You often hear “overnight” success stories when it comes to people who have quit their jobs to start a business, but it doesn’t happen that way. It takes a lot of work and planning to get there. If you’re fed up with the 9-5 grind, you may have considered starting your own business. We did it and you can too. We’ll show you how to quit your job and actually start a business.
Subscribe to the Show:
Know what you’re getting into before leaping from your cushy paycheck to starting your own business.
The Bar Has Never Been Lower
If you want to start your own business, it has never been easier or less expensive to do so. The internet and all of the tools it has opened the possibility of starting a business to almost anyone.
Funding can be raised on Kickstarter. An online store and drop shipping website can be created with Shopify. You can target local customers with Facebook ads; you can take credit card payments on your cell phone with Square, you can outsource payroll and other HR stuff to Paychex Flex.
What is Your Passion?
I don’t believe that you have to be crazy passionate about something to create a successful business around it, but you do have to enjoy to some extent what you do when you start your own business.
Why? Because you are going to spend a lot of time doing it and if it’s something you hate, you won’t be able to stick with it long term. You can stick with a 9-5 you hate if you’re making enough money or can go home and not have to think about work until the next day.
Don't follow your passion, follow your effort. It will lead you to your passions and success, however, you define it.Tweet This
But starting your own business is so all-consuming that there is no getting away from it, at least in the beginning so while your business doesn’t have to be your one true love, you can’t hate it either.
Get our best money lessons:
Before You Bail
Quitting your 9-5 job to start your own business is not just taking a plunge, it’s more like submerging yourself into a whole new world. It takes a ton of planning, and there are many considerations.
Is it Realistic?
Take your product or service for a test drive to see if people will pay for it, don’t go all in cold turkey. Test, test, and test again. Don’t sink $50,000 into making cat sweaters only to find out cats don’t get cold. Do small trials, see what works and what doesn’t and make corrections based on those findings.
Make it Official
If you haven’t already done it, make your business legitimate by setting up an LLC or S Corp. Legal Zoom makes this process easy. Becoming legit also lets you take advantage of the many tax deductions that are available for small business owners.
Not a Unilateral Decision
If you have a spouse, you can’t decide to quit your job and start your own business without their approval and support. Presumably, your spouse knows that you have been working on your own business for some time.
Before you tell them you are ready to quit your job to work on your business full time, make sure all of your ducks are in a row and show them.
You have a runway; your business is already making enough to support you without your 9-5, you have health care lined up, quitting means you will have more time to spend together.
Whatever qualms your spouse has, you need to have an answer for. If they are not on board, you may not be able to quit yet. If that is the case, ask them what they need to feel comfortable with your decision to quit. And then start working toward that.
Set Some Benchmarks
Set a series of goals for yourself and don’t quit your job before you reach them. You need to be free of credit card debt; you need to make enough money each month to pay your rent or mortgage for six months in a row, you need to secure health insurance for yourself and your family, etc.
I met a series of benchmarks before deciding to quit my job, and the final one was when I was making the same amount each month writing as I was working. In fact, at the point I decided to quit, it was costing me money to work because it didn’t leave me enough time to do as much writing I had coming to me which paid better.
You Need a Runway
A runway is similar to an emergency fund. The gold standard for an emergency fund is six months of personal expenses. Your runway should be at least that, one year of expenses would be the ideal.
If you can’t save that much, save three months of expenses and continue working your day job and on your own business until it is generating 50-60% of the income you make at your 9-5. Then make the jump.
And Another Income Stream
When you do finally quit your job, you will have more time than you were anticipating. When we think of the time spent at work, we tend to think of just that, the time spent at work.
But quitting frees up so much more than just the eight hours you spend in the office. It frees up the time spent getting ready in the mornings, commuting time, and the time you spend doing errands like food shopping when everyone else is food shopping too, after work and weekends.
Believe me; food shopping trips are a lot faster at 10:00 am on a Wednesday then they are at 6:30 pm on a Thursday.
Most of your time will be spent on your business but use some of it to cultivate another income stream.
It doesn’t have to be a lot, and ideally, it will be passive, but you will feel less stressed when you know you have some money coming in regardless of how the business is doing.
Don’t spend money or more money than you have to on your business. All businesses have expenses of course, but too many of us throw money at something we could do ourselves. Or if there is something we can’t do ourselves, we don’t do enough research to find an affordable option.
You don’t need to hire a website designer, you can build a site for free with WordPress, and you don’t have to pay a fortune in hosting fees. HostGator will host your site for as little as $2.75 a month.
Don’t hire an expensive designer to create your logo, find a freelancer on Fiverr.
And Continue to Cut
Don’t let your emergency fund and runway make you too comfortable. Even if your business has been doing well for some time, things can and do go wrong.
Your old budget won’t do. You need to do a complete overhaul of life without a steady paycheck. Use a site like Ebates for necessary purchases. Let Billshark negotiate lower rates for things like your cell phone and internet bills.
Use Trim to clean up all those little recurring monthly expenses you could live without. Every dollar you save gives you more time to make a success of your business.
If you had a 401k at your day job, take it with you when you leave even if you have the option to leave it. While you can leave it, you can no longer contribute, and you will often be charged additional management fees when you are no longer an employee.
You might be tempted to cash out your 401k and use that money to start funding your business or to pay your expenses until the business can sustain you.
That would be a mistake. When you cash out a 401k early, the money is taxed as ordinary income, and you will be hit with a 10% penalty unless you are over age 59 ½.
A better solution would be to roll the 401k into a SEP IRA. A SEP IRA is an investment account for those who are self-employed. A business owner with one or more employees or anyone who makes money freelancing can open a SEP IRA.
Contributions are tax-deductible, and the money grows tax-deferred until withdrawn during retirement when they will be taxed as income. For 2018, the contribution limits are 25% of compensation (how much you are paid) or $55,000 whichever is less.
Those limits are much, much higher than they are for 401ks, Roth and Traditional IRAs which are just $18,500 for 401ks and $5,500 for Roth and Traditional IRAs.
Getting Through Hardships
Running your own business brings a lot of challenges and stress. Everything that happens, or doesn’t happen is your problem now. Make sure you have systems in place when the going gets tough.
Get the Right Support
Having family and friends supporting you goes a long way, but sometimes it isn’t enough. You want to be able to connect to people who are going through and have been through the challenges you are experiencing.
A mastermind group can be a great place to find support, advice, and accountability. It’s also a great place to find like-minded people. Some people in your life are going to think you’re crazy for doing this, for giving up a steady paycheck but finding a group of fellow small business owners can give you a new peer group.
You Can Go Back
What if your business starts to fail or fails entirely? That’s okay. It doesn’t mean you’re a failure, it’s just that the business failed. You didn’t master riding a bike the first time you tried. If your business fails, you can go back to working a day job and start again.
“Given a 10 percent chance of a 100-times payout, you should take that bet every time,” Bezos wrote in his very first annual letter (1997). “Failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.”
But the next time or the next time or the time after that, you have the accumulated lessons of all those failures to guide you. Sometimes, maybe often times, it’s better to figure out what doesn’t work than what does. The only failure would be to continue making the same mistakes over and over.
Give it Twelve Months
LMM is an online business, and five years after he founded it, Andrew quit his day job to do it full time. The hard work, he and Laura, put in also enabled me to quit my job less than five years after I started writing for LMM.
We know it can be done because we did it. We did a series on starting an online business. The premise is that with part-time but focused effort, within one year, you can build an online business that earns $1,000 or more a month.
What have you got to lose? The juicy tax deductions and SEP IRA limit should be incentive enough to at least give it a go!
One year will pass whether you start now or you don’t so why don’t you get started today? A lot can happen in a year.
Justin Krane– Get help with your business finances
Cat Sweaters– In case your fluffy friend get chilly