F(N)AQ: Things To Know Before You Quit Your Well-paying Job To Start A New Business

Should I start my own business? For long would I be doing this monotonous 9-5 job? Is this the right time to turn my dream of becoming an entrepreneur in to reality? I am sure such thoughts strike our minds most of the time right? Especially for us millennials, who are increasingly breaking away from the traditional salaried jobs and monotonous lives.?

Call it a paradigm shift in mindset that inches towards the YOLO motto or the thrill to be our own boss instead of working under somebody. The entrepreneurial bug, especially for launching startups?is biting lots of youngsters, isn't it? But one aspect that often remains unanswered for many of us, is what to keep in mind before quitting our well paying job to kickstart new innings in life. Eager to know? Read on as we answer the not-so-frequently asked questions surrounding this.

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1. What are the things I need to keep in mind when thinking of quitting my job for a new business?

First of all, you need to chalk out a well-thought plan containing your startup/business idea, your target audience, estimated capital and manpower requirements. Secondly, you need to assess your current financial position in terms of existing liabilities, assets, mandatory and recurring expenses, investments and savings in your bank account. Only after having these two aspects covered, you can accordingly plan when to quit and kickstart the new venture.

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2. How do I determine when am I financially ‘ready’ to take this big step of quitting my well-paying job?

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The ‘right’ time would depend on not one but multiple factors. As mentioned in the previous question, once you have broadly chalked out your business plan and assessed all aspects of your financial situation, you can go ahead to take the first step towards your new innings as an entrepreneur, by quitting your job. And remember, there is no hard and fast rule as to what the right time is.?

It's all about having a solid business plan and sorting your personal finances, besides which the target market, type of product/service and economic sentiment would play a role in how the business performs, at least initially. For instance, a business offering grocery at doorstep through an app would have especially boomed when started during covid induced lockdown, whereas some other business like electronics or beauty salon might have faced difficulties during that time v/s if it had started at some other 'normal' economic circumstances and amid positive market sentiment.

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3. What steps do I need to take to make myself ‘financially’ ready?

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When planning to switch from being a salaried employee to an entrepreneur, the biggest change is the stability of income. Especially for an entrepreneur starting a new venture, it's both natural and expected that earning revenue and gaining profitability will take time, sometimes a few months or even some years. So, to be financially ‘ready’ before quitting your job and stepping to entrepreneurship, there are 4-5 key steps to be taken, which are answered in these following questions.

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4. How would I be able to manage existing expenses in the absence of salary income after quitting my job?

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The first implication of quitting your job would be the loss of income certainty. And your daily and unavoidable expenses will not stop, whether it's the utility bills, rent, insurance premiums, loan EMIs, etc. You would need to continue with these expenses despite a lack of income. That can only be possible if you have sufficient corpus set aside for that. First, estimate the period required (conservatively) for your business to reach its break-even period. It can be 6 months, 1 year, 2 years or even more.?

Then, calculate the corpus you may require after factoring in your current daily and unavoidable expenses as well as an assumed inflation rate. Expenses equivalent to this amount and duration should be kept aside in instruments like short term debt funds, fixed deposits or high yield savings accounts of scheduled commercial banks. This will act as your safety net for the period between quitting your job and beginning to reach break-even point in business, beyond which it's expected to start gaining profitability.

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5. What about life’s uncertainties??

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To tackle that, the next step is to ensure that you are adequately insured against uncertainties As you financially prepare yourself to quit your salaried job to begin a new business, ensure that you have adequate life insurance cover to provide a replacement income to your family in case of your untimely demise. This cover should at least amount to 10-15 times your current annual income. Consider purchasing a term insurance policy for this purpose, as it provides big-ticket life cover for very low premiums. Also, do not forget to take adequate health and critical illness insurance as well, to reduce the risk emanating from rising healthcare costs, wherein a single hospitalization bill can eradicate lifelong savings, which can especially hurt you more during this salaried to entrepreneur transition phase.

6. Should I stop my ongoing investments until my business settles down?

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No. Starting a new venture in life does not mean you have to compromise on other life goals, especially crucial ones like a child’s higher education/marriage, retirement corpus, owning a home and car, etc. So, when you accumulate that corpus for unavoidable expenses, include your investment contributions as well, so that corpus creation goes on side by side through capital appreciation, and maximises the power of compounding. Do not commit the mistake of pausing those investments for some months or years until your business scales up.?

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7. What to keep in mind when estimating capital requirements for my business?

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Estimating the capital requirement and its sources is no easy task. In fact, that's what takes considerable time, money and effort from your side before taking the leap of faith and quitting your job. It would also depend on whether you aim to entirely go solo on the initial capital funding or aim for partial funding yourself and rest from lending institutions or funding rounds from investors. While the latter is something not entirely in your hands, both lenders and investors would put in their money only if they are satisfied with your business model and find it worthy enough. So, it's better to arrange a good amount of capital yourself, especially to the extent possible, and only when you have the financial institution's nod to lend money and/or have acquired funding from investors, you go ahead to quit your job. That way, you remain relatively safer regarding the source of capital.

Also, in this process of estimating capital, remember that it's not just about starting the business with some capital, it's also about infusing fresh capital into your business from time to time whenever the scope arises, especially for working capital for liquidity and cash flow management.?This aspect of working capital is what many businesses do not factor in, and hence fail to survive or scale up, especially in the initial years.?

So, though it would take lots of planning and discipline in terms of saving the target amount, it's all about never giving up. Do try and accumulate sufficient capital to meet both the fixed and working capital requirements of your business until it becomes eligible for formal credit or other alternative sources of finance/funding after some time.

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