Maybe you do lawncare on the weekends. Maybe you sell stuff you find or make on eBay or Etsy. Maybe you’ve made elegant wedding cakes for all your friends’ weddings. Maybe you’re busy teaching accordion lessons or building websites in the evenings. So how do you know when it’s time to leave your day job for your freelancing work or side hustle?
It’s a heck of a gamble to leave the security of a steady paycheck to launch a business of your own. Leaving the rat race to do what you love is scary, especially if you’ve never started a business before. At what point do know you’re ready to strike out on your own? That depends on your answer to these three not-as-simple-as-they-appear questions:
- Why do you want to do this?
- Is your business ready?
- Are you ready?
Why Do You Want To Do This?
Yes, yes, it’s your dream. Now that that’s out of the way, let’s really dig in here. You’re freelancing or you have a side hustle—why not keep it that way? Why take the step to make it a full-time business?
Be wary of running away from something versus running towards something. Do you want to start a business because you hate your job? Or your boss? Or getting up early? Or trying to find parking every morning downtown? Or sitting through boring meetings? If your problems can all be solved by just getting a different job, that’s probably not a good enough reason to start a business.
Also, could all your dreams be fulfilled by just rising up the ranks in someone else’s company? If it’s just the title and the power to make major decisions and tell people what to do that’s appealing, would you be happy enough as a manager?
This isn’t meant to be discouraging—there are plenty of solid reasons why it IS a good idea to take the leap from freelancing to starting your own business. Here are a few good signs:
- Your freelance work or side hustle is making you more money than your day job.
- You have more freelance work than you have time for.
- You need more time in order to scale your freelance work or side hustle.
- You’re passionate, committed, and have a clear vision for taking your freelance business full-time.
Is Your Business Ready?
To be blunt, do you have any evidence that your side hustle will work as a full-time business? Have you actually made any sales? And do you make regular sales? If your friends are the only ones buying your adorable hand-knit baby booties, you probably have a hobby and not a business. If, however, you’re having trouble knitting fasting enough to keep up with your Etsy orders, you may have the beginnings of a business.
Have you prepared a business plan? Assuming you’re confident with your product or service and the market for it, your next big step is to write a business plan. Your business plan serves double duty—it helps you define your own game plan, and it can be presented to potential investors or partners. For your business plan, you’ll need to consider how you’ll market your product and what projections and targets you’ll set for your business.
Have you investigated (and better yet, found) funding options? While you’ll likely need to have some skin in the game, you don’t have to rely solely on your own savings. You’ll need to explore other possibilities like credit, loans or investors. Consider crowdfunding as well. Websites like Kickstarter and Indiegogo have become increasingly common ways to raise money for new business ventures.
Have you researched how entity types, taxes, and regulations will affect your business?
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Entity types: You can’t just start “a business.” There are different kinds of business structures for different business needs, from sole propriertorships and partnerships to LLCs and corporations. For example, some businesses might want the limited liability that comes with an LLC or corporation. Limited liability means that the debts of your business belong to your business, not you. So, if a customer has an allergic reaction to your organic, sulfate-free shampoo and sues you, your business might have to pay out, but you won’t lose your house or car.
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Taxes: You should have at least a general idea of what business taxes you’ll be required to pay. Depending on what entity type you are, you may have choices for different tax elections (for example, LLCs can be taxed as partnerships, disregarded entities, S corporations or C corporations). Take into consideration that there aren’t just federal taxes, but most likely state and local taxes as well. And there are many different kinds of taxes: income taxes, self-employment taxes, sales taxes… If you have employees, there will be a whole slew of additional tax considerations too. It sounds intimidating, but a little research should give you the gist of what is expected for your kind of business in your area.
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Regulations: There are loads of federal, state, county, and municipal regulations out there for different business activities. Depending on where you’re conducting business, you may be perfectly free to breed all the bearded dragons you want—or you may run into limitations or licensing requirements. It’s much better to figure out these kinds of things before you find yourself with a basement full of hungry illegal lizards.
Do you have an appropriate place to work? Will expanding to a full-time, full-size business require more (or different) space? You may need to move from your kitchen counter to an office or a storefront. If you’re moving from handmade goods to manufactured goods, you’ll have a lot of research and legwork to do.
Does expanding mean involving more people? In other words, do you need a partner, a team or employees? If so, you’ll need to work out roles, responsibilities, and rights for everyone.
Note: Even if you haven’t yet worked out 100% of the above, it still might be the right time to start a business, like if the venture is time-sensitive—or if YOU are in the right place. If you have at least a good general idea of the time, money, and elbow grease required (and you have enough of those to spare), you may be ready.
Are YOU Ready?
You may have an innovative and promising business idea, but if you aren’t personally in a place to start a business, it’s probably not going to work. So what does it mean to be ready on a personal level? It’s more than just that feeling of “yeah, let’s do it!” If you’re ready to start a business, you’ll have a pretty good handle on three key things: your knowledge, money, and attitude.
Knowledge: Are you an expert? In other words, are you still learning your craft, or are you already at the top of your game? If you’re still figuring out how to restore 17th century ironwork, it’s probably not the time to start a whole restoration business. You want to spend your time building your business not learning how to do your job. And expertise isn’t just limited to creating products or performing services—do you have any experience in the industry itself? You may be a great cook, but you really don’t want to be one of the literally thousands of people each year who try to open a restaurant without ever having worked in one.
In general, you’ll need to fill in any gaps in your knowledge and be willing to learn. Money is almost certainly going to be tight, and you’ll need to figure out where to spend and where to save. In general, try to spend money only if you have to. If you can learn to do something yourself well enough, do it. There’s thousands of YouTube videos and online classes for learning nearly anything. But remember that your time has value—spending months and months learning to code and design just to build your own website may not be the most cost-effective use of your time.
Money: Can you financially afford to give up your day job? Business blogs typically advise having “six months of savings” put away, but let’s be realistic. If everyone did that, no one would be starting businesses. If you don’t have that much cash set aside, do what you can. Downsize your expenses as much as possible. Make sure you qualify for the loans or credit your business may need. Pick up another side hustle (hey, you worked full-time before with a side hustle; you can do it again). Ask for help when you need it. Be prepared to be uncomfortable. A new business usually starts with long hours, hard work, and little initial payoff.
Are you dependent on anything your current job provides, such as health insurance? If so, get on the phone and make sure you are able to obtain a suitable, affordable replacement before you turn in your final notice.
Is anyone dependent on you? The level of risk and discomfort you’re okay with may very well be different if you’re supporting other people. Don’t take this to mean you can’t start a business if you have a family—plenty of people with spouses and kids start businesses. But while you may be personally comfortable selling off all your furniture and subsisting on instant noodles for a few months, your family may feel differently.
Attitude: Personality is one of those vague, intangible things that’s hard to measure. It’s easy to see exactly how much money you have in the bank, but it’s much harder to look in the mirror and really assess whether or not you have the right attitude for starting a business.
Are you okay with forgoing creature comforts? Some people aren’t. If you’re not willing to drive an old car or brew your own coffee, that’s okay—it just means you’re going to have to be absolutely honest with yourself when you estimate how much money you’ll need to get by. No saying “yeah, I’ll start cooking at home every night” if you know deep down that’s not going to happen.
Can you buckle down and grind away at tedious tasks? No matter what business you’re in, there’s going to be less glamorous times, whether it’s calling potential investors or carefully adhering new product labels to seven hundred units with a typo in their description.
Are you committed? Don’t just say “of course.” Really examine your own track record. We all know someone with a guitar, water skis and LSAT study guides gathering dust in their garage. If you’re more of a “starter” than a “completer,” ask yourself what it will take to ensure you stick with it.
Are you confident? If not, can you fake it? Confidence is hard personality trait to develop if it doesn’t come naturally, and it seems unfair to demand it, but it really is that important. You need people to trust you, especially in the early days of your business when you’re seeking investors, distributors and other people who will judge your product, at least in part, by judging you. If you’re shaking in your boots just thinking about cold calling a lead, it might be worth taking on a partner who’s more comfortable with people.
Can you take criticism? Again, it’s easy to say “yes,” but most people really struggle with taking criticism. If you tend to go on the defensive any time someone gives you advice, you’re going to run into problems. Success may very well hinge on your ability to listen to feedback and respond to it. You have to be willing to keep trying, keep learning, and keep changing for the better.
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If you’re ready and the business is ready—get started already! There will never be an absolutely perfect time to start, and yeah, you might fail. Many businesses do. New businesses are always a risk. But if you’re not prepared to risk failure for your shot at success, then you’ll never start. Take the leap.