One of the most important decisions an entrepreneur can make is the decision to quit their job. It is a critical transition that can have longstanding consequences. Quit too early or without the right preparation and your business may never get the chance to succeed.
This article covers five simple questions that can help you determine if you are ready to make the transition and launch your company, or still need more time to plan your business.
1. Is Your Business Concept Developed?
The “don’t quit your day job” rule applies here. Unless your business concept is fully developed, don’t make the mistake of leaving your job. Some entrepreneurs leave their jobs because working full-time and developing a business at the same time is extremely demanding. Unfortunately, most of these entrepreneurs run out of resources before the business gets a chance to launch.
Instead, develop a thorough roadmap for your company while you are still employed. It’s not easy, but it’s worth it. Spend time creating your products, defining your services, building revenue models, and, most importantly, planning for contingencies.
2. Do You Have Financing in Place?
Businesses need funds to operate. As an entrepreneur, you can either finance the business yourself or get external financing. Regardless of your choice, getting funded takes time. Secure financing for your business before you leave your job. For more information, read “Five Ways to Finance Your New Startup” that has several quick tips.
3. Is the Business Running?
The best time to quit your job is when business has wings. It should be grown enough that it can comfortably replace your current salary. While this approach allows for a smooth transition and gives you the most financial flexibility, unfortunately, it is also very difficult. Running a business while working a regular job is challenging.
If you decide to run your business while working, consider establishing clear boundaries between your employer and your startup. Don’t work on your own business during your employer’s office hours. Provide your employer with 100 percent of your attention. Lastly, do not use your employer’s supplies or equipment for your own business. This behavior is unethical and could have serious consequences.
4. Do You Have a Personal Budget?
Most entrepreneurs leave their jobs before they are able to replace their income fully. Before signing , develop a budget to estimate your living expenses.
The easiest way to create a budget is to use a personal financial software package such as Mint® or Quicken. Install the software and upload the previous three months’ worth of bank, credit card, and investment data to the program. Most banks have this data readily available.
The next step is to categorize all transactions. This step takes effort but is critical in this process. Lastly, upload financial data regularly for the next three months. Quicken should categorize all new transactions automatically.
At the end of this process, you will have six months of categorized actual expense data. With this data, you can create a report that gives you a precise idea of how much you spend. Additionally, consider adding a reserve for surprise expenses – such as family emergencies, car repairs, large house repairs, etc. Entrepreneurs often underestimate these costs. Look at your individual circumstances carefully and make an estimate of how much you will need.
Although you can build a budget by hand using a spreadsheet, you must be careful as they are prone to errors, and unfortunately, a budget error could jeopardize your business.
5. Have You Saved Enough Money?
Your budget gives you an idea of your monthly expenses. The next step is to determine how much money you need to save to pay for those expenses.
Most advisors will suggest that you double your estimate. Forecasting revenues for a startup is nearly impossible. Therefore, it’s best to take a conservative approach to help minimize the chance that you will run out of money before the company has had a chance to succeed.
Saving enough money to quit is usually the most time-consuming part of the entrepreneurial process. This effort can take months or years, depending on your specific situation. Start saving money as soon as you decide that you want to become an entrepreneur – even if you don’t have a business concept in place.
This strategy allows you to move quickly once you are ready to launch the business
Ready, Set, Go!
When you are ready to move to your new business, resign from your job with professionalism. Give your employer ample notice and offer to train a replacement. Avoid the common mistake of speaking badly about your current employer or coworkers. Your employer and coworkers should remain valuable contacts during your professional career.
If you think you’re ready to launch, check out Small Business BC’s Start Smart Series for free (a value of $49 – only in October) to ensure you’ve got your bases covered. Start Smart Series provides a step-by-step guide to starting your business right.