re willing to pay. Just because people lover your idea doesn’t mean they are willing to pay for it. I’m amazed at how many people say, “but, everyone loves it!” when talking about their business idea, yet nobody is buying. Make sure there is a market for it and you can charge an appropriate amount to make it make sense.

Take the time to validate your idea. Get specific. Will you sell one product or ten? Will you offer customized options? Will you have a recurring services model? Or, will you be selling a one-time purchase? Who is your ideal customer? Can you describe them in detail?

If you can’t figure out how you’ll make money with your great idea, then it might just be a hobby. I enjoy gardening. I like being outside, I like seeing the fruit of my labor. And, yes, I could sell my goods at the Farmer’s Market. But, is it a viable business for me? No. My garden isn’t big enough to produce the quantities I would need to sell enough volume to make it worth the 4 hours at the Farmers Market every weekend. I don’t live in an area where I can grow things year-round, without some serious greenhouses and equipment. So, for me, gardening is just a hobby. But, for others, it can be a viable business. If you’ve got enough land, or you’re combining your fresh produce with a larger farming operation, or you’re just trying to generate enough revenue to provide some additional secondary income, gardening might be a viable business.

Now that you’ve considered your idea – is it a business or a hobby?

Side note: even if you determine your “business” is really a “hobby”, you still have to report any income that you make on the endeavor. You may also be required to charge sales tax. So, be careful. Simply declaring that you have a hobby instead of a business doesn’t make it so in the eyes of the IRS or the Department of Revenue.