Transform your hobby into a business

THERE is a fine line between a profitable hobby and a small business, and it has as much to do with motivation as it does dollars.

THERE is a fine line between a profitable hobby and a small business, and it has as much to do with motivation as it does dollars.

While elaborate home baking, creative sewing and even sporting endeavours may result in financial gain, it really comes down to whether your primary goal of your endeavours is to make a profit, says Pitcher Partners partner Julie Strack.

"You can end up making money from a hobby but that's not the primary purpose of a hobby," she says.

"When you are starting up a business and even with a micro business, people go into those with a dominant purpose of at least trying to make a profit.

"They might still love what they do, it might be connected with what they enjoy doing in life but normally the dominant motive is to make money."

For example, competing in triathlons at the weekend and taking home some prizemoney would usually be a hobby, while someone who trained five days a week, accepted appearance fees and advertised products would constitute a business, Strack says.

Some factors to consider when determining the difference between a hobby and a business are things such as advertising, the regularity of the activity and whether it's just for family and friends or for a wider client base.

There is no set income level that indicates a hobby has become a small business, but things such as registering a business name or applying for some type of licence to carry on your activity tends to point in that direction, Strack says.

"If you are acting like a business, you probably are a business," she says.

Strack says among the many considerations at this point is you need to consider getting an ABN, register for GST, the business structure, need for insurance and accurate record keeping.

Fiona Harris, owner of online vintage clothing retailer Opshoppers, says 10 years ago she started buying up second hand clothing and accessories used clothes as a hobby.

"I've just accumulated a spare room full of stuff," the Canberra-based business owner says.

"It started as a hobby. I did it for myself and then I looked in our spare room and thought 'there's a business idea here'."

Harris, 30, is one of 58,000 members of online micro business networking community Flying Solo.

Jodie McLeod, the editor of Flying Solo says anyone who is unsure about whether their activities are a hobby or a business should contact the Australian Taxation Office or an accountant.

"If you sell a product or service every now and then in return for a small amount of money or tokens, it may only be a hobby. However, if you intend to grow and sell more, it likely crosses over into a business," McLeod says.

"Seeking advice from the ATO or an accountant is the best way to know for sure.

"Often it can happen as a progression. Someone might have a certain skill that they use to help friends or family in return for money or favours, then word gets around and suddenly you have more people lining up at your door.

"If at this point you think, 'I could make a go of this as a side or main income', then that's when you should consider getting an ABN."