The idea of owning your own company and being your own boss is a liberating one. It may be tempting to take a leap of faith, quit your day job and start your own business. But it’s a big undertaking.
“My big caution to entrepreneurs is: Before you leap, look clearly,” says Paul Taylor, executive director of the City of Baltimore Small Business Resource Center. He works with local entrepreneurs, advising them on the nuts and bolts of building a small business.
As a small business expert, Taylor recommends taking the time to do your homework before you quit your job. Don’t skip the following steps before taking on your new business full time.
1. Check your finances.
Taylor suggests looking at how much cash you have on hand. If it’s not enough for your startup, you’ll need to borrow money or find investors. If you can’t turn to a relative or friend, you may need to approach a bank or other financial institution for a loan, which can be hard to obtain.
Josh Dorfman, director of Entrepreneurship Development for Venture Asheville, an arm of the Economic Development Coalition for Asheville-Buncombe County in North Carolina, works with startups and high-growth ventures.
If you’re seeking financing, Dorfman suggests looking for grants in your industry, since they don’t have to be paid back. Another option is using available assets as collateral to obtain a business loan with help from the U.S. Small Business Administration.
Dorfman says high-growth ventures typically need equity funding. They have limited assets and a short history, since they’re new, and that makes traditional business loans a long shot. Investors that get a stake in the company are one funding option, but he notes that you may have to give up some control in return.
2. Seek professional advice.
Rebecca Lovell, startup advocate for the city of Seattle, works primarily with tech-minded entrepreneurs. She recommends seeking out organizations and government agencies specifically designed to help new businesses succeed.
In Seattle, for example, local programs offer entrepreneurs crash courses in customer validation, weekend-long opportunities to “scratch the startup itch” and an evening mentor series that assists with business plan idea development. Also available are programs that offer assistance to small businesses in crucial areas, such as planning, permitting, financing and regulation compliance.
3. Understand the time commitment.
Some businesses can be run evenings and weekends, at least until they start to grow. Others need a serious time commitment to get up and running. Taylor notes that if it’s time you need, you might have to give up your day job to make your business work.
4. Weigh investment vs. profit.
While it’s possible to turn a profit early on, Taylor suggests finding out exactly how much of an investment is needed to get the business off the ground. It’s also important to estimate how long it’s likely to take before the business will generate a profit. He says the critical question to ask before quitting your day job is: How much revenue does this business need to generate for me to replace my income?
5. Do market research.
Make sure there is a niche for your business and a market for your product or service before you get too deep into your plans. Lovell says customer validation is “one of the most important things someone can do before quitting their day job or jumping in.”
She recommends doing the legwork to gauge interest: Just because you have a new product doesn’t mean someone will want to buy it or use it. Taylor echoes her sentiment, adding that every business needs a value proposition; something that makes it different from the competition.
6. Test your knowledge.
Review how much you know about the industry or business. If you don’t know much about it, Taylor says you should take the time to learn before you launch a startup. On the other hand, if you’ve spent years working for someone in the sector, or involved in it as a hobby, owning a business could be a natural progression for you.
Should you quit your job?
When deciding whether to take the plunge, it’s important to consider all factors involved. Dorfman has the benefit of hindsight on quitting a day job and diving into business ownership, having done it himself. As with most things, there are pros and cons.
Starting a business tends to take much more time and effort than people expect, so it may be better to keep your income for as long as possible. While quitting your job might help you develop your business more quickly, Dorfman says “the stress can be a great distraction and, in my view, starting and growing a business is not a sprint, it’s a marathon.”
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