Hobby Loss?
It’s normal to incur losses in the first few years of operations. But if those losses persist, the IRS may question whether your activity is an actual business or an expensive hobby.
There is no single test. No factor is decisive, and the list is not exhaustive, but the IRS weighs nine factors in determining whether your losses come from a legitimate business and are therefore allowable… and profitability is a major factor.
Breaking Even on the Way to Profitability
A crucial step toward profitability is understanding and computing your break-even point.
I break down how to compute your break-even point here:
Want more? Here’s a deep dive into the clarity that knowing your break-even point provides:
The Break-Even Clarity Method
Most entrepreneurs check their bank account to decide if business is good.
5-Minute Action Step: List your fixed monthly costs (the ones that don’t change with sales volume) and total them. Divide that total by your gross margin percentage from Step 1. That’s your break-even revenue. Divide it by your operating days, or by your average client value, to get a daily or per-client target you can actually track.
Feel free to reach out if you need help!
Cheers,
Katishia
Founder, KG Virtual CFO