‘It’s just a hobby business, I don’t really need to make a profit…’
Believe it or not, I hear this sort of statement, with small variations, quite often. In fact, probably more often than I would like to, which is why I’m writing this post.
Can you spot a contradiction here?
A business is an activity generating revenue and hopefully making a profit (it’s in trouble if it doesn’t).
A hobby is something that we usually keep spending money on but don’t expect to make a return.
A business should make you money!
A business makes products or provides services and gets paid for it. A decent business generates more revenue than it costs to offer these things to the public.
A business either makes a profit or a loss. OK, strictly speaking it can also just break even, but let’s focus on the two most likely scenarios. If a business makes a profit, all is good. If it makes a loss over a long period, it becomes non-viable and closes down. That’s the end of it.
Anyone running a business needs to register it, comply with regulations, file the financial statements, report the revenues to the tax authorities and pay taxes when due.
A hobby is a drain on your pocket…
A hobby is something done purely for pleasure. It can be done for free but often involves spending money. Whether it’s photography, oriental cookery classes, mountain biking – people can easily spend huge amounts of hard-earned cash on doing something they simply enjoy.
We don’t need to inform anyone about the fact we have a hobby. There are no rules and regulations involved, unless we join a club of some sort and have to abide by their rules.
In my mind, there is no such thing as a ‘hobby business’. There is a huge difference between having a business and having a hobby so it can only be either one or the other.
Running a profitable business is great. Having an enjoyable hobby is fantastic. The important thing is to make sure we’re clear about which one it is that we have. Confusion between the two can easily lead to financial difficulties and that’s not where anyone would want to end up.