Quitting your job to start a business is a dream of many, but putting it into reality can feel overwhelming. There’s nothing wrong with taking your time and building up your business before pulling the plug on your day job. It’s also possible to build up some savings in advance and launch your business before you quit.
I took a different route than many success stories. Instead of building up a side-hustle, after leaving my job I took a 2-month sabbatical before starting my business. I could have approached some things differently, but it was the right choice for me. However, that kind of risky move isn’t for everyone. Not everyone has the luxury of having had a substantial emergency fund and investments to fall back. I also didn’t have kids at the time that I needed to worry about supporting.
It’s in most people’s best interest to create a solid plan that guides them before leaving their 9-5. Business success is about having the courage to fail and fail again until you succeed. Success ultimately yields lucrative results but can also get expensive during the journey.
Ready to make the leap? Here are 15 things you should do before quitting your job
1) Nail down your budget
Money can be complicated when you’re figuring out what to do before quitting your job to start a business. Start with your budget basics. How much do you need to live every month if you made some reasonable sacrifices?
Cutting the internet in favor of free WiFi at the library isn’t going to be a viable option when you’re running a business. But downgrading your cable service, trading in your car for something less expensive, tightening up your restaurant allowance, and paying down your debt will all make a significant impact on your budget. Grab a budgeting tool to see exactly where every dollar is going each month to see what else you can reduce. My personal favorite and daily sidekick is You Need a Budget (YNAB).
Once you figure out how much you really need to live on, you should add about 40% to that figure to accommodate for taxes. We’ll talk more about this below, but paying your taxes is non-negotiable. However, there are ways to find deductions by working closely with an accountant.
2) Build up your emergency fund
An emergency fund is a must before you quit your job and start a business. Most folks shoot for three to six months of living expenses, but when starting your own business, you should consider 12-months. A side hustle or ability to pick up odd jobs can offset some of your need for cash flow and an emergency fund. However, living in an expensive city like New York or San Francisco requires robust financial security to make your rent, and if you have dependents, you need to have more of a runway than someone who’s single.
I had already built up an emergency fund before leaving my job and had some investments to fall back on, too. Looking back, my approach was still pretty risky. While I hustled like hell, I am lucky that things worked out as well as they did and as quickly as I did. My path was not for the faint of heart — so play it safer!
3) Do your research
Make sure you know everything you can about the product or service you’re going to offer before quitting your job to start a business. Most importantly, understand your audience and buyer personas. Who are the clients you will target, and what do they want to buy?
You also need a solid profit plan in place. In other words, how will you make money? Your profit plan should also include how you’ll market and grow your business. Some experts may advise you to create a more detailed business plan at this stage and, depending on what type of business you’re launching, you may need to.
From my perspective, though, you just need to figure out what your products and services will be, how you’ll price them, and know your income targets for each quarter and month. Despite having a pretty good profit plan in place, I could have done more research along the way. I’m lucky that I was a marketer and had experience in this field, so I intuitively understood my clients. But, if I were doing it again, I would plan better and encourage you to do the same.
4) Decide how you’ll fund your business
Put funding on your checklist of what to do before leaving a job. Every business needs some type of funding, even if you plan to stay as lean as possible. Where will that money come from? Most solopreneurs will elect for this to come from their own pocket. Others may have investors in place who can help with startup capital. But you may not have as much freedom and flexibility as you want.
I knew I wanted to bootstrap my business and not accept any outside investments. A client even offered to buy out my company within the first year, which I declined. I wanted to keep my freedom and never work full-time for anyone ever again. I mean, never say never, but it would have to be a truly amazing opportunity for me to go back to a j-o-b. If you also want as much independence as possible, make sure you can bootstrap the type of business you want to start. Some ideas may require outside investment, which could be a good move to create your dream business. But you’re also giving up more control.
However, you plan to fund your business, plan on breaking even during the first year. For example, if you bring in $100,000, you should plan on reinvesting it right back into your business. If you can make more or spend less, all the better. But reinvesting back into your business helps it scale faster than it would otherwise.
5) Set up your business from a legal perspective
Your side hustle can provide a way to earn money to travel, get out of the grind, or be more available for your family. But when you’re serious about quitting your job to start a business, that business needs to be legit, not a “jobby” (aka a job that’s really a hobby). It will require a proper setup from a legal and financial perspective.
I started by setting up my LLC and getting my business legally set up through LegalZoom. Depending on your situation, you may need a corporation, partnership, or sole proprietorship. It’s also time to research any proper licenses, permits, and insurances you need for the business you want to run. You may need liability insurance or a change in your homeowner’s policy if you work from a home office and meet with clients.
However, I do have a caveat that I’ll discuss in more detail in a future post. I would not recommend LegalZoom for trademarks or copyrights, or anything related to intellectual property. Not because there’s anything wrong with their service, but there are grey areas here, and it’s easy to make mistakes. I ended up applying for a trademark but then getting a cease-and-desist letter from another business in my niche with a name that, in my opinion and according to the research I’d done, was not a close match. However, I’m not a lawyer, and see things differently than someone with a law degree.
In the end, I got an attorney, who advised me to change the name of my business, which entailed a whole rebranding and was incredibly expensive. If I had had my attorney run the trademark search for me from the beginning instead of using the trademark office’s search tool, I probably could have saved myself tens of thousands of dollars and a lot of time and heartache.
Hiring a lawyer is also well worth the expense, especially if you’re looking into trademarks and copyrights. Like I said before, there is just too much room for error here. You may be able to get by with a service like LegalZoom when you’re just starting. Once you’re profitable, I would highly recommend finding a small business attorney that you can work with one-on-one.
6) Think about taxes and business finances from the start
When you quit your job and start a business, it’s common to get blindsided by taxes. The rule of thumb is to set aside at least 40% of your income for taxes. As you round out the second year, your accountant will have more insights on how much you should put aside depending on your expenses, profit projections, and deductions. If you don’t need it all for taxes, you can always reinvest it in your business. Or simply walk away with a higher profit margin than expected. You should also prepare to file quarterly taxes after your first year in business in January, April, June, and September.
Mixing too much business and pleasure is usually a bad idea, and it also holds true for your finances. Do NOT combine your personal and business finances! I can’t stress this enough, and it will save you a ton of headaches down the road. Instead, head to the bank and open up a checking and savings account for your business. To track your finances more easily, open a business credit card, or use your business debit card to get up and running.
I also don’t recommend doing your own bookkeeping, even if you’re good at it. You’ll end up spending too much on your books and tracking your finances instead of working in your zone of genius to expand your business. I use Bench.co as my bookkeeping service and already had an accountant I trusted, so I kept him in the mix.
Hiring an accountant is so important right from the start. Attempting to fly solo and save yourself a few hundred will likely cost you. You can claim a lot of deductions as a business owner, but you need an experienced accountant who understands your business advising you.
Entrepreneurs also have unique options for retirement and savings. Speak to your accountant about the benefits and strategy behind Roth IRA and SEP IRA. The latter is specifically designed for business owners, and contributions are tax-deductible at the front-end (like a Traditional IRA). I wish I had set up a SEP-IRA sooner and enjoyed more of the savings.
7) Create a portfolio or case studies if applicable
Clients want to see examples of your work to assess whether you’re a good fit. Case studies that walk through how you solved a client’s problem, and the results are also impressive. However, if the only examples you have are under an NDA (non-disclosure agreement) from your current employer, consider taking on some free or lower-priced freelance work while you’re still at your job. Keep in mind some employers have non-compete clauses in their contracts, so that might not be an option for you.
I was lucky that I had portfolio work I could share that wasn’t under NDA. Those projects were already live in the world, and I could point potential customers to that work. That said, if this isn’t an option when you quit your job and start a business, you definitely want to build up a solid portfolio before quitting. If you’re having trouble finding a solution, try taking on pro bono work with worthy nonprofits and charities to gather testimonials and references you can use.
You should also gather all the testimonials you can from colleagues, managers, and supervisors before you leave your job. Trust me, their support will be invaluable and will lead to endless networking opportunities. I’ll do another post on my approach to this in the future.
8) Choose your office space
I don’t recommend spending money on anything that’s not necessary in your business, especially during the first few years. Long-term office space almost always falls into this category. Instead, rely on temporary coworking spaces like WeWork or rent out a meeting room. I went to meet my clients at their offices in New York and scheduled as many as I could on the same day. In between those sessions, I worked on projects at a coworking space. And, of course, if your business is 100% remote, you can simply work from home and meet online. 🙂
If you can’t afford your own space when you quit your job and start a business, invest in noise-canceling headphones and set up shop at a local coffee shop. A desk in the corner of your room can also work, provided you remove as many distractions and temptations as possible.
9) Start networking like crazy
Networking is a powerful tool if you’re wondering what to do before leaving a job. Start networking with everyone you know before you leave cubicle life behind. When I left my job and started my own business, networking was pivotal for my success and earning $10,000 a month within a relatively short period. LinkedIn is an excellent place to start, but your boss or colleagues may also see your activity and profile changes. LinkedIn’s privacy settings can be changed so people can’t see when you change your profile, follow companies, or engage in other activities.
Joining MeetUp groups with your ideal clients is another place to meet more people. Finding like-minded entrepreneurs and potential clients on Instagram and Facebook Groups can also build up buzz for your freelance business. And nothing beats word-of-mouth. Tell your friends, family, and trusted colleagues about your business and ask them to spread the word. If you’re not quite ready to launch or have concerns about your boss finding out what you’re up to, pick and choose who you network with carefully.
10) If possible, start your business as a side-hustle before you leave your job
A part-time side-hustle is a popular option for solopreneurs for good reason. It’s a relatively safe and potentially lucrative way to build up your business before you ditch the cubicle. It also helps validate your business idea before you take that final leap. Side hustles can also be built in the margins of your day in the early morning hours, lunch breaks, and in the evening (instead of grabbing the remote to turn on Netflix).
You can also scale a side-hustle up and down as needed and seek out the projects you want for your portfolio before going full-time. Just make sure you’re not competing with your current employer or using any of your employer’s company time or resources for your business.
Even a part-time side hustle needs a website to gain credibility and a way to market yourself. Start networking and sharing your website to drum up at least one solid client by the time you decide to give notice to your employer.
11) Think about your income security
Even successful entrepreneurs experience income security once in a while. Before you experience your first dry spell, brainstorm ways to bring in cash beyond your business when money is tight. This is a good thing to do before quitting your job, as the idea is to have a fall-back plan before you actually need it.
Your plan B also doesn’t need to complement your business goals, although it’s great if it does. Try tutoring for college prep tests or teaching English online. You can also work part-time at a local shop, temp, and pick up odd jobs. Sometimes a manual, hands-on job like gardening or organizing a garage can help clear your mind while you brainstorm new ideas. You may even be able to negotiate a part-time position with your current company that can all help cover your bills while you grow your own business.
12) Define your “Why”
Launching and running a business is a rewarding experience with the potential for huge windfalls and success. However, there are inevitably going to be challenging moments. There will be times you didn’t book that client that was supposed to be a sure thing or experience a dry spell.
Knowing why you want to build your business is key to pushing forward. Whether you want to leave your toxic job, travel the world with your laptop in tow, or have a more balanced life with your family, know your why. It could mean the difference between pushing through the obstacles and sidelining yourself.
13) Invest in your business
Quitting your job to start a business requires harnessing that entrepreneurial mindset to turn your business into a success. Whether it means a coffee chat with a fellow business owner or purchasing a course to help you launch, an investment in yourself is a necessary part of the journey. Doing it all by trial and error might work but will take much longer and probably prove more costly.
I reinvested in my own business to focus on areas that would make the most impact. For example, I hired a business coach and virtual assistants, as well as a designer. I even hired a copywriter to help grow my services faster (even though I love to write!). It also allowed me to target more prominent clients and grow my revenue as quickly as possible.
14) Work towards leaving your job on good terms
With few exceptions, it’s essential to leave your 9 to 5 on the best terms possible. Avoid the temptation to check out on your job or burn bridges. Do your best work possible, so everyone remembers your skill, talent, and invaluable contribution when leaving your office. Your colleagues and supervisor could turn into your biggest champions and networkers, or even future clients. And you could end up leveraging your current day job into one of your best clients.
15) Ask yourself a few key questions
Before quitting your job to start a business, you need good skills and strategies. But what you need most is a growth mindset. If you don’t have a growth mindset, it doesn’t matter how great your strategies are – you’ll struggle a lot as an entrepreneur.
So how can you tell if you’ve got your mind right and you’re ready to make the leap? I made a short guide to help you. All you have to do is ask yourself the six high-value questions in the guide. These questions are powerful mindset shifts that will prepare you for starting your own business (and show you where you’ve still got work to do, if now’s not quite the right time).
Want to know the six key questions you’ve got to ask yourself before giving your 9-to-5 the boot? Grab my free guide.
Quitting your job to start a business needs more than just a dream. You need an actionable strategy that sets you up for success before you leave office life behind. Entering into self-employment prepared and financially secure could mean the difference between scaling up to your desired revenue potential or needing to take a step back to reassess your goals.