Tuesday, April 8, 2014

5 Vital Questions to Ask Before Quitting Your Job to Start a Business

Making the jump from being a full-time employee to being self-employed can be a tough transition. One of the biggest things it affects is your personal and business finances. So before taking the leap, here are five important financial questions you need to ask.


1. How will this affect your personal finances?


Making the leap is often easier when you have a working spouse to share the financial burden with, or at least a big fat savings account. Before quitting your job to start a business you’ll have to evaluate your personal finances. This will be key in determining whether or not your business will have a successful start, so don’t skimp out on this part.


Before taking the leap to being a business owner, the first thing I did calculate all my income, expenses and debts. It’s much too difficult to start a new business venture with old debts and large account balances weighing you down. By making a plan and sticking to it, I was able to pay off all my debt and quit my job 4 months sooner than I originally anticipated.


If your bills and basic needs aren’t going to be covered by either a significant other, savings, or your minimum monthly business income, now probably isn’t the right time to jump — yet. Work on paying off your debts and upping your minimum income before quitting your day job. Your personal finances will thank you for it.


2. Do you need capital and how long will it take to turn a profit?


Some sources of income and businesses, like consulting, writing or design work, require very little capital and can produce profit very quickly. Others types of businesses and startups may need more money to get off the ground and may not bring in any income for a long time. It’s important to understand which type of business you hope to create.


Do you have a plan for raising capital? Besides putting up the cash yourself, or applying for a loan, you could explore other options — like getting investors or even by leveraging a program like Kickstarter.


Don’t start a business without enough money to truly get it off the ground! Give your new career path a fighting chance by researching not only the type of business capital needed, but estimating a profit date. Some businesses will be profitable in a few short months, while others will take years to get out of the red. You have to be prepared for this!


If you plan to cash flow your business, or even leverage debt along the way, you must have enough money to get you through that time — whether it be from a spouse’s job, savings, or a day job.


3. Do you have a savings account for back-up?


Everyone and their dog will tell you that an emergency fund is necessary, but a standard emergency fund may not be enough to quit your job and strike out on your own. You will need to have additional savings to use as a cushion (even if for peace of mind) in the event it takes awhile to bring in steady income.


Make sure you have enough to get you through the ups-and-down stages of being a new business owner, where you aren’t making much, if anything at all. You may not need it, but it’s nice to know that it is there, just in case.


It’s also smart to have extra money stashed in case you’re short funds one month, or keep a monthly cushion in your checking account. I like to have an additional 2-3 month of expenses in my checking at all times in case I have a slow month. This ensures I can still pay the bills if one becomes due before my business invoices get paid.


4. Are you living the lean startup lifestyle?


In the beginning stages of a business, it’s especially important to minimize your expenses as much as possible. This will give you — and your business — the breathing room you may need as a small business owner.


Living a Lean Startup type lifestyle, can be the determining factor between quitting your job successfully and being forced to go back to work. A few expense cutting tactics may be: downsizing your home, downsizing your car, evaluating lower cost options for monthly bills, or limiting any non-essential purchases.


Anything cash flow that you can funnel into your business to get it off the ground will be a smart investment into your future. Determine what expenses are important to keep your business and household running, then eliminate the ones that aren’t necessary.


5. What are your income goals for self-employment?


No one wants to be broke forever, so remember to establish income goals, as well as actionable steps to reach them. Entrepreneurs have the awesome ability to earn money based on the work they do, while 9-to-5ers don’t often have that luxury.


For your first 6 months to a year, you’ll want to set reasonable income and financial goals for your business. While you’re getting established don’t expect a 6-figure-salary when you aren’t “known” in the market yet. However, having long-term income goals will help you have something to reach for.


Do you want to eventually bring home $100,000 a year? Great! How are you going to get there? Set goals, both short and long-term, and keep pushing yourself to reach them.


Being an entrepreneur and business owner can be a fabulous adventure, but it can also be an absolute nightmare if you don’t start out on the right foot. By making a few sacrifices in the beginning, you’ll get to do what you love and have the luxury of designing your own life.


Start by asking yourself these questions before you make the leap and you’ll be well on your way running a successful business.


Are you a small business owner? What’s another vital question that needs to be asked before taking the leap?


Source: B2C_Business



5 Vital Questions to Ask Before Quitting Your Job to Start a Business

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