ARE YOU RUNNING A BUSINESS OR A HOBBY?

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EPISODE 32

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ABOUT THE SHOW

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Are you running a business or a hobby?

It is very easy, particularly in the online space to loose sight of the fact that you are actually running a business. In this episode, I take you through the distinction of a hobby versus a business and what you can do to identify what it is you are actually running, including steps you can implement to set yourself up for business success.

WHAT YOU'LL LEARN

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  • The definition of a business versus a hobby and why they get confused
  • Are you actually making a living from your hobby and is it sustainable?
  • Traps to look for when turning your passion into a business
  • Applying a business-minded approach to your hobby or interest

EPISODE TRANSCRIPT

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You’re on episode thirty-two of the ‘Business Made Easy podcast’. Let’s do this Mia.
Welcome to the Business Made Easy podcast, where we make business easy. I’m Jason Skinner,
your host. And I’m thrilled to be with you for another episode of the podcast for small business
owners who want to grow their business into a big business and are sick of spinning their
wheels and then just want some tips and tricks to help them get along. That’s what we’re all
about. And I am going to help you as best I can to do that, both in the- with the podcast show
and also my free Facebook Community. So if you haven’t joined that yet, be sure to go over
there and do that at businessmadeeasypodcast.com/community, and I will let you in over there
and see you over there. And I’d love to chat with you and hear about your business and what’s
going on.
So whatever you’re doing in your business, I hope it’s going well for you. If you’re new to the
show, I appreciate you taking the time to listen in and thank you for joining us.
Please remember to hit the subscribe button and then I’m going to make sure that you get each
weekly episode as I bring it out. I bring these out on a Friday, so you won’t miss them that way if
you hit that subscribe button. If you are joining me again because you’ve been enjoying the
content and you’re listening to the show, thank you so much. I appreciate you too and I am glad
you are here.
We’ve got a great show today. I am going to talk about the difference between—I guess the
question I want to ask you is,”Are you running a business or are you merely running a hobby or
conducting a hobby? Because it’s a problem that I see a lot in businesses where they’re just
not—and I’m going to share a story in a moment about Jane. But businesses are meant to be set
up as businesses and run as businesses. Not to be set up as a hobby.
(2:01)
Or it could be set up as a hobby, but you really don’t want to be in.
Today I want to go through and give you as many tools and thought processes and tips, etc. to
help you to decide what side of the fence you want to be on. Because they at two totally
distinctively different based. And they really should be treated as one and- I guess why it’s
important? Because really the—the essence of a business is that it’s designed to make you
money. A business is to provide a living for you. And I guess, if we look at the definition of what
an actual business is and we start there, versus what a hobby is, you’ll see why I think it’s
distinctively different. And when I take you through Jane’s story that I’m going to share with
you in a moment, you’ll see as well just the difference that can make to your life.
And I see this happen a lot, particularly in the online space, so we will talk about that in a
moment. But when we’re looking at a hobby, exactly what we are talking about is an activity
that is done in one’s leisure time for pleasure. So if you think about stamp collecting. If you
think about horse riding, they’re all hobbies. If you think about playing soccer on the weekend,
yes, it’s a sport, but it’s a hobby or an interest as well. Now blogging can be a hobby. There’s
absolutely no reason why blogging cannot be a hobby.
Making craft or wooden toys, or whatever it is that you want to do, is a hobby. So that’s why we
want to—that’s why we want to get very, very clear about that. A business on the other hand, is
thought out and structured to make money. It’s a commercial activity. It’s designed and
structured by its very nature to provide the business owners, the shareholders, the
stakeholders with the respective profits and—and rewards for investing and taking risks, and
working hard and implementing.
(4:01)
Now, where the crossover of this happens is where you get both somebody who starts a hobby
or has an interest in something and turns it into a business. Because there’s a fine line there
because we’re going from making something that we’re enjoying on weekend, doing all sorts of
things, and then giving up our full-time job or giving up whatever it is that we’re doing to pursue
this activity full time. And unfortunately, what happens is that most people don’t get out of the
gate in terms of turning it into a business.
So I want to help you today, go through exactly what it is that a business is versus a hobby. And
as I’m going through this exercise or through these examples and I’m sharing this stuff with
you, just think about how that fits with what you’re doing and the way you are conducting your
business. You want to, ask yourself, “Is it a business that I’m conducting here or is it a hobby?”
And it’s very, very– as you’ll see, that it’s very, very easy to get the two muddled up.
Now for today’s story, I want to talk about Jane—Jane’s situation. Jane. I’ve changed her name
to Jane just to protect her innocence and also her affairs. But certainly, this case study is very
real. And Jane was actually making something else other than leather belts. But today we’re
going to use leather belts as the exercise. So I first met– when I first met Jane, she had a
business making leather belts. So when she came to me to– it was actually just to get her tax
return done, really. She didn’t really need any special…or she did, but she wasn’t coming
seeking a particular specialist advice.
But Jane came to me to get her tax return done, and I sat down and looked at her business, and
I said:
(6:00)
“What is it that you do Jane?” And then she said, “Well, I make leather belts and I’ve just got a
passion for making leather belts.” I got talking to her about how she got into making leather
belts. And she just started as a hobby. She just loved making these leather belts and was
happiest when she was punching leather and making belts. That’s what lit her up on a weekend.
And she was making them as all hobbyists do, and selling them—and started selling them at
markets. She thought I made [inaudible] of this and people were showing interest in them. She
thought, “Well, there is a business here, I could make these leather belts.” And you notice there,
she’s had the entrepreneurial moment. She said, “There’s a business there.” So she continued
making those belts and she basically—she set up a bit of an online store and she would make
them and sell them down at the markets. But she had no plan or strategy to I guess, make it into
a commercial activity, more than what it was. But certainly, it didn’t have any view to what sorts
of profits or market what there was for those belts that she was making.
So her gauge for success really was that she had money in the bank at the end of the day. And
she did. She was making some money, and she had enough that if she decided that, she could
just pretty well do that full-time. And that’s what she did. She just gave up the work that she
was doing and ended up just making these belts full time. She’d go to the markets. There was
various markets around her city during the week, so she would go do do those. Set up a stall
and sell the belts, and then she would also sell them online, via her Facebook or various other
digital means that she had.
Now when I got talking to her, and I did her tax return, I said, “Jane, is this really a business?
Like, is this something you love doing? Is this something that you really want to do?” And she
goes,”Yeah, I absolutely love it?” Well my next question was,
(8:00)
“Is it a business Jane, or is it a hobby?” And she couldn’t answer that, because she said,”Well it’s
a business,” because it’s ummm—she did answer it. But she answered it with, “It’s a business.”
“It’s how I make my living.” And I said, “Well, do you know how much money you are actually
make or can make?” “Have you got an idea of the potential that you could make?” I mean, you
could. Clearly, it’s an object that you could, with easy shipping you could ship such an object, a
product like that. It’s not an expensive item to ship. And she said, “Well no I have never really
sat down and thought about that.” And that’s where I came in and worked with Jane.
And we sat down and there was just so many things that what she was doing, just added up
when I went through the things today– that I’m going to go through with you today. She said,
“Well it really is a hobby that I’ve got here, and it is a good paying hobby.” And I said,”Yeah, it is.”
And so we went about organizing her affairs and changing her business, so she actually was the
owner of a business—of a fully functional, profitable business that had focus, and vision and
strategy. And she could– Now where the—where a lot of the problem happens with this is that
quite often the business owner would get so passionate about whatever it is that we’re making,
whether it’s leather belts, or whatever it is that you’re making. We get passionate about it and
we love doing it. And so the idea of giving that up to run a business, you know, it’s not so—it’s
not so appealing.
And it’s the same with blogging. I meet bloggers and people doing online business and I love
the idea of what they doing, even if it’s affiliate marketing. They love the idea of doing that type
of work, but
(10:00)
they never set themselves up, really to be a business. And what I think part of the problem is, is
that particularly in the online space it’s very easy to just sit behind the computer and go,”Look,
it doesn’t really matter.” “That’s not really gonna make any difference.” “If all my stuff’s on the
computer I’ll just do that.” Whereas, I’d prefer to take the approach that, “Let’s set strategy.”
“Let’s actually set a business plan and write out a vision for what we want our business to be.”
Even though it’s just you. It might be just you in your business, I want you to sit down and take
out a piece of paper, and do a vision of what it is that you want your business to look like. So if
you’ve got a blog that might be a travel blog. It might be a wedding blog. It might be—any type
of – any type of online activity. I still want you to sit down and write out a vision of what it is.
The way you want to go with that business, because it’s only when you really, clearly articulate
what that’s going to look like, or what you want it to look like in the future, that you can work
back and actually put strategy in place to make sure that you get there, to that particular point.
To that vision. And set it so that you know— a vision is in three years’ time or five years’ time.
Not much longer though. I wouldn’t go any longer than that.
Sometimes it’s just a shorter vision you know. Within the next twelve months. Set milestones
so that….It might be in five years’ time, I want my business to look like this. And then come back
from there. Okay. What do I want it to look like in three years’ time? What’s the journey that
that business is going to go on? Because that’s what’s going to I guess help you to focus and
treat it like a business.
But it’s more than just a vision. You also want to have a business plan when you—when you– a
business strategy document. Some sort of living, breathing document that you can
(12:01)
set off and work to and work through. And it becomes your guiding sort of principles and
document strategy of how you are going to achieve this vision. So really important. I think some
people make business plans too complicated. It doesn’t have to be that complicated. I have—I
did a session back in episode four, called ‘The business plan on a page’, which is my system that I
set up to help business owners just work out a quick business plan on a page. It’s a complete
system. It’s got the instructions there. It’s free. You can get it over at
businessmadeeasypodcast.com/episode four. And it’s called ‘Business Plan on a Page.’ Check it
out if you haven’t done a business plan already, or if you have been wanting to do one, and you
have been putting it off. Go there. Download it. Sit down and set yourself a clock—I’ve even got
instructions on how to actually do it. How to get the best of the document. So—and that’s free
over there at businessmadeeasypodcast.com/episode4. So we want to make sure we have a
business plan or strategy document in place.
One tool that I have been using and I really, really enjoy using it, is a program that’s called
Speare – S-P-E-A-R-E. And I’ll put a link to it in the show notes. Now if you go the
businessmadeeasypodcast.com/speare – S-P-E-A-R-E. I’ll put a link in there to the show, and
that’s for this program. Check it out. Really good. Flexible. It’s like a modern day word
processing document, but fantastic for doing planning like this, because you can create
headings and drag and drop paragraphs around. So you just sort of dump all your thoughts out
into this document, and then you can just move the paragraphs around as you want to. You can
format them all etc. And then once you’re done you just hit ‘print’ and it will print it to a PDF,
and you can use that as your document.
(14:02)
And you can– it’s cloud-based too, so you can actually go in there and collaborate with other
people. If you’ve got other people involved you could also share that. You could also share it
with me. If you want me to have a look at your plan and your strategy, then by all means you can
invite me in to have a look at that, and I will happy to give you some pointers and help you with
that as well.
So, check that out. It’s businessmadeeasypodcast.com/speare – S-P-E-A-R-E, and that’s a great
document for you to start doing those plans. So, yeah, back to Jane’s situation. We worked with
Jane, and what we were able to is actually lots of things. For instance, she had one bank
account and she would live out of this one bank account. So all of her money from the markets.
Or she told me, all her money from the markets went into her bank account, and then she lived
out of this bank account as well.
So she was—she was just sort of—she had a debit card and she just go around living off of it. So
whenever there was money in the account then she was happy. And she was happy she was
making money. The problems that come about with all this sort of approach is that what
happens if Jane all of a sudden can’t make belts anymore? And all of a sudden her livelihood has
gone- gone out the window? She can’t make belts. She can’t sell belts. She can’t sell belts, no
money going into the bank account. How do you pay the bills? And these are things that are
considerations when you have a hobby versus you have a business. A business really—the way I
set businesses up is I want to set them up to be automatic. I want that business to function even
if I’m not there making belts or whatever it is that I’m making. Because I want—it needs to do
that. It needs to survive on its own. It just needs my stewardship and my guidance. It doesn’t
need my full input to keep those wheels turning.
(16:01)
And that’s the—that’s how we like to approach businesses. Is to get it to a point where these
systems, these processes, these people; whether they’re outsourced people. There is a million
different ways to get things done nowadays. You can do it do to scale your business and run it
as a business. A business should have a separate bank account. For sure it should have a
separate bank account to your personal bank account because it’s the business’s bank account.
Think of the business as another family member. I always say this, my client. I put an empty
chair there at the table and I say, “See, that chair there? That is your business.” That’s your
business, okay. It’s not yours. It’s your business. So that’s- it’s another family member so you
wouldn’t take from another…you would steal from another family member. You look after
another family member. Well, that’s what you’ve got to do with a business.
Versus a hobby. Well’s it’s a lot more ad-hoc. You can have all your money going in one account.
You can—you know, money’s not so important when it’s a hobby because you’ve got your other
income or your other activities that you’re doing so that’s another really big distinction. I
encourage people to have a separate bank account away from their living account. And don’t
touch it. It’s—it’s there. It’s the business money. Now you can pay yourself a dividend at the end
of the year, or six monthly or quarterly, whatever the case may be. But only once, and when
you’ve established that everything’s been taken care of in the business.
The business has got enough cash you know, to keep functioning, pay its bills, pay its taxes, pay
what it needs to pay. The business needs to be able to do that. So that’s what your stewardship
is all about in running your business. And that’s why I spoke about becoming the CEO in your
business. We spoke about that back in episode 27.
(18:01)
So if you go to businessmadeeasypodcast.com/episode27, and I discuss in detail in that episode
there about the importance of becoming the CEO of your own business. Even if you are a sole
trader. Even if you are a home-based, online business, I encourage you to go back and listen to
that episode, because it does help you to I guess—form this business way of thinking that I’m
talking about, as opposed to a hobby. It really just drives that wedge and distinction between
the two. And it’s so important to do that.
Because at the end of the day, we are in business to make money. We need to make money to
survive, to pay the bills, to provide the standard of living that we want, and to provide you
know—so that we can go on our holidays, reach our goals. All those sorts of things. So yeah, it
really is important that you do establish that CEO mindset so that you can be the steward of
your business and guide it properly. You can make business decisions and when you get up
every morning, even if—I always encourage, actually I know somebody who was telling me
recently, they’ve got an online business but they actually bought themselves a uniform and
they’re actually wearing that u—when they get up every morning they put this uniform on even
though they’re walking out to the office in their house. That’s the uniform for—because they’re
working. It sets that mind that “I’m working today.” “I’m working on my business and that’s
really—things like that. Anything you can do to—to form that business way of thinking to help
you is really good because it is difficult in that online space, I do know that. I’m doing a lot of
online work myself now, and it is hard to get up every morning and think– and have that
distinction. So I really encourage you to do that.
Also, to encourage you too as a business owner, if you—if it is a business that you’re looking to
do, to make sure to do your numbers properly. Work out what your costs are.
(20:00)
Well make sure that you’ve got proper accounting records that you can check on a monthly
basis and see that”Yes, this is going in the right direction.””It’s achieving goals,” rather than just
plodding along. A hobby is more of a—you’re not really worried about that. You’re really
worried about making sure you’ve got enough things or just enjoying the activity that you’re
doing.
Again if you’re blogging and you enjoy writing, that’s not a business. If you’re blogging and
you’re building a community and an audience and you’re monetizing that audience, to survive
and to provide a living for you, that’s—that’s when you’re in the business territory and howthat’s why I want to you to be setting that up as I’m talking about here. With separate bank
account, with financial statements. Look at the financial statements. Have budgets and cash
flow type statements in place, so that you can measure against that, how you’re tracking them.
What the projections are? I always say that it’s easier to map it out all on paper than it is to go
and spend a dollar. It’s a lot cheaper to map it out on paper than it is to go and spend a dollar. So
keep that in mind as well.
A lot of people come to me and they just go and start a business without actually doing any
planning whatsoever. And I say, it’s just an expensive way to do it. Probably one of the scariest
ones I saw, just quickly to digress, was somebody came to me and they’d taken out a five-year
lease on an empty premises with no business plan, no past history of business. They just
thought that they could make a go of it, and honestly, that’s scary stuff. So you wouldn’t—you
just don’t do that. If you’re going to build a business you want to have that vision, the cash flow,
the strategies, all those things in place. Separate bank account as I said, just to reiterate, and
make sure that you approach treating that business manner. And that you don’t need to go and
set up companies
(22:01)
and separate entities at the early stages. It’s not necessary. You don’t have to go to that level,
but certainly keep it separate. Keep your personal stuff away from the business stuff and treat
it, as a said, as an additional family member.
So that’s really what I wanted to talk about today. The distinction between a business and a
hobby. Are you clear on what you’re doing? Have you got yourself set up and established as a
proper business? And I really wanted to make that point if you want help with it, I’m putting a
checklist in the show notes for you. So if you go to
businessmadeasypodcast.com/businesschecklist, and I’ll put that free checklist in the show
notes for you to download. And you can tick it off and make sure that you’re really—if it is a
business that you’re wanting to run and you want to make sure that you’re in, well this
checklist will help you do that, as opposed to what a hobby would look like. And it will help you
with that as well.
As for Jane. Jane worked out, she was running a business. When we worked with her, she did
realize that she was running a business. And we did put in place a vision for her to grow her
business. She’s no longer making belts. She actually has a system that makes belts with people
that actually make those belts for her. And she’s—she’s more astute now. She’s got a small team
of people and she’s growing her business and it’s growing nicely.
So there you go. You can do it. It doesn’t have to be a—she’s got an online web presence now.
She has a proper online store. So you can certainly do that when you put your mind to it. And
certainly she’s got a lot more stable income, and a lot more stable business now as a result of
putting in place a proper business processes and strategies.
(23:56)
All righty. That’s all I have time for this week. I hope you enjoyed that episode. Next week we’ve
got a great interview coming up with somebody that I really, really enjoy. He’s a
communications expert, so I’m looking forward to that episode. Just stick around for that that
will be businesmadeeasypodcast.com/episode33, which will be coming to you. So if you haven’t
already, please make sure you hit the ‘Subscribe’ button. And don’t forget, if you have a
question in business or if you really want to get some further analysis, and further answers on
setting up your business. Feel free to drop me a line at [email protected]
So that’s my email address. I’ll happily answer any questions you’ve got there as well.
And if you’ve got a question that you’d like asked or answered on the show, then you can go to
businessmadeeasypodcast.com and hit the Red Record Button and I will answer—I’ll play that
question on the show for you. And you’ll—if I did play it on the show, you’ll get a free Business
Made Easy Podcast T-shirt, which is quite a good win.
So that’s all I had time for. I’m going to hand you over to Mia now. She’s going take us out. But
until next week, Here’s to your success!
Take us out Mia.

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