Most of us know someone who has dabbled on Ebay, Etsy or other websites where “business” is conducted. Making aromatic candles, natural soaps and knitting, crocheting and sewing from home lend themselves to such websites. When does such activity shift from a hobby or “dabbling” to a work from home business? Here are some factors to consider.
Are You Doing it for Fun or for Money?
If you are creating and selling items because you enjoy it, it probably is a healthy hobby. If selling the items for a profit is your motivation, you are likely more in a home business frame of mind.
How Much Inventory to You Have?
Do you have shelves and shelves or boxes upon boxes of inventory? Is this inventory completed or raw materials? The more inventory you have and the more money you have invested in that inventory, the more likely it is you are building a home business.
How are You Marketing Your Products?
If your marketing is limited to social media and perhaps an email list, you probably have a hobby. Now, if you have created a logo, labeling and have created a flyer, it would appear you are building a business.
How Well are You Tracking Sales?
Your attitude for tracking sales and inventory will say a lot about the direction your hobby/business is heading. It may also just be a reflection on your personality.
Have You Set Up a Business Structure?
Have you pursued setting up a sole proprietorship, partnership or LLC? Have you set up a separate account for transaction or secured a tax ID number? This would all indicate you have a home-based business.
How Much Space Does Your Activity Take?
Do you have a separate room in your home you use as an “office”? Do you take a percentage of this home space as a deduction on your income taxes as business expenses? Have you invested in a computer or other equipment to build your business?
Are Your Customers Mainly Family & Friends?
If more of your customers are “strangers” the more likely it is you have a home-based business.
If you are developing a home-based business that is bringing in increasingly significant amounts of income, or if you have invested heavily in equipment or inventory, you should be aware that your personal homeowners’ insurance policy will not provide coverage should a loss occur due to fire or theft. You should reach out to one of our independent insurance agents to get a quote on protecting your home-based business.