Editor’s Note: Today, we have a great article from my friend and personal finance blogger Harry Campbell. Harry started blogging about personal finance at Your PF Pro a few years ago and has built a very useful and informative site. He enjoyed it so much that he started a 2nd site dedicated to finding the perfect work-life balance at The Four Hour Work Day. In addition to blogging, Harry is a full-time aerospace engineer and enjoys surfing and playing beach volleyball.
Growing a side hustle into a real, full-time business is extremely exciting and rewarding. Being an entrepreneur has a lot of perks that you miss out on when you work for someone else: you can work around the times of the day and week when you feel most productive and creative, you get to be your own boss, and theoretically, your earning potential is unlimited. The more you work and the more effort you pour into your business, the more you’re likely to get out of it.
But it’s not easy to make the switch from employee to sole proprietor. It can be hard to figure out the right time to make the transition – and it can be scary, too. There are risks involved in quitting your day job. But the rewards are usually worth it, and you can prepare yourself now in order to make that future transition smooth and successful. Nothing says you have to move forward blindly (and in fact, it’d be unwise to do so).
Before you make the leap and go at it on your own, ask yourself these four important questions:
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Is Your Side Business Sustainable?
You need to have a pretty substantial track record before you decide to hand in your 2 weeks notice to your employer. Some questions you can answer in order to determine how sustainable your business is can be pretty objective:
- Did you make a steady income for the past 6 to 12 months? This means you made about the same amount every month over time.
- Do you have at least a few new prospects, clients, or projects lined up for the future?
- Were you able to cover your business and living expenses in the month you made the least amount of money?
If you’re able to answer yes to all of these, chances are your business can continue to operate for the long-term.
Other questions to consider are more subjective:
- Do you have fresh ideas for your business in the future?
- Do you still feel as energized and inspired about your venture as you did when you started?
- Have you been able to work hard on your projects over the last few months without feeling burnt out? Although it’s normal to feel tired; constantly working to the point of exhaustion just to keep things up and running.
- Do you love what you’re doing?
Again, if you answered “yes” to these questions, you’re likely operating something sustainable. If you said “no” or felt like you had trouble answering, you might want to re-evaluate whether or not you’re ready to make the leap into self-employment.
Are You Financially Prepared?
Quitting your day job usually means giving up a regularly scheduled and dependable paycheck. As a business owner, you might have to deal with financial issues like clients who don’t pay on time or who you have to fight with to get paid, slow periods where you don’t have as much work, and cash flow issues related to expenses you must incur before earning your income.
For these reasons, you must be prepared. Have an exceptionally large emergency fund saved up before you stop taking a paycheck from your employer. The usual rule of thumb is three to six months’ worth of expenses – try aiming for 12 to 18 months’ worth instead to provide yourself with a cushion. It also helps to diversify your finances at least a little before quitting your day job. Consider how you can create multiple income streams if you haven’t already.
Are You Mentally Prepared?
Being an entrepreneur requires a whole new mindset. No one can hold you accountable, but you. No one will tell you what to do next or solve a problem for you. No one will praise you for doing a good job or recognize your successes. You are solely responsible for guiding and growing your business – and it can be tough going it alone when “it” means “everything.”
Before you quit your day job, you need to be honest with yourself. Can you handle working on your own for long periods of time? Can you self-manage to stay productive and complete the tasks that need to be done? Can you use your time wisely when you’re not required to work a certain schedule or show up to an office on a particular day?
Do You Have A Plan B?
You don’t have to have a secondary business plan written up and ready to bust out immediately if one little thing goes wrong in your entrepreneurial journey. However, it is worth thinking about what you’ll do if you don’t find long-term success as a full-time business owner.
First, have a backup plan in place in case some of your big ideas fall flat. Consider another approach or have another business idea waiting in the wings. And don’t get discouraged if things aren’t smooth sailing 100% of the time – just be prepared to continue taking action to find what works. I can promise you will have hardships – every successful business does, but it is whether you have the ability to overcome those difficulties that will determine the difference between failure and eventual future success.
If you simply can’t make your venture profitable and viable, understand what your options are before you get there. Could you sell your business if you could no longer afford to run it? Is there a job field you’d like to explore if you need to switch back to working for a company? These are some of the most important consideration to keep in mind before quitting your day job and focusing on your business full-time.