Intel's Ronler Acres Plant

Silicon Forest

Sunday, May 12, 2013

Business as a Hobby

I often see small, hole-in-wall, businesses that seem to have almost no clients, no customers, no business, and I wonder how they manage to survive. Over the years a theory has been gestating in the back of my mind, and given any evidence to the contrary, I am beginning to suspect (as Sherlock Holmes would say) it is the truth. They are not "businesses" in the strict sense of the word, they are not making a profit and they are not paying their way. By any measure of accounting they would have to be considered hobbies. Lots of people have hobbies, some are very economical, others are very extravagant. A small business would probably tend towards the economical, I mean, if it ever took off it might become profitable. In many cases the proprietor probably owns the premises, so running a business there is more of a holding action until a real, rent paying client comes along. If you are running the place yourself, there is no salary to pay, and if you aren't selling anything you don't have the expense of replenishing your stock. The one constant is taxes, and if you do not have a profitable business, you could argue that the property isn't worth much, and so your taxes should be low. Also, as you are "running a business" any expenses you incur would go on the debit side of the ledger and could help at income tax time. I would not be surprised if a smart accountant could make a shop with absolutely no business show a profit just by juggling taxes.


Tam said...

There is a specific "hobby business" phenomenon where the spouse of a high-income earner will operate a bookstore, gallery, boutique, what-have-you with the unstated assumption that it will not only be a fun diversion, but also a splendid write-off.

Charles Pergiel said...

I think that idea is where I was headed, but I got - oh look! Shiny!