What do I need to be considered a business?

Are you struggling to figure out if your venture qualifies as a business? As a small business owner, it’s crucial to understand the criteria that separates a legitimate business from a hobby or side gig. Let’s dive into what you need to be considered a business and why it matters.

Picture this: You’re selling handmade jewelry on Etsy, and sales are booming. You’re putting in long hours and even hired a friend to help with orders. Is this a business or just a hobby? The line can be blurry, but understanding the distinction is essential for legal and tax purposes.

To be considered a business, your venture must meet several key criteria:

Profit Motive: A business is an activity you engage in primarily to earn a profit. If you’re selling goods or services with the intention of making money, you’re likely operating a business.
Continuity and Regularity: A business involves regular and ongoing activities, not just sporadic or occasional transactions. If you consistently provide goods or services, it’s a strong indicator of a business.
Separate Entity: A business is typically treated as a separate entity from its owner(s). This means keeping separate records, bank accounts, and treating the business as distinct from personal finances.

Now, let’s address a common objection: “But I’m just doing this as a side hustle for extra income.” Even if your venture is small or part-time, it can still be considered a business if it meets the criteria above.

Here’s a real-world example: Sarah started baking and selling custom cakes from her home kitchen. Initially, it was just a hobby, but as demand grew, she began treating it like a business. She created a separate bank account, kept detailed records, and consistently marketed her services. Despite being a “side hustle,” Sarah’s baking venture qualifies as a business.

Determining your venture’s status is crucial for several reasons:

Legal Compliance: Businesses must comply with various laws and regulations, such as obtaining licenses, permits, and paying taxes. Failure to do so can result in penalties or legal consequences.

Tax Implications: Businesses are subject to different tax rules and can claim deductions for expenses that hobbyists cannot. Proper classification ensures you’re paying the correct amount of taxes and taking advantage of available deductions.

Credibility and Growth: Being recognized as a legitimate business can enhance your credibility with customers, suppliers, and potential investors. It also opens doors for growth opportunities and access to resources that may not be available to hobbyists.

To wrap it up, being considered a business involves having a profit motive, Regular and continuous operations, and treating your venture as a separate entity. If your activities meet these criteria, it’s time to embrace your status as a small business owner and take the necessary steps to ensure compliance and maximize your growth potential.

Remember, every business starts small, and understanding your venture’s classification is a crucial step toward long-term success. Embrace the journey, seek guidance if needed, and watch your small business thrive.

Looking for more small business help? See our article on
The Crucial Areas of a Small Business

Recommended Books & Resources

• The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future

• Start Your Own Business, Sixth Edition: The Only Startup Book You’ll Ever Need

• Small Business Start-Up Kit, The: A Step-by-Step Legal Guide

• Rocket Lawyer LLC Services

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