What to Know Before Quitting Your Day Job
How much money should I squirrel away before launching my business? Is there anything wrong with going into business with a friend or a family member? Can customers be investors? Rewire readers had lots of questions for entrepreneurship professor and expert David Deeds, who teaches at the University of St. Thomas Schulze School of Entrepreneurship and is the editor-in-chief of Entrepreneur & Innovation Exchange, during Rewire's very first Facebook Live Q&A this week about quitting your day job.
Watch Rewire's Maribel Lopez ask Deeds the burning questions you had about launching a startup:
Don't have time to watch the whole thing right now? Here are some highlights from Deeds' Q&A session:
1. Make sure you have more than enough funds to set out on your own
When you're figuring out how long you'll have to work two jobs before you can quit your day job and turn your focus entirely to your business venture, be sure to factor in months of financial buffer for yourself, Deeds said. That way, even if your business hits a rough patch early on, you'll be able to pay your bills.
All new businesses "bleed cash for at least six months or a year, maybe longer," Deeds said. And utility companies, your cellphone company and your landlord aren't going to cut you a break on your bills just because you're starting a new business.
Deeds put together a handy formula to follow to figure out "your runway," the number of months you'll have to work both jobs before you can quit your day job. Download it here.
2. First-time ventures often fail
Often an entrepreneur will take a business to the market only to find it wasn't quite right and doesn't become successful.
Very rarely do you get it right the first time," Deeds said. "The more iterations you can afford, the more likely you are to win."
That means the more you save up ahead of your business's launch, the more tries you can afford to finance if your first attempt fails. You'll be able to go back to the drawing board and tweak your idea without having to worry about money in the meantime.
Deeds said many entrepreneurs who fail the first time blame it on not having enough money. In reality, "half the ideas are lousy, half ran out of money," he said.
One tip that Deeds repeated again and again was to start financial planning way ahead of time—long before you're even thinking of quitting your day job. In this tricky business, there's no such thing as being too prepared.
3. Keep your finances separate
When you're first starting out, it's important to keep your personal and business bank accounts apart, Deeds said.
Although both business and personal bills need to be paid every month, keeping your accounts separate will make it easier to track your income and outflow—absolutely critical for building a viable business. You'll need to keep records of every single business transaction you make (Deeds recommends QuickBooks for this, or hiring a bookkeeper or accountant on an occasional basis.) Create this business account as soon as you launch your venture, but build a relationship with a banker way ahead of time.