NFIB

Full-time to Self-employed
03/ 28/ 2002

When you want to start your own company, at some point the transition from full-time employment to self-employment will have to be navigated. Workshop contributor Jeff Moses shares some ideas about how to finance that transition to maximize the chances for success.

-- Before leaving your full-time job, you need to make a detailed business plan. Even if you're not going to borrow money for your new operation, a business plan will define the goals of your new company and the ways to achieve them.

-- You can found your new company and start working even while still in a full-time position. Using the salary from your present employment, you can finance yourself, working evenings and weekends. This "moonlighting" will enable you to determine how much of a demand there is for your services, and buy you start-up time without risk of extensive financial loss.

-- When your new company begins to show a profit, and you can see even greater potential on the horizon, you'll need to decide whether to leave your full-time job. When making this decision, consult with family members, your accountant, your lawyer and your banker. These professionals will give you a level-headed, impartial opinion. Your family members, who know you better than anyone, will give you more heartfelt opinions. Weigh everything before making your decision.

-- If you have adequate savings, came into some money, or arranged a small business loan, you can leave your full-time job and float yourself while you get your business on steady footing. Make sure that you have enough capital to fund activities (both business and on-going household expenses) for at least six months to one year. The greatest single cause of failure for new companies is under-capitalization. You simply have to be able to give your new business time to grow. Without capital, you won't have that time.

-- Another possibility for transitional financing is to discuss your plans with your present employer and see if you can arrange a contract for services to take with you when you leave. In essence, you would be contracting to perform services that would be outsourced. After all, it's not that you're being disloyal simply because you want to go out on your own. This could give you ample financing for the first year or so of operation, and could serve as a viable basis for receiving a small business loan. (A note of caution: avoid taking a client or account with you when you leave. Even when this would be perfectly legal, complications can arrive in the form of bad feelings and/or lawsuits.)

-- If your spouse is employed, consider leaving your job while he/she continues working full time, thereby helping to finance the new company. You might have to cut back significantly on personal spending during this time, but such an arrangement could carry you through the start-up period. Be sensitive to the fact that this may put a lot of pressure on the relationship. Always keep a close eye on the situation, and keep lines of communication open between the two of you.

-- While piloting your new business, consider offering highly competitive rates until your name is well known and you have established yourself. You may not make as much as you will in the future, but it will make your new business all the more attractive to potential customers.

-- Above all, look at the transition period as a time of learning and growth. You don't have to accomplish everything in a day, a week, or even a month. It often takes several years to get a successful business up and running. Enjoy the process. It's quite likely that many years from now you'll look back on this period as the most enjoyable of your career.

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