Hobby, Job, or Company—which one do you have? The lines are blurred, obviously, and sometimes the answer is not intuitive. If you have less freedom and more responsibility than ever, you might very well have a company. If you enjoy it, you certainly don’t have a job. And if you have visions of getting rich, you might very well have a hobby. Just kidding!
If you want to be taken seriously, you should have a company. And it doesn’t matter if you have no employees or dozens of them. But if you think of what you do as a design business, you’ll do more planning, craft a compelling positioning for the marketplace, and think quite differently about the financial component of what you do.
More specifically, how does money relate to these three options (hobby, job, or company)? Here’s the relationship as it seems to unfold.
Money is a Good Indicator
A hobby costs you money. In other words, you spend more money than you make, even factoring in the fact that you don’t pay yourself anything. My hobbies are motorcycling and photography. Believe me, even without paying myself a “driver’s fee,” I still don’t make any money from the riding.
A job pays you for working. The actual amount varies, depending on your skill and ability to convey that skill and negotiate on your own behalf. The pay comes at regular intervals in fixed increments. There are no surprises, usually. You work and you get paid. You don’t work and you don’t get paid.
A company delivers profit beyond expenses. This occurs after paying all the salaries, including a fair one to yourself. The profit is not optional, ideally, and it should be substantial. Sure, some times we encounter make it more difficult to achieve a substantial profit, but that’s an aberration from the norm.
If you just have a job, you might as well work for someone else. Of course you’ll be giving up some control and some flexibility, but you’ll also be giving up significant risk, loads of management hassle, and untold encumbrances.
A few years ago I was conducting a ReCourses Roundtable. One of the principals stopped the meeting and turned to me and said: “I just realized something. I started this company to give myself more freedom and control, and now I have neither. As an employee I could walk away and now I can’t. I’m trapped.”
Why Profit is Important
But why is it that profit is so important? Important enough to distinguish a job from a company? Here are the two reasons you should not think of profit as an optional component in your business plans.
First, profit compensates you for risk. Making lots of money at some points compensates for the times when you aren’t making money. By starting your design firm and continuing to run it, you are taking significant risks that must receive compensation. If your landlord requires a personal guarantee, it’s your butt on the line, not someone else’s. If that new client wants you to ramp up just for them, nobody but you will own all the equipment now sitting idle on someone’s desk.
Second, profit is a good indication of your management ability. It tests your aptitude to manage the process of bringing in new business, keeping the business that you have, making money on the clients you are servicing, and keeping expenses low. It is a fair measure that you should pay attention to, and your business should be poised to make a profit year after year no matter what external forces conspire against you. It’s your job to plan ahead so that you can do less reacting.
Profit is what appears when you do things right. And without it you have a restrictive job with enormous risk for which you are not being compensated. You are not obligated to give people jobs. You are not obligated to subsidize clients. You are charged with making a profit above any fair market compensation you pay yourself.
Resources for Increasing Revenue at Your Design Business
- Tips for Pitching and Winning Clients.
- Perfect Your Proposals: 25 Client-Winning Proposal Examples.
- Learn how to Use Facebook to Take Your Business to the Next Level.