It’s tempting to quit your job when you decide to start your own business. But quitting right away may not be wise. Here are five things to consider before turning in your resignation.
You’ve decided it’s time to start your own business. Good for you! But should you quit your job first and then start the business or run your business on the side first?
There are a number of considerations to think about before you start any business, one of which is how you will make ends meet while building your clientele. It doesn’t matter what kind of business you are starting, there is always an initial start-up phase where you will be scrounging for every penny as you develop your track record. This aspect of running a business is not unique among service or product businesses.
5 Things to Consider Before You Quit Your Job
Unless you are independently wealthy, there is a good chance that you are working because you have to. In that case, it would be foolhardy to quit your job until you are sure you have another source of income to replace your weekly paycheck and any job-related benefits like healthcare. However, there may be certain circumstances under which you should quit your job before kicking off your business.
Consider these 5 factors before making that decision:
Do you have enough savings to fund the business and live on?
If you have saved up enough money to live on for several months, pay for health insurance and fund the business, then you might want to consider leaving your employer. But how much is enough savings? Some recommendations say you should have at least enough to manage for six months. But businesses often take longer than expected and cost more than planned to get going. So, a less risky approach is to have 9 to 12 months operating expenses and living expenses saved up. But, still, take your entire living situation into consideration and ask yourself how much risk you’re comfortable with. If you’re counting on income and health insurance from your spouse’s job to carry you through, consider how you’d manage if they lost their job before your new business becomes profitable.
RELATED: Business Startup Cost Calculator
Do you have ready-to-go clients waiting for you?
If you already have ready-to-pay clients wanting to do business with you, then quitting your job might be an option. But keep in mind that those business acquaintances and friends who promise future help, might not actually follow through on their promises to give you business or make referrals. Ideally, before you resign from the day job, the total billing from regular clients should exceed your current income by enough money to at least cover your costs for lost benefits, extra self-employment or payroll taxes, and the costs for operating your business.
Do you have investors?
Anyone who makes a significant investment in your business is likely to expect you to give the business your full attention. About the only exception might be close family members. If you have outside investors (people who are not close friends or family members) their idea of “full-time” could be 80-90+ hours a week.
Is your current job a part-time job?
If you are working part-time and starting a business on the side, ask yourself how much time you really need to run the business. If you can get it off the ground working part-time while you continue to work your part-time job, then you should wait to quit your job when your income from the business is twice what you are making on your job.
Will keeping your job will create a legal or an ethical dilemma?
If starting your business will put you in competition with your employer, or interfere with your ability and availability to work for your employer, starting a business while you keep your current job may be inadvisable, or impossible. In this case, moonlighting could get your fired and/or sued.
Weigh the benefits of your job against the business opportunity
Ultimately, you must decide whether it is more important to spend your time building the business or being a good employee. In most cases, you should wait to quit your job until you are making enough money from the business to sustain your lifestyle. In some rare situations, you could be fortunate enough to quit your job and work on the business full-time. Ask your family and friends if they can help. You’ll often find that the answer to this question is in your own back yard.