Deciding to make the change from employee to entrepreneur can be scary. Starting a new venture is filled with new experiences and uncertainty that you can't fully prepare for ahead of time. Despite the unpredictability, half a million new businesses open every year, according to the Small Business Administration.
If you've decided to join the 500,000, congratulations! You're on your way to having more control over your financial and personal future. Being the boss gives you power you've never had before, but with power comes responsibility.
Before you make the transition from employee to entrepreneur, there are some steps you need to take.
Commit Before You Quit
Hold off on quitting your "day job." Even if you've already started your new gig and are seeing good results, you never know when a slow week could come. Having a steady income while you build your business can keep you from going through lean financial times.
That does mean you'll be building your business while working for someone else, which presents some unique challenges you should be aware of.
While working on your new business, make sure you're not violating any existing legal agreements with your employer. For example, let's say you work for a construction company that builds hospitals. If you've signed a non-compete agreement, you can't start your own construction company targeting those same clients.
You should also avoid using company property for anything to do with your new project. Something as simple as a google search on a company computer can be seen as time stealing, and that doesn't look good in the professional world.
Something else to keep in mind is the need to balance your time. You can't neglect either job without consequences, so make sure you're not overscheduling yourself. It can feel like everything has to be done right away, but building your new business slowly will also help prevent growing pains.
While balancing two jobs may be stressful, it allows you to build more experience, and money, before you head out on your own. Plus, maintaining a good working relationship with your current employer means you get to keep your professional reputation clean, and prevent burning any bridges.
Commit to your new enterprise before you quit your current job by taking the time to ensure it's really viable in the current market. You don't want to get started only to discover you don't have the funds or skills you need.
Check The Laws Before You Start Your Saws
Depending on what business you're starting, you may need some licenses or permits to keep everything legal. Let's go back to the construction company example from earlier.
If you're starting a construction company, you need insurance, permits, and, depending on what state you're in, a contractor's license to get started.
If you're in Tennessee, for example, you can't do professional contracting work worth more than $25,000 without a contractor's license. Violating that law could get you fined, so it's certainly something you want to know before you start your saws.
If that's the situation you're in, you can become the proud owner of a contractor's license by passing the contractor's exam, and possibly an additional business exam in some states. To make sure you're ready for your exam, you can train with industry-leading prep courses.
No matter what industry you're going into, there will be unique legal requirements. Check the rules and regulations put in place by your local government, as well as federal entities like the Small Business Administration, before you get started. Research now can save you from a lawsuit later.
Save Some Money While Things Are Sunny
One of the biggest factors in business failure is a lack of funds. As of 2020, about 82% of businesses that failed blamed a financial problem. To avoid that, you need to find the money before you need it.
There are three main ways to go about this.
One is to save money while you still have a day job. Take a look at your personal finances and see how much money you can afford to set aside out of each paycheck. To get this amount as high as possible, consider downsizing in your personal life.
Moving into a smaller place, refinancing your personal loans, or cutting out services you don't absolutely need will sting now, but you'll reap the rewards later.
The second option is to save money out of the proceeds you're making from your new business. Most of the money you make will be going back into the business initially anyway, so set some aside in a rainy-day fund. Ideally, an emergency fund should cover six months of operations.
The third way to find funds for your new business is to find investors, and/or a small business loan. An investor or loan can infuse your business with a consistent cash flow that can be the difference between success and failure.
To qualify for most loans, and impress investors, you'll need a solid financial plan. This includes a summary of how much money you need, when you expect to break even, what equipment you'll need, and other important financial details. It's a time-consuming process, but it's how you get a small business loan or investor funding.
The more specific you make it, the more likely you are to receive funding, so focus on the details.
You can choose one of these methods, or combine them all to maximize the amount of money you're able to put into your new business.
Taking these steps as you begin your journey will ensure a smooth transition from employee to groundbreaking entrepreneur.