You decided that you want to start a business. You have this amazing business idea and you are ready to take the plunge! You have read a couple of encouraging blog posts on how easy it is to build a company and almost immediately start earning money. You are ready to GO!
However, before you jump in, let's take a step back and do some calculations. Starting a business is comparable with changing a career, for when you start a new career you require a new skill set. If you have money and no time you can hire consultants or a business coach and together develop fast track plan for your business. If you don't have the money, but you do have the time, your next move should focus on acquiring an entrepreneurial skill set to run your business successfully. From marketing, sales, PR skills to social media management and negotiating contracts with suppliers. First, you have to learn the skills then test it on your new businesses until it's successful. This can take months to implement and you need to be financially ready for it.
Starting my own business was the best decision I ever made and I am the last one to discourage you from proceeding in that direction, but making sure you have a solid financial cushion before you jump out of the 9 to 5 bandwagon should precede your decision.
Before quitting your job plan your escape budget that will cover the cost your retraining, enable you to take time off work to set up your company, while still being able to pay the bills. You can figure out how much money you are actually going to need by answering the following questions:
How much money do I need to actually start my business?
How much money I need to be happy?
How much do I need to cover every month?
What expenses are nonnegotiable: mortgage, savings, health, utilities, taxes, and business expenses?
What expenses can I sacrifice: eating out, mani-pedi, hairdresser, holidays, etc.
Once you know your numbers you can consider one the 3 options to transition from job to business.
1. SIDE HUSTLE aka MOONLIGHTING
In this scenario you either keep your current job or go part-time and build your business on the side. This is a great option if you are looking to start a lifestyle business or build a startup. It is the most time-consuming option and will require commitment to your business and change of lifestyle. You may have to say good-bye to weekend trips and nights out with friends, as you will have to put all your time and energy into this new business alongside your current job. It's not for the faint-hearted and for those who give up easily. However, it is a great way to test out your ideas and learn more about your new market without compromising your financial security. The goal in this approach is to start earning money from your new venture while you are still in your day job and only quit once your side hustle starts bringing in circa 75% of your current salary. Alternatively you can continue with your job and the side hustle until you reach the level that makes you happy.
If you are not desperate to get out of your job as soon as possible this is a great option to be considered. It reduces your financial risk and gives you time to experiment with your new business without having to worry about the money. Assuming you already put together a clear financial budget, listed how much money you are going to need and how much are you spending per month, you can start regularly setting aside a sum of money that will bring you closer to realizing your escape plan. And by that I don’t mean you have to now transform into cold-hearted Ebenezer Scrooge McDuck to start a business. Focus on responsible financial planning and on the first day of every month set aside a sum of money that you can afford. You can then track your progress and measure how far you have left to go. In my experience, you want to save a 9-12 months worth of living, food and business expenses before you take the plunge and quit your job.
3. JUST DO IT
If you already left your job or can’t take it any longer and are willing to take financial risk the JUST DO IT method is for you. This requires a fairly major lifestyle change to make it work. Some people go back to live with their parents, sell possessions or simply change their spending habits and manage their money more effectively. Others move to countries like Thailand or Vietnam where the cost of living is low.This approach offers a lot of freedom, as you can combine it with part-time job or with savings. Bottom line is that you will need to find a source of regular income until you set your business up and you start earning full-time job revenue.
Which option is best for you?