- 5 Ways to Fund Your Startup Without Giving Up Equity - March 4, 2019
- How to Grow Your Startup by Acquiring a Business - August 10, 2018
- How to Use Payroll Financing to Grow Your Business - July 25, 2018
Steps to consider BEFORE you quit your job and launch your company
One of the biggest challenges for most entrepreneurs, especially those with established careers, is quitting their job to launch a startup. The transition from a steady paying job to an uncertain startup can be difficult for many entrepreneurs.
However, managing this transition correctly is critical to the success of your fledging company. In this article, you will learn to:
- Determine if you are ready to make this transition
- Prepare for it
- Get started – the right way
Step #1: Is your family on board?
If you are single and have no dependents, you can skip this step. If you are not, your first and most important step is to secure the support of your family. Their support is critical. Without their buy-in into the whole startup process, there is little chance that your venture will succeed.
Your family needs to understand that your income will likely drop, perhaps for a long time. These circumstances will have a direct effect on them. There will be fewer vacations, fewer dinners out, fewer toys – fewer of many things.
Each family is different, but I can give you some basic advice on how to proceed:
- Be direct and honest. Don’t sugar-coat the truth
- Explain your business to all family members
- Make sure they understand what sacrifices are to be made
- Explain the potential benefits to them (and to you). Use terms they can understand
Step #2: Is your startup running already?
If your startup is not running already, consider doing some preliminary work before quitting your job. At the very least, have your business model and plan in place. If applicable, you should have prototypes of your products or your software. If you offer a service, the solution should be fully defined.
Do not quit your job if your preliminary work is not complete. Preliminary works takes a long time, and you do not want to exhaust your resources while you are still in the planning stage.
In some cases, you may be able to run your new business while working full time. This scenario allows you to maintain your income while getting started. However, this arrangement requires careful planning since you have to ensure your work output remains steady. Keep your startup business separate from your employment. Don’t use your employer’s resources. Don’t do startup work during business hours, and avoid conflicts of interest.
Step #3: Build a workable budget
It’s unlikely that your startup will generate revenues immediately. In most cases, you will have to use your own reserves to pay your bills for a while. One important step towards building a good reserve is creating a workable personal budget.
The method I used when I first launched my company is a little bit different from what most people do. I bought a personal finance software package (e.g., Quicken®) and uploaded three months of past transactions. Then, I spent an hour or two categorizing each transaction.
For the next three months, I lived my life normally but uploaded all my banking and credit card use data to Quicken. Since I had a three-month history of categorized transactions, Quicken auto-categorized most of my new entries. This automation made the process easy and seamless.
The result was six months of categorized, actual spending data. I used this data to create a workable budget and to get realistic estimations of my expenses.
By the way, you can also track expenses manually using a spreadsheet. However, that method is prone to errors. You cannot afford an error in your budget.
Step #4: Start building reserves
Once you have a budget, you can forecast your monthly expenses. Your next step is to estimate how long it will take to earn a salary from your startup. I can tell you from experience that your initial time estimate will be far too short. Increase the time estimate by 50% – or double it – if you can. The last thing you want is to run out of money just as your startup is beginning to show promise.
The actual process of building the reserve is simple. Save as much as you can and put it in a reserve bank account. Don’t touch that money.
Step #5: Get your medical insurance in place
Keep your medical insurance coverage while you are launching your company. If your prior employer offers Cobra, use it. If your spouse has a work insurance plan, join it. Do not make the mistake of going without health insurance – even if you are young. Accidents and health problems can happen to anyone.
As a last resort, consider at least having catastrophic medical insurance to cover serious medical conditions.
Step #6: Build a rainy-day fund
Consider building a rainy-day fund that is separate from your regular budget reserves. This fund should cover emergencies and items that are not part of your regular day-to-day expenses.
Frankly, building this reserve can be difficult for cash-starved entrepreneurs. Many do without. Whether you build one or not is a personal decision.
Step #7: Secure business funding if needed
If you anticipate that your company will need funding early on, consider securing it before you quit your job. Getting funded is very difficult and always takes longer than expected. You don’t want to spend time and personal reserves looking for funding.
Depending on your industry, your experience, and how much funding you need, this process may take weeks or months. Here are some financing options available to startups.
Step #8: Quit your job – the right way
If you are ready to do it, your last step is to quit your job. Quit professionally and gracefully. Schedule a meeting with your supervisor and present your resignation letter. Remember to thank them for the opportunities that they gave you. Lastly, wish them and the team well.
Quit your job the right way, even if you dislike your job. One of the biggest mistakes entrepreneurs can make is resigning unprofessionally. This blunder can have long-lasting repercussions in your business and future career. It’s also bad form.