The decision to quit your job to launch a startup is one of the most important decisions you will ever make. The timing of this decision is critical. If you leave your job before you are ready, you could run out of resources before your fledging business has had enough time to succeed.
The key to making this transition successfully is to prepare for it well in advance. In this article, we cover the steps needed to negotiate this process successfully.
Step 1: Have you launched the startup?
Launching a company does not need to be a full time job, at least not initially. There are many things you can do while you keep your day job. In some cases, you can actually run your business for some time while you keep your job. This arrangement gives you flexibility as it takes away some of the financial pressures.
However, launching a business while you work full time isn’t easy. It requires a delicate balance between your work responsibilities and your startup duties. You must handle these obligations professionally.
Here are some simple rules:
- Run your startup outside of regular business hours.
- Do not compete against your current employer
- Never use any of your employer’s resources for your business
- Give your employer 100% of your attention while at work.
If you cannot follow these rules, consider resigning. Consult an attorney before launching a business as some employers may place restrictions on launching a business while being employed.
The alternative is to resign and move to your startup job full-time. This transition requires a lot of preparation. The following steps help you with that effort.
Step 2: Create a realistic budget – the easy way
Your first step is to create a monthly budget that realistically reflects your expected living expenses. In my experience, the easiest way to create a budget is to use a personal finance software package like Quicken to track your expenses for a few months. Most software packages can download data from your banks and categorize it automatically. Once you have a few months of expense data, run a report showing spending categories. This report provides an accurate estimate of your monthly spending and can be used to develop a budget.
Alternatively, you can manually track your income and expenses using a spreadsheet. This method, however, can be prone to error.
Step 3: Build your reserves
As soon as possible, start building a money reserve to cover your budgeted living expenses. Unless you can keep your regular job, or have a working spouse, you will need every penny you can save. Building a reserve can take some perseverance, so do not approach it lightly.
One critical mistake that startup entrepreneurs make is overestimating how quickly their startup will produce enough money to pay a salary. Look at your projections and consider doubling – or tripling – the amount of time. I speak from personal experience – it’s best to be on the safe side.
Step 4: Get health insurance coverage
Most entrepreneurs, especially young ones, make the mistake of dropping their health insurance plans while they launch their companies. They see this tactic as a way to save money. Dropping health insurance is a bad move. You will be better off using COBRA if your former employer offers it, or buying some insurance coverage. At the very least, get a plan that covers catastrophic health events.
If you don’t get health insurance, you risk losing your business if you develop a health problem or have an accident.
Step 5: Build an emergency fund
Aside from your regular living expense savings, consider budgeting extra money for an emergency. This money can help you in case of an unforeseen event, such as unexpected car repairs, medical bills, etc. This fund is not absolutely necessary and entrepreneurs have gone without one, but it’s good to have.
Step 6: Secure financing for your business
Make sure you have the necessary financial resources to operate your business before you leave your job. Keep in mind that finding business financing can take a while, so start early. If you are going to finance the company by yourself or with your co-founders, you need to start saving money as early as possible. This process can take a long time. I actually self-financed my company when I started this business. It took a couple years before I had enough money to launch the business.
If you look for external financing, try to secure it before you leave your job. This task can be difficult, but it’s the safest approach. For more information, read “9 realistic ways to finance a business.”
Step 7: Quit your job professionally
When the time comes to leave your job, quit with grace and professionalism. Don’t make the irreversible mistake of speaking badly about your co-workers and former employer. It’s not only bad form, it’s counterproductive. Remember that most startups fail and your prior employment contacts will remain as some of your most valuable assets.
Instead, tell your employer that you are leaving to pursue a new challenge. Thank your boss for the opportunity to work with them, and wish everyone well. If they have a replacement for you in mind, offer to help with the transition.
Lastly, it’s best to keep the fact that you are launching a company to yourself. There is little to gain from sharing this information with everyone, and that approach could backfire. Let them find out about your business when the startup goes public or gets acquired.
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