If you’re currently running a side business from home and are trying to decide whether you can make the leap into full-time small business ownership, this decision can be challenging. Jumping too soon could result in not being able to pay your bills. On the other hand, deciding too late in the game can result in missed opportunities. It is a very fine line; however, by objectively reviewing your venture’s current profitability and predicting its growth, you can make the switch without too many financial hang-ups.
1. Evaluate Performance at Your Day Job
Once my side venture expanded, I found that my performance at my day job suffered. This is a definite sign that it might be time to make the switch. You’re not doing yourself or your employer any favors by not producing at your day job.
2. Evaluate Performance of Your Venture
If you’re missing deadlines and upsetting customers, you could inflict long-term damage to your business. With my situation, I simply had to quit my day job in order to keep up with my expanding venture. New start-up businesses are fragile entities, and should be treated as such. Letting go of your day job will give you the time you need to effectively manage, market, and expand your business.
3. Create a Detailed and Specific Budget
Next, you’re going to want to seriously examine your monthly spending habits. List the revenues of your side business and compare it to your monthly expenses. It’s going to be difficult in the beginning, no doubt, but if you eliminate all unnecessary purchases in your life and focus on saving, you should be able to keep your spending below your income.
4. Manage Your Benefits
You’ll need to be certain that health insurance benefits remain intact for yourself and any dependents. You can choose a high deductible health insurance plan and couple it with a health savings account (HSA) in which your money will grow tax-free. To keep your retirement savings on track, roll over your old 401k plan into an IRA, and set up an individual 401k for yourself.
5. Contingency Plan
The statistics vary, but the most conservative estimates state that 3 out of every 10 businesses will fail within the first two years. While you certainly don’t want to focus on failure when you first set out, you should ask yourself, do you have a plan B?
There’s a certain amount of risk involved regarding any small business venture, and you should always be prepared if your idea doesn’t work out. If your business stopped producing revenue tomorrow, do you have any idea what you would do?
While no one can predict the future, there are a few things you can do to protect yourself. Always leave on good terms with your current employer, as you never know when you might need them again. Also, keep in touch with your professional contacts and acquaintances, and inquire as to job openings or opportunities they may know of. If your business just doesn’t pan out, you will likely want to be able to find work as quickly as possible, so it’s crucial to maintain friendly professional relationships.
Once you’ve made the jump to full-time self employment, it’s time to hone in on your daily spending habits. Until your venture generates decent revenues, saving money will be key. Objectively identify your “wants” versus your “needs,” and eliminate as many “wants” as you can. For instance, purchases including lottery tickets, snacks, coffee, and bottled water are unnecessary, and add up over time. Identify ways to eliminate such expenses, or find ways to get what you need for less.
When do you think is the right time to switch to full-time small business ownership?