A couple weeks ago on Shark Tank (this scenario has happened more than once) there was a company on there who’s been trying to make an idea work for a few years.  It was a fringe product, one where you don’t immediately think, “Wow, that’s a game changer.”

The idea had never become profitable in the span of a few years for various reasons, but that was all Kevin O’Leary, aka “Mr. Wonderful,” needed.

“I like to say, if something’s not profitable in two years, it’s not a business; it’s a hobby.  This is a hobby; I’m out.”  He stated definitively.

And he’s right.  Anyone who does anything professionally for themselves might say, “I own my own business.”   Hey, that’s great.  I love entrepreneurship.  I love when people go out and make their dreams happen.  That’s fine if you say that, no problem.

But from a hard financial standpoint, if you can’t make the idea make money in two to three years, the idea is a hobby, not a business.  If a business is making just enough to cover expenses or it’s even being propped up by personal investments, it’s a hobby.

An aside: The proportionally rare exception to this is tech startups that are in the game with the purpose of being bought out one day.  Examples include(d) Instagram, Kik, Snapchat, and others.  They build a huge platform, and their value as a business comes from the advertising potential of all the eyeballs they can collect on their network/app.  That makes them very valuable for a larger company to purchase and monetize.

Now, if a business makes just enough to pay a basic living salary for you, then financially speaking, you own your job.  Still not a business, but it’s moving the right direction.  I like to use $40,000 as a good base number for this.  With some experience, you could go work for someone else and make $40,000/year, right?  But you work your butt off owning your own business to make $40,000.  It needs to move beyond that.

There are some advantages and disadvantages to owning your own job.  Flexibility and the chance to work in your passion are two huge advantages, whereas you sacrifice things like the stability, benefits, and relative security of working for a more established business.

Once your business makes enough to pay its expenses, pay you a basic living wage, and still has money left over (real net profit), then it’s a business.  The additional money it produces means that it’s providing a benefit to you other than just a basic living salary.

It takes time to get to that point, and I’m not a stickler about it.  You don’t have to go around saying, “I own my hobby,” or, “I own my job.”  But it’s good to understand financially at what level your business really is now, so that you can understand where it needs to go in the future.

Question to think about: What do you have to do to take your business to the next level?