Art: hobby or business?

I started working with glass as a hobby, but during the few years I was studying and researching, I felt more and more that I wanted to develop this into a proper business. What do they say: if you turn your hobby into your job, you never have to work again, because you enjoy it so much it doesn't feel like work.

I'm not yet there, but I need to ask myself the question: Is it a still a hobby? Or am I already getting myself into a business state of mind?

The biggest question of all is : do you know the difference? Think about what makes a business a business. Think of how a big company runs things. They have a business bank account and business credit cards, they keep records of all business expenses, they keep records of all sales, they pay all their expenses from their business bank account, and they know when they have made money (a profit) and how much. And you would certainly never see the CEO of a company going out and buying printer supplies from his or her personal bank account.

Do I run my business like this? Here's the harsh reality as seen by Adam Martin from Abundance Bound: "If the answer is no, then you are not running a business. If the answer is no, then what you are doing is merely engaging in a hobby, and it may be an expensive one. You might be saying: I'm no accountant, I'm an artist. True. However, as painful as it may be, you can learn to keep proper track of your business finances and keep them separate from your personal finances." (My dad would Love this statement!)

Let's look at the suggestions by the writer:

• Know/discuss financial starting point: you need to know from where you are starting from in order to know how to get to where you want to go. Having an accurate snapshot of your finances as they are is essential as you begin the wealth-building process, and it also allows you to truly see how much, where, and on what your money is going.
• The absolute most important thing to do for your business is to separate all your personal income and expenses from your business income and expenses. You would not see the CEO of a Spar or Builders Warehouse go out and buy printing supplies from his or her personal account, and you should not do this either. This means you need to have a business bank account. If you do not, then all your income and expenses are mixed together and it is far harder to keep track of everything.
• Once you have a personal account and a business account, you put only your personal earnings (possibly day job such as waiting tables, tutoring, etc ) in your personal account and you put your business earnings (work sold to a private client or art exhibition, etc ) in your business bank account. Likewise, you would pay for all of your personal expenses (rent, groceries, clothes, vacations, etc ) out of your personal account and you would pay for all of your business expenses (glass, tools, electricity account of kilns, etc ) from your business account. It sounds simple and straightforward, but may not necessarily be easy.

Some organisation pointers from the writer:

• If you feel you don't make enough money yet from your business to pay for all of these business expenses, simply make a loan from your personal account to your business account, BUT make sure you record that loan. When the business becomes profitable, repay the loan.
• You should also have a separate business credit card (even if the card is in your personal name). You should only be charging personal items to your personal credit card (and hopefully you are paying off the balance every month) and business expenses should only be charged to the card that you have designated as your business credit card. This way, if you are carrying a balance on your business credit card, then the interest will be tax deductible. This is not possible if there is even one personal expense on the card.
• The grey area: what about those expenses that are sometimes personal and sometimes business. These are things such as mileage on your car or household expenses if you work from home. For these expenses you must keep very clear records of when and how much of your expenses are personal vs. business. Keep a small book in your car to record business mileage. Make sure you keep all your household bills (mortgage/rent, phone, hydro, etc ) filed away so that you can use them to determine what portion you can write off as a business expense.

There are three very important reasons why it is important to treat your business like a business.

• If your business is not run as such, you will never be successful. And if you do not treat your business as a business, you will never make a business income.
• If you do not keep appropriate records, records that clearly indicate you are running a business, then, if you are audited, the IRS may classify your business as a hobby. This could mean loss of tax deductions, and you may even have to pay penalties. Worse, the IRS could go back through previous years returns, and apply the same filter to your deductions. This is not what you need when you are trying to make your business profitable.
• You will be able to track the progress of your business easily. You will be able to look back a year from now and say, Wow! My income went up by that much? Or, Yes! I finally turned a profit this year!

You can do this. Have faith in yourself and your business. It will grow and you will be successful. Just remember to keep the personal separate from the business and keep clear records of the two. Then you can watch your business grow and never look back.