You may be one of many who have thought about starting a small business or becoming a consultant. Being your own boss can offer tremendous emotional and financial rewards along with greater control and freedom.
However, starting a business is risky and requires long hours and a lot of hard work.
About eight out of 10 businesses fail in the first 18 months, so it's essential to be well prepared before starting a business.
Start by asking yourself why you want to start a business. You need to be over-the-moon passionate about your product or service and you need to be good at what you plan to offer. You will need passion, determination and persistence to get through the trials and tribulations of starting a business.
Your business needs to provide something that people truly need and are willing to purchase at a price that generates a profit. Well before leaving your current employer, start researching your new industry, the competition and what potential customers really want and need.
After thoroughly researching the feasibility of your idea, create an in-depth business plan. Organizations like the Small Business Development Center (SBDC) or the Service Corps of Retired Executives (SCORE) can help you develop a business plan. Even if outside financing isn't needed, a business plan will help you think about and thoroughly plan every aspect of your business.
If possible, start planning your transition several years before leaving your current job. Use this time to plan, develop new skills, attend classes and earn certifications that may be required for your new endeavor. Start networking with people in the industry along with potential colleagues and clients. You will need to work evenings and weekends to prepare, but do so ethically and don't let this negatively impact performance in your current job.
Avoid burning bridges with your current boss and colleagues. They may become your biggest allies and potential clients when you start your business, and if your business doesn't succeed, you may need to return to your old job.
You also may need a few years to save money to cover living expenses while your business is getting off the ground.
Use this time to pay off debt and reduce your monthly expenses. To ease the financial burden, try to start your business on the side while still employed. As your business grows, your employer may allow you to gradually transition by working part time.
Most entrepreneurs have unrealistic expectations about the time and effort required to start a business. They underestimate expenses, overestimate revenues and are too optimistic about growth projections. Many startups fail because they run out of money before their business has a chance to succeed. Increase your chances of success by making conservative growth and revenue projections and planning for unexpected costs.
Jane Young is a fee-only certified financial planner and can be reached at Jane@morethanyourmoney.com.