What’s the difference between a side hustle and a small business?
19 November 2020
Congratulations on the side hustle you’ve got going! Life is all about doing those things that light us up, fill up our cup and make us feel like we’re making a difference. And a great side hustle can tick all those boxes.
But have you ever wondered whether your side hustle is something that should be formalised as a business? At what point do you need to have an ABN and insurance? Should you be keeping records?
It’s a bit frustrating, but there isn’t one single measure that dictates whether you’re in business or you’re running an awesome hobby.
You might be running a business if you:
Intend to make a profit (ok, so who doesn’t!).
You’re repeating activities.
You advertise or have a website or social media presence.
You have a separate bank account.
You need to have a licence or qualification.
There are a number of other factors too, but the more you operate in an organised fashion, the more likely you are to be considered a business.
How Sarah’s candle making hobby became a business
Sarah started out making soy candles when she was 18. She enjoyed making these for family and friends and gave them as gifts. At particular times of the year, she would make extra and advertise them for sale on her private Facebook page.
Sarah sourced the pots from Kmart and made the candles at home. She didn’t have a business name or social media page, and whilst she put a lot of time into making her candles every few months, she didn’t have a concerted pattern of production or advertising.
At this point, Sarah’s activity is considered a hobby. This is because, despite making some sales, any profit she makes is a secondary consideration and simply helps to pay for her expenditure on an ad hoc basis.
As Sarah’s skills grew, her candles become highly sought after. After a couple of years, she decided to get a bit more serious. She developed a brand and registered it, developed a variety of scents, set up a business social media presence and actively worked to increase visibility and engagement.
She regularly attended markets, purchased branded stickers for her pots and increased the quality of the materials. She regularly manufactured her product so that she always carried some stock. She tracked her income and expenses and expected her profit to help to pay for her university costs.
At this stage, Sarah is considered to be in business. This is because she is actively seeking to make an income from her activity and she is marketing her product and engaging in regular manufacturing and sales.
Now your side hustle is a business, where can you get support?
There are some great small business Facebook groups you can join to meet other business owners who are in similar positions or have done it all before. There’s also government subsidised online community groups like BizHQ that have very low fees and provide a range of resources.
It’s also a great idea to hire yourself an accountant. Whilst spending some money on financial expertise might initially sound intimidating, it’s a decision that could end up paying you serious dividends down the line.
The best place to start is by seeking some references then picking two or three to interview. Remember, they will be working for you! Find someone that explains their fee schedule, clearly steps you through the things you need to do or decide on, and is also a good fit for how you communicate.
Ask them about the people they normally work with, including the types of clients they have and the staff that make up their teams. You need to feel comfortable you are in good hands, and have a clear understanding of what you will be paying for and how it will benefit you.
For more information or assistance setting up your business, contact the Findex Business Advisory team.
This article first appeared onCentral West Mumsand has been republished with their permission.