Are you ready to hand in your two week’s notice and become your own boss?
Not so fast.
Quitting your job to pursue your business full-time is a dream for many side hustlers, but there are a few things you should have in place before you make the leap.
When I was working in my corporate gig, I probably stuck around longer than I needed to because I’m a little more risk averse. I was out to dinner with my boss in Eureka, CA … and it wasn’t until my second beer I finally got up the nerve to tell him I was leaving.
Since I’d been thinking about it for at least a year, it felt amazing to get that off my chest. But it wasn’t a spur-of-the-moment decision or a triumphant flip-off-everyone-in-the-office-and-make-a-dramatic-exit.
It was the result of 3 years of hustling nights and weeks to build my business (the now-defunct footwear comparison shopping site).
Here are the most important questions to answer before you make the leap.
1. Are you quitting “to” something or “from” something?
Even if your job is miserable and the very thought of another day in your cubicle makes you want to gouge out your eyes, quitting purely to escape won’t solve all your problems.
Thankfully, this is where your side hustle comes in. Quitting to work on your business is much different than quitting to get away from a dissatisfying work situation without a plan.
It’s the same thing for retirement, and it’s something I think keeps many would-be early retirees still punching the clock. Work has become part of their identity and they’re not sure what they’d do without it — even if mathematically they don’t need the income anymore.
In my case, I wasn’t quitting to escape a job I hated; I was quitting to pursue a business I enjoyed more — and that I thought had way more upside potential.
If you can’t imagine what you’ll spend your time doing after quitting your job, you’re not ready to quit yet.
2. Do you have some revenue history…?
Before you quit, make sure your side hustle is validated with real dollars.
Some readers are more aggressive than I am, but I wanted to see several months or even a year of my side business earning enough to cover my expenses before I quit.
If your business is seasonal, making it through a whole cycle would be smart so you can get the full picture.
I can’t overstate the stress of being responsible for writing your own paycheck every month — and having a track record of earnings before you leave can ease that anxiety in a big way.
3. … or runway?
Here’s the exception: if you don’t have the earnings history but do have a plan to get there, you need some runway.
Runway is the amount of cash you have socked away to cover your living expenses while you build your business revenue up to a sustainable level.
Again, I’m more conservative so I like to have at least 12 months of living expenses in an emergency fund. Others are happy with 3 months in savings.
Not sure where you’re at in terms of runway? My 30-Day Money Cleanse will help.
4. Do you have a sales pipeline?
Do you have clients and sales in the pipeline? Do you have a process to acquire more?
Both are essential before you take the leap. This is the only way to secure you have a viable business and didn’t just get lucky with a referral client or two.
In my case, I had a system for building out advertising campaigns for the shoe site, and could see how with more time to dedicate to it, the business would grow. It was proven and repeatable, but just needed more time and attention.
5. How will your costs increase or decrease?
Becoming a full-time entrepreneur will impact your budget, both positively and negatively. If you plan to work from home, your commuting costs will go down, but your energy bill may go up.
Related: My Home Office and Hardware Setup
When I turned in the keys to my company car (one of the best perks of my old job) I had to go get a new set of wheels and start paying for car insurance. The vehicle purchase was a one-time cost but the insurance was a new ongoing expense.
If your business is location-independent, you might actually be able to recognize a huge cost savings by relocating to a lower cost of living area or an area with lower taxes. It could mean a cool opportunity to explore other parts of the world and run your business from the road.
The biggest wildcard expense for the newly self-employed (at least in the US) is health insurance.
When I first quit my job in 2008, I was able to get decent health insurance for myself for around $50 a month. Today when I look for my family of 3, it’s at least $800 a month — and that’s for a high-deductible high-coinsurance plan that would really only kick in in the case of a catastrophic illness or injury.
In any case, insurance is a significant (and potentially plan-to-quit-your-job-crippling) expense you have to account for before you make the leap.
6. A bonus: What’s your worst-case scenario?
After you’ve crossed the first 5 items off your kiss-the-job-goodbye checklist, a 6th item to consider is your worst-case scenario.
If everything suddenly comes crashing down around you, what happens? How does that impact your life, your business, and your livelihood?
I know this can be kind of scary to think about, but I think it’s an empowering question because when we really dig into it, the worst-case scenario probably isn’t life-threatening. We tend to make things a bigger deal than they are.
People quit their jobs all the time and the world keeps spinning. People do it who are far less prepared than you are.
So be honest: what’s your worst-case scenario?
Do you have to change your business model?
Do you have to go find another job?
Do you have to move into mom’s basement for a bit?
It might be a bruise to the ol’ ego, but it’s all temporary. And my guess is you’ll be happier having taken the chance than to stay the course and wonder “what if?”
What else what you want to make sure to have in place before your quit?
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Stock photo by Neomaster via Shutterstock