"Do you have a business…or a hobby?”

"Do you have a business…or a hobby?”
By Marcia Passos Duffy

You may be working 12 hour days in your studio—even on the weekends. Your art may be taking up all the bandwidth in your brain every waking (and sleeping) moment.  But just because you spend a lot of time working on your creations doesn't mean you have a business. While you may protest: "Hey, I'm working hard How is it not a business?!” it is worth taking a closer look at the true definition of a "business.”

The Legal Definition of a Business
Tax accountants will tell you that there is one important difference between a business and a hobby: a profit motive. "From the IRS' point of view (a ‘business' means that) you are doing the activity with the reasonable expectation of making a profit rather than personal enjoyment,” says Mariette Knoblauch, a tax accountant with Blue Stone Accounting http://www.bluestoneacct.com/ in Seattle, Wash.  Some other hallmarks of a business that the IRS will look for—along with a profit motive—are a business license, business cards and an advertising budget.  "You are also expected to have a storefront, a website, or some other way that you are offering your goods or services to customers for sale,” says Knoblauch.

Telltale Signs of a Real Business
Even though you may meet all the IRS qualifications for a "business” versus a "hobby” doesn't mean that you have a business mindset. For that you need:

1. A business and marketing plan. While writing up a business and marketing plan is not as exhilarating as throwing pots or designing jewelry, it is important that you spend time to create a good one.

2. A distinct brand. You will need your own "look” to your products, a company name, and even a tagline. You also must examine your competition and honestly assess if you can compete with them and if your products stand out in terms of quality and originality.

3. A profit. It's not enough to move a lot of your product, says Morgann Hill a photographer who owns Memories in the Sand. http://memoriesinthesand.blogspot.com/, you must be able to show a profit. "If you are making sales but nothing is left over at the end of the month…its time to look at the very important profit and loss statement. Yes, even us artists must pencil out the true numbers,” says Hill.

For a business mindset you also need to act like a business, adds Patricia Ivanisevic, owner of Dallas, TX-based Karmacrochet http://www.karmacrochet.com/This means set hours that you dedicate to your business at least five days a week. "You have to take yourself seriously if you want everybody else to do the same,” says Ivanisevic. She also suggests that artisans concentrate on items that make money.
Make sure that you aren't tricking yourself into thinking you have a business when what you really have is a "jobbie,” says Carol Roth (www.carolroth.com) a business strategist for a wide range of businesses from solo entrepreneurs to Fortune 500 companies.

"A ‘jobbie'…is a hobby disguised as a business,” says Roth. Some earmarks of a jobbie: earning less than minimum wage with no credible plans to increase your income and focusing more on your needs than your customer's.

"Remember hobbies are about your wants and needs and businesses are about your customers' wants and needs,” says Roth.

How to Move from Hobby to Business
Moving from a hobby mentality to a bona fide business first means assessing if there is a viable opportunity in your artisan craft, notes Roth. "This assessment will include doing a real business plan, complete with financial statements and reasonable assumptions to see what the scope of the opportunity is for you, based on your personal circumstances goals and objectives. It will also give you a sense of how much money you may need to invest to change from a jobbie to a business,” she says. You also need to make do some soul searching before you take the leap to making your hobby a business. "It may kill some of the passion for you. Don't take that lightly,” warns Roth.

Dan Paulson, president and CEO of InVision, a Wisconsin-based business coaching and consulting company, says that there is often a stigma among artists about making money. "… that if you are profiting from your work you are no longer an ‘artist,'” he says. Another way to look at this, he says, is to realize that generating profit from your art allows you the freedom to have resources that you need to be a true artist.

Lastly, realize that commitment to making your artisan hobby a business is paramount, says Paulson.

"The ‘let's try and see if it will work' is a recipe for failure if you are truly trying to create a business…you just gave yourself permission to fail. While not all businesses succeed many close down because there wasn't a strong enough commitment early on,” he says.  So, make that commitment. Write a business plan. Look at your cash flow statements and start acting like a true business. Because without that business mindset all you really have is a hobby.  For help on turning your hobby into a business, contact your local SCORE office (http://www.score.org/), for free help and advice by seasoned business owners.

http://www.backporchpublishing.com/) is a freelance business writer based in New Hampshire and is a member of the state's artisan and business organization, NH Made. Marcia's articles have appeared on Yahoo Finance, CNBC, Bankrate.com, NFIB.com, Smart Business Magazine, The New York Times Lifewire, The Weather Channel, among others; she is the author of the book, Be Your Own Boss. She is also the publisher and editor of Our Local Table magazine (http://www.localtablemonadnock.com/) and The Heart of New England magazine (http://www.theheartofnewengland.com/). Marcia wrote this feature article exclusively for the Association of Artisan Businesses (http://www.artisanbusinesses.org/), an organization dedicated to the preservation and promotion of the artisan industry.