I am a staunch advocate of following your dreams and achieving your life goals. I feel that everyone should wake up happy and excited to start their day. This is the main reason that I started my coaching business – it energizes and excites me when I help people discover and pursue their passions.
At the same time, I am a staunch believer in not making impulsive decisions that can have a long-term adverse impact on your finances and overall quality of life. This is why I think that the pursuit of our passions should be founded on the principle of wisdom. You need to understand the how, when, where, and why of executing your plan of action before you dive in.
As much as I love doing what I do, I would not be able to do it without the foundation that I built from working a full-time job. I worked for many years building my business while remaining employed at a fairly demanding job. Many times, I thought about quitting my job and starting my own business during my transition phase.
About a year before I left my last full-time job, I was completely burned out, but I kept going because I wanted to set a firm foundation for my business before leaving. I was not in the financial position that I wanted to be in during the early phases of my business start-up. So I stuck with my full-time gig until it was the right time for me to leave.
Of course, my situation doesn’t apply to everyone, so I never answer this question with a one-size-fits-all answer. Ultimately, it depends on your situation and your career goals. So I always challenge my clients to consider these three questions when they contemplate quitting their job in favor of entrepreneurship:
Are You Financially Prepared?
Generally, I recommend that you have at least 6-12 months’ worth of living expenses in savings before you voluntarily leave your job. This may sound excessive, but it can be a lifesaver, especially if you do not have another source of income. No one knows what tomorrow will bring so it is better to be prepared than to be sorry later.
Think about some of the individuals who left their jobs to be a full-time entrepreneurs within a few weeks of COVID-19 being declared a pandemic. A few of them probably made impulsive decisions to leave their jobs and had little savings in the bank to carry them through a few months. They were fired up and ready to give their business their all, and out of nowhere, the entire globe was forced into an economic shutdown.
So, what does that look like for them now? Number one, because they voluntarily separated from their employer, they can’t access unemployment benefits right now. Number two, they also don’t have access to employer-sponsored healthcare benefits. This means that they may have to delay or forgo treatment if they experience health concerns.
Number three, unless their business provides essential products or services, they probably won’t make many sales right now. Because consumers tend to primarily buy only essentials in a down economy, a number of businesses that provide non-essential goods and services are suffering right now.
Therefore, more than likely, these individuals have unnecessarily fallen on difficult economic times due to poor preparation. And believe it or not, I actually know someone who is in the exact situation at present. This is why I strongly advocate financial preparedness when starting a business endeavor.
Even in an up economy, the average business owner typically has more expenses than revenue in the first year of their business opening. For some, this may be the case for the first two to five years. This means that you may not be making a profit while your business gets off the ground. Therefore, you need a financial cushion to keep you afloat during these times.
Do You Have an Economically Viable Business Strategy?
Is your business tried and true? By this, I mean, have you tested the market and seen if your business is profitable for you? Generally, this requires that you start building your business while working a full or part-time job. That way, you will have a better understanding of how much you can anticipate making from your business once you transition into it full-time.
Taking a tiered approach to full-time business ownership also helps you make less costly mistakes. You can take your time to see what works well for your business operations and what doesn’t while you still have a viable income stream. You can easily write off losses and lessen your tax liability while not breaking the bank if you strategically plan your transition.
Do You Have a Backup Financial Plan?
If you plan to leave your job, do you have another viable means of income to sustain you through the transition? This could include income from other income earners within your household, alimony or child support payments, pensions, annuities, royalties, investments, lottery winnings, etc. This source of income can be in addition to or a replacement for the earnings from your employment.
It is very important to have a steady stream of income flowing while you start your business, if at all possible. Having a backup financial plan will help ease tension and anxiety from business losses or slow growth. It can also be an extra source of business capital in times of need. So think about how you plan to live as you grow your business before you leave your job.
After you have taken time to diligently consider the impact of leaving your job in favor of starting a business, you should strategically plan your course of action. You should never make an impulsive decision by simply quitting your job in the heat of frustration or excitement. No matter how tired you are of your employer or how burn outed you may be, impulsivity is rarely the best plan of action when it comes to financial matters.
Even if you decide that quitting right away is the best option for you, at least follow proper protocol. Tender your resignation according to your employer’s guidelines and be diplomatic throughout the resignation process. You never know if you will need your job again in the future or if you will meet up with your former supervisor, colleagues, or customers in a different capacity.
Also, try to wait for the most opportune time to leave, even if you are ready to walk out the door right away. For instance, if you work in education, generally, the best time to leave is in between terms or during the summer break period. This gives your employer enough time to replace you, and you aren’t leaving your customers in a difficult situation. After all, your customers from your current employment may be your business customers one day. So you should always try to resign in a graceful manner.