If you’re ready to take the leap to leave your day job and start your own business, the process may seem simple. After all, you just need to quit your job and start working for yourself, right? Not so fast. Although you may already have a side hustle, being a full-time entrepreneur is a whole new ball game.
To successfully transition from employee to entrepreneur takes a lot of work and planning. Here are ten steps you can take to ensure a successful transition:
- Save Up For the Unexpected
The first step in transitioning from employee to entrepreneur is building an emergency fund. An emergency fund will help you fund your lifestyle in between earnings from your day job and earnings from your new business.
To create this buffer account, start by opening a separate, dedicated savings account. There is a lot of debate on where you should keep your emergency fund. A good rule of thumb is to have it easily accessible in the event you actually need to tap into it. An online savings account is a good place for that. You’ll want at least one month of living expenses, but preferably three to six to be safe.
- Get A Business Credit Card
As you rack up more and more business expenses, you’ll find it more difficult to keep them separate from your personal expenses. A business credit card solves that problem. Come tax time, it’ll be a lot easier to deduct the applicable expenses if they’re all being charged to a dedicated business credit card.
In addition, a business credit card serves as a revolving source of capital. If you have a business credit card, you’ll eliminate the need to take out small loans to fund things like a new office or equipment.
Another reason to get a business credit card is because some business credit cards offer rewards on purchases you’re likely to make for your business. For example, the Chase Ink Cash business credit card offers 5% cash back on the first $25,000 spent on office supplies, cell phone and landline service, Internet, and cable TV.
- Figure Out Your Health Insurance Coverage
If you work at a company that employs more than 20 people, you’re entitled to temporary continuation of health insurance coverage under your employer’s plan. This government mandated benefit is called COBRA (Consolidated Omnibus Budget Reconciliation Act).
Temporary coverage usually lasts 18 or 36 months depending on the circumstances that led to your need for COBRA. Employers can offer coverage for an even longer amount of time. It’s important to check with the Human Resources department before leaving your day job to make sure you know how long your health insurance coverage will last under COBRA.
The cost of continuing your health insurance coverage after termination will likely be higher than your premiums were when you were employed. If this is the case, you may want to consider buying a new health insurance plan on the marketplace.
No matter which route you choose, make sure you are insured. Come tax time, you’ll be charged a fee if you’re not.
- Grow Your Side Business First
You may be tempted to quit your existing career before you have your new business up and running. Although you have one foot out the door, I urge you to reconsider leaving your day job so soon. The best way to transition from employee to entrepreneur is to grow your side business first. This way, you can complete all the tasks mentioned above and work out the kinks before taking the big leap.
Growing your business on the side does require a significant time commitment. Consider waking up one or two hours earlier each day to work on your business and sacrificing some weekends to get things done.
- Create A Business Plan
Laying out a business plan for how you intend your business to function is crucial to success. It doesn’t have to be a hundred pages or incredibly formal. It justs needs to state your mission, the details of your product/service, how you intend to reach customers, and any plans for expansion. If you want to take it a step further, you can include marketing in your business plan. How do you plan to tackle things like social media, content creation, and outreach?
Many companies don’t need a formalized business plan, but having at least a loose one doesn’t hurt. In fact, it could help you secure financing should you need it in the future.
- Do The Necessary Paperwork
Ideally, you would have the legal structure for your business set up before you leave your day job. This, however, is not always the case. If you haven’t thought about it already, now is the perfect time to think about how you want your business to be legally structured. Do you want to form an LLC, be a sole proprietor, or create a partnership?
Getting a lawyer would be helpful but may be expensive. Another route is to file your documents with LegalZoom. Whatever method you choose, make sure that you understand how you will be taxed. It’s important to comply with all IRS requirements.
- Leave Your Day Job On A Good Note
Now that you have your business legally structured and have followed all the other steps outlined in this article, it’s time to actually leave your day job. Be sure not to burn any bridges on your way out. You never know when you’ll run into your colleagues again down the road. Who knows — they could be your future business partners or customers. Make sure you give a full two weeks’ notice and help train the person filling your position, if possible.
- Set Up A Company Budget
Now that you’ve left your day job, you’ll want to set up a company budget that includes all expenses. A lot of your business expenses will be tax-deductible; so make sure you track them closely. QuickBooks is a long-time trusted software that’s perfect for small business accounting needs. If you want a service that has more online features such as time and project tracking, FreshBooks is the way to go. Xero is another option for those looking for a web-based accounting service.
You may even want to hire an accountant to help you make sure you’re staying on track with your budget and deducting all applicable expenses.
If you plan to pay yourself a salary, you’ll want to think about that seriously, as well. Payroll services like PayChex or Gusto are worth looking into. PayChex is the leading solution for web-based payroll services for businesses of all sizes. Gusto specializes in providing payroll services for small businesses.
- Be Prepared To Make Mistakes
When it comes to bootstrapping a new business, “done” is better than perfect. At your day job, you may have had projects that went through many revisions before being finished. You may have had a manager that required perfection on all work products. But in a new business, you’ll need to focus on getting things done rather than waiting for them to be perfect.
Waiting for perfection will slow down your business. Learn to accept mistakes and keep moving forward. Progressing is a part of entrepreneurship.
- Learning is a Process
On that note, it’s important to learn as you go. You’ll take on many roles as a new entrepreneur. For example, you may have to handle marketing one hour and tech support the next. It’s important to accept the fact that you won’t know everything on your first day as an entrepreneur. Much like you required training for your day job, being an entrepreneur will require some time to get into the swing of things.
Transitioning from employee to entrepreneur won’t be a glamorous process. You’ll need to wear many hats — some of which might not be ideal at times. You’ll have to handle a lot of paperwork and be prepared to make mistakes.
On the bright side, being an entrepreneur is one of the most fulfilling things you can do, and allows you to make your own path on the road to financial freedom. Remember to take things one step at a time and learn as you go.
Good luck!Topics: Careers • Earn Extra Income