In our current difficult financial climate, one- income family has become the norm and sole financial resource of even larger families. With the advent of one -income family, the strains of limited income or low job prospects; most have found creative avenues to supplement their income. The creativity behind the opportunities that people have forged for themselves has lend itself to a nation infused with duplicitous, multi- purpose worker bees; all seeking to marginalize the one-income model. As the average worker spends more time and effort chasing that supplemental income. The ultimate question is: how to label those supplemental opportunities. Are they entrepreneurial pursuits? How do we quantify that time that we spend outside of our 9 to 5 job?
It is important to correctly label any work completed outside the day job because it allows one to have a sense of clarity about their purpose. In any activity that a person partakes, a sense of clarity as to its purpose in your life will always bring about more productivity. The clearer you are on your purpose, the easier it will be to convey that to others who may have a hand in helping you further your goals. Meet Jessie, when you ask her: “what do you for a living?” She replies: “I’m a writer, hairstylist, security guard and dancer.” After meeting her, you can’t help but get a sense of her frazzled purpose. Really, which one is it? Would you say that the Jessie is an entrepreneur with ties to the cosmetic industry by being a hairstylist and an entertainer? I’m not that Jessie even knows “what” she does for a living.
First, we need to define what it means to pursue a hobby or a business venture. A hobby is side activity that one engages, other than normal occupation. The qualifier for hobby is the time spent with no great consideration to the financial reward. An activity may be described as a hobby despite the fact that it generates some additional income. The ratio of time spent on an activity and the income that it brings it, determines whether the side gig should be labeled as an entrepreneurial pursuit or side gig. The ratio should be 80% time spent to 80% income stream.
In the same vein, a person is pursuing a business venture when the ratio of time spent matches the equivalent amount of derivative income. The operative part of starting a business is to generate a profit. Profit can be defined as any income over the amount spent for operation and to adequately compensate time and effort spent on behalf of the business. Granted, in the beginning stages a business will not garner as much profit to compensate for the time spent. However, the time spent to income stream ratio should naturally equalize in time. Otherwise, you are pursuing a hobby and not business opportunity.
This may seem countervailing to those who are inclined to keep their “day job” while at the same time pursuing entrepreneurial aspirations, something that I counsel clients to do all the time. That arrangement will work for a period of time during the start-up phase of the business. However, there must be a transition plan to eventually phase out the day job run your business full time. You can hardly expect to make a business profitable if you spend more time on your day job than the actual business. In that case, you might as well label it as a hobby rather than an entrepreneurial pursuit.
Understandably, finances are a greater concern and at times the greatest hindrance to the entrepreneurial pursuits. As a matter of financial stability some of us may be constrained to working 40 hours per week. Depending on the business, some creative brainstorming will allow you to allocate more time to the business. This time does not have to be from you personally but may be through enlisting others who believe in the vision of the business. That may be done by getting volunteers or seeking out a partner. The sooner you are able to match the time spent to your day job, the closer you will be to running a successful business.
Going back to Jessie, suppose she works 5 days a week as a security guard earning $30,000 per year. She brings her friends together for dance performances about 5 times per year for $1,000 per performance. She also rents a chair in a salon and does hair 2 days per week which brings her about $8,000. In her spare time, she writes short stories for the local newspaper for a total of $3,000. Based on the ratio of time spend to income earned, all of Jessie’s other gigs are better classified as hobbies.
Many work scenarios may not be as clear cut as Jessie’s. There may be scenarios where time is spent equally on several gigs with no main income being generated. In that case, all of the various pursuits would qualify as gigs; that altogether create one income. In that instance, the person would not need to enumerate the various pursuits when confronted with the question of “what do you do?” But would instead place emphasis on the sum of the whole.
On all accounts hobbies are great outlets for many of us to dedicate time to something that we are passionate about. They are no less important than an actual business. However, labeling that activity correctly will save you a lot of frustrations and provide a clearer purpose for financial planning. Financial success may require you re-label and prioritize how you spend your time, but that all depends on the plans the goals you have. As you re-evaluate your current gigs, use time spent and income stream ratio principle to properly label your gigs. If you are dissatisfied that some of your activities fall into the hobby category, don’t fret! Any hobby may be converted into a business. For the steps to converting a hobby into a business please refer to Converting your Hobby into a Business article.
About the Author:
Catherine Delcin works as a business consultant empowering entrepreneurs with the necessary tools and resources to bring their entrepreneurial aspiration to success. She holds Juris Doctorate degree of law specializing in Business and has extensive experience with all aspects of business formation. Connect with Catherine at Catherine.firstname.lastname@example.org, or connect with her on Twitter at http://twitter.com/CatherineDelcin.