The decision to go from side-hustler to full-time entrepreneur is a tough one. It might sound romantic to just quit your day job and jump right in, but appropriate planning is necessary in order to make sure you’re well equipped for the financial and emotional challenges that come along with being self-employed. Here are 8 smart things to do before you quit your day job:
Create Your Business Plan
The first step to take before you quit your day job is to create a business plan. Writing out your plan will help you determine how prepared you are, assess if the business provides a viable income replacement, and uncover questions that need to be answered.
Your business plan should include an overview or summary of your business, your objectives and mission, research about your market and industry, an outline of your team (if any) and their roles, an operations plan, marketing strategy, budget/funding plan, and an appendix with any additional details. Consider this your game plan for going from a side hustle to full time entrepreneur.
Establish Your Business Legally
Next thing to do before you quit your day job is to establish your business legally. What type of business structure do you need: a corporation, limited liability company, partnership, or sole proprietorship. These are legal structures on the federal level; your state may have additional legal structures that fall within these federal ones. The key is to determine the legal structure you need and identify your business as such.
You also need to consider planning for the correct liability protection, tax accounts (sales, etc.), employer identification number (EIN), business bank accounts, and obtaining all the necessary licenses and permits necessary for local regulations.
Why do all this before you quit your day job? You can’t legally make money without setting up the legal side of your business first. Imagine navigating the legal process without any income coming in. Having the legal side of things in place before you quit your day job will save you a lot of hassle in the long run.
Create a Business Budget
Just like creating a business plan, it is important to plan your monthly business budget. Most new businesses fold within 6 months to a year — mostly because people did not plan their finances well enough before they quit their day job.
Laying out budget out on paper will be a key piece of your success. Determine your start up costs, equipment needs, space needs, utilities/services, employee salaries (if any), advertising costs, cost of production, etc. Figure out what you need up front as well as how much you’ll need to make monthly to cover your costs.
Pay off Debt
Get your own finances in check before you quit your day job. It is hard to focus your efforts on being a full time entrepreneur when you are stressing about mounting debt or paying your student loan bills. One solution is to pay off debt and minimize your monthly expenses before you quit your day job.
Additionally, you can use the money you are earning from your side hustleto pay off old credit card and student loan debts. If you’re having challenges prioritizing how to pay off your debt a common method is the snowball method which allows you to concentrate on paying off debts based on the lowest balance or highest interest rate.
Increase Your Emergency Fund
In addition to paying off debt, spend time increasing your savings. It is necessary that you have an emergency fund set aside to help you with monthly expenses while you get your business up and running. It is easy to underestimate the time and money needed so it is wise to set aside more than you think you’ll need. You can use a savings app like Qapital to help you set aside a certain amount of money towards your emergency fund each week. However much you save, make sure you feel you have enough before you quit your day job.
Wait until your business is generating steady income
One of the best pieces of advice you can follow is to make sure your business is generating a steady income before you quit your day job. Starting a side hustle while still employed ensures you have a viable business idea. Plus, you can fund your business yourself and build a client base while you still have a safety net. The general rule of thumb is this: don’t quit your day job until you can safely say your side hustle produces 2/3 of your current salary; then its safe to make the leap to full-time entrepreneur.
Develop a Support Network
Another way to prepare to energize your side hustle and become a full time entrepreneur, is to develop a support network. Right now you have a network of colleagues and services to support you in your job. You need to build something similar for your business before you quit your day job.
Reach out to friends, colleagues, and your current network. Determine who can help you once you become a full time entrepreneur. Know someone who is an accountant? Get their rates. Ask friends and business colleagues if they know a good web developer. Setting up your network before you quit will help you more easily navigate life as a full time entrepreneur.
Have a Back-up Plan
Like we mentioned before, most new businesses fold within 6-12 months. That is why you should have a back-up plan before you quit your day job. Know what you’ll do if this side hustle doesn’t cut it after a set amount of time as a full-time entrepreneur.
You can prepare by updating your resume, creating a portfolio, and most of all not burning bridges with your colleagues or employer.
Don’t worry, having a back-up plan and updating those documents doesn’t mean your business won’t work. It simply means you’ll know you’ll be okay regardless of the ups and downs in your business. It’ll also come in handy when proving yourself to investors, potential team members, and even clients. People will like seeing that you are prepared for everything.
Remember starting a business and becoming a full-time entrepreneur is going to be challenging. That said, you can make it easier on yourself. Just be sure to plan ahead and complete the tips outlined above before you quit your day job.