An increasing number of people these days are starting their own businesses, either going into freelancing or opening companies to do what they love. Today, it's not uncommon to launch a career as an entrepreneur while maintaining a day job to pay the bills. Hedging your bets, so to speak.
That means there comes a time when something has to give. Either the dream of entrepreneurship fails, the day job has to end or the individual's work-life balance suffers. If you are that individual, sooner or later you have to make the decision: When do you transition from a day job to relying solely on your entrepreneurship to make ends meet?
This can be a tough question because there's no "right time" to make this leap, no one-size-fits-all solution, no checklist to tick off to know, right then and there, that it's finally time. Certainly there will always be an element of risk, and overcoming it is part of the reward: If you can transition successfully, you'll know you've made it.
But take things slowly because one of the biggest mistakes new entrepreneurs make is jumping into the deep end far too early. No, you don't have a checklist to know "you're ready," but you can still use one to know you've "covered the basics."
Don't jump until your business revenue is stable.
One or two months of solid performance may make you confident, but you need to know that that performance is not a fluke. Seasonality can change the fortunes of even an established business, and if you're riding a high from a viral launch,you may start to plan for the future based on numbers that simply can't be sustained.
So, the first thing is to make sure the revenue from your entrepreneurship is stable, month over month, before you quit your stable day job to dedicate yourself to it. Also, don't forget to factor in the costs of doing business. Example: You might have a successful online store selling jewelry you've already made, but you will need to keep buying supplies to keep it up.
Don't jump until your emergency fund is funded.
Your emergency fund needs to contain enough money for you to survive. In a world where nearly 80 percent of People are living paycheck to paycheck, it can be a tall order to save in advance even one month of expenses. It's even harder as an entrepreneur, because you can't save just your own living expenses; you need a rainy day fund for your business, as well.
In business, an emergency fund is called "retained earnings," but at its heart it's the same concept. You need enough money on hand for weathering the storm of an economic recession or funding growth from the launch of a new product.
Don't rely on business loans, and don't rely on future predicted revenue. Make sure you have cash on hand. Financial talk show host Dave Ramsey recommends putting aside six months of operating expenses, if that's at all possible.
Don't jump until your business revenue exceeds that of your day job.
Remember that quitting your day job imeans the loss of the income you get from your day job. Sounds simple, right? Yet too many people make the leap before they've really done the math, and end up draining their savings or their emergency fund on standard operating expenses alone.
If you're living on the combined revenue of your day job and side business, make sure the revenue from the latter is enough to keep you going before you drop the day job. That means a budget that specifies where your money is going. If the numbers don't line up, keep growing your business until they do.
Don't jump until your work/business schedule becomes unsustainable.
Make no mistake, running a business is a very time-consuming lifestyle. Depending on the style of business, you may find yourself working many hours a week on top of your day job just to handle everything. That's because, as a new entrepreneur, you'll have to handle those duties yourself, as you won't have the cash flow to hire employees or contract with freelancers right away.
Eventually, one of three things will happen. You may find your business is suffering because you have to focus on your day job. You may find just the opposite -- your day job suffering because you're spending your time on your business. Or you may dedicate yourself equally to both and find your sanity slipping, working 100-hour workweeks.
If and when you reach one of these junctures, you'll need to figure out what is going to break first. Ideally, your investment in your business will win out and you'll drop your day job. But, if the numbers don't add up, don't jump