Last Updated on
Okay, so it’s fun to think about quitting your day job and starting a new business. And I remember how good it felt that day I went to my boss and put in my two weeks notice – there’s nothing quite like it. But, can I be brutally honest? The truth is that you need to be very smart about how and when to make this transition. Do it the wrong way or prematurely and you could be setting yourself up for a world of hurt.
To put it simply, if you just drop your job cold-turkey and have no savings to live off of while your new business gets its footing then you are almost certainly doomed to fail, and you could eventually be reduced to begging your old boss to hire you back. I know that’s not what a lot of you want to hear, but it’s the cold, hard truth. You absolutely must have some money put aside for life expenses, because new businesses don’t typically spit off lots of cash flow right from the beginning. There are considerable startup costs that will eat up most of your profits in the early phases. Tools are expensive. Trucks are expensive. Marketing is expensive. Getting new projects when nobody trusts you yet is expensive.
There’s no hard and fast number because everybody’s financial situation is going to be different, but in general it would probably be a good idea to have enough money set aside to live off of for at least six months before you quit your day job. So, let’s say you require $3,000 per month to pay all your bills and meet all your obligations. That would mean that you really ought to have at least $18,000 set aside before quitting your job. 12 months worth would be even safer, if possible. The more the better.
I’m sure some of you will read that last paragraph and think that I’m crazy, but take it from somebody who has been there – your profits will be minimal in the early stages, no matter how good things are going! The startup costs and investments will pretty much devour most of your profit and cash flow. And keep in mind that if you want to grow as a business then you will need to re-invest a healthy chunk of your profits back into more marketing, more equipment, more people, etc. If you start taking out too much cash for yourself right from the get-go then you will starve your business to death! It needs money to grow and prosper. That’s why it’s so crucial to have backup savings to live off of. Give your business a fighting chance! The idea is that after six months or a year things will be really rolling and you can then afford to start taking a healthy salary for yourself that will meet your personal financial obligations.
Perhaps you’re thinking that either (A) you’ll go insane if you have to stay at your job full-time for another 6-12 months or (B) you’ll never be able to save up that kind of backup cash before starting the business. I hear you. It’s understandable. In this situation I would try to find some kind of half-measure to make it work. Do you have the kind of job where you can slowly wean yourself off as your business takes off? Cut back from 40 to 35 hours, then down to 30 hours a few months later, then down to 20 hours a few months after that, all the while building your business in your spare time. That way you’re not totally cutting ties with that weekly paycheck until you’re absolutely sure that the business is going to make it. I’m not going to lie – it will be hard to keep your day job and launch a contracting or service business at the same time, but this is usually the smartest way to go if you don’t have 6-12 months of living expenses set aside. The alternative, however, is not a pretty picture. Cut the job off too soon and you could very easily sabotage your new business and your personal finances. Suck it up, punch that clock for just a little bit longer, and you will be doing yourself and your business a huge favor in the long run.
My name is Jeff and I created this blog in 2007 to help and inspire contractors and home service providers. It’s come a long way since then.
Powerful holistic marketing wisdom. Thanks