Using the Ledge to Your Advantage: Escaping the 9-5 to be a 100% Full-Time Business Owner Building your own company is more than a dream...it's an obtainable reality, and you can rely on your current job to help you.
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Many of us are simply trying to master swimming in a swimming pool, literally and figuratively. If your job doesn't fund you to afford one or perhaps if you simply want to find out if you can swim without them, curating the mindset of a swimmer is a good starting place.
Set goals, get lessons, perform, improve, and stay above water...sounds familiar, right? The only thing missing is the pool ledge that in this scenario represents your 9-5 job.
There's the big misconception that in order to swim you have to jump out into 12 feet of water with no life jacket, but that's a sure way to drown if you're not prepared. The question also comes to mind, "Why?," if that's not the only way.
When you have a 9-5 and a business:
- You can rely on a steady pay check until your business renders the profits you need
- Additional money can be set aside to fund the business
- Before transitioning, you can assess if self-employment is for you, some hate it and others don't do well with it
- There's time to assess if the business is scalable
Thus you can use the ledge to your advantage and when you do decide to leave your job, remember a job is only a ledge and is still there, it will just take a few extra steps to get back to it if need be.
1. Don't take it personal, but you should
Prior to leaving a job, you should make sure you and your family's future isn't totally compromised. Yes, take a risk, but calculate all of the scenarios to asses the full impact. Housing, savings, food, college tuition...all of it. Part of business is taking care of your own and what's a company without a strong CEO.
2. Business realism
A business cannot be 100% supported by theoretics. Yes, ideally we all want to make it, but: forecasted sales based on prior revenue, customer acquisition rates, proprietary products/service offerings, and improving profit margins are better leverage because they're measurable.
3A. You'll pay for health and wellness
Two big benefits of working for many established companies are healthcare and retirement, and you either pay for it now or later.
Healthcare in a nutshell
Companies are offered discounts and additional benefits on healthcare plans because they purchase many at once, so think of it as wholesale.
It's not uncommon to see with a company:
- Employees paying very little for the plan, for example $150 per month
- Low deductibles/co-pays, i.e., the amount you pay when you go for medical care
- PPO (Preferred Provider Organization) plans where you can pick any doctor of your choosing (in network or out of network)
When you purchase a private health care plan for just you or your family (not company provided):
- The plans can be expensive and have higher deductibles
- Only HMO (health maintenance organization) plans, i.e., in-network doctors are available
I'm not older, don't have an outstanding health condition, and am pretty healthy, so I don't need an expensive HMO plan right?
It may seem like a $350 a month plan versus a $575 plan saves you $225 a month or $2700 a year, but if you get sick, that $350 plan could leave you with a $7500 medical bill, which is way more than $2700. Pay for good coverage up front.
Also, before you leave your job:
- Go to the doctor before you resign. Your job is giving you health insurance as a part of your compensation package, so use all of it.
- Get your health in order (eat well, lose weight, and exercise). Within your locus of control, try to prevent needing additional medical care.
Related: Health Insurance Tips for Gig Workers
3B. Retirement in a nutshell
When you work for a company, they may have a pension where you're set to receive a regular payment during your retirement. They may also have a 401(k) plan where you can contribute on a tax-deferred basis and your company may match what you contribute.
There are also stock options and Individual Retirement Account (IRA) options as well, but when you work just for yourself, setting up both of these on your own is crucial.
The top two reasons many people, millennials in particular, don't save for retirement is a) they cannot afford to, and b) they're relying on making more money one day to make up for it.
Think of it like this. If you retire at 65 and live until 90, that's 25 years of savings that you would need if you don't work in that window of time. If the total expense for retirees is $50,000 per annum then you would need $1.25 million dollars saved. Now think about how long it would take for you to accumulate those funds. This is why you should start saving for retirement early.
Related: Get the Best Retirement Account(s) for Your Situation
4. Taxation cannot be missed
When you work for a company, usually on your first day you complete a W-9, which ensures Federal and state taxes are automatically deducted from your paycheck. Although, if you have a business, you're accountable for adhering to IRS regulations yourself.
Business owners are required to take care of taxes on their own, either through paying taxes at the end of the year or through estimated taxes (based on last year's reported earnings), and you would remit that payment monthly.
Things to remember
- When you're calculating what your business really makes, ensure you've factored in how much you will owe in taxes.
- If you have employees, you will need to issue them 1099's (for independent contractors) or W-9's for full-time employees so they can pay taxes
- One of the best investments is in a part-time CFO or a CPA to help you master taxes.
Related: Why Family-Owned Businesses Need Specialized CFO Services
5. Do your homework
Make sure to research everything you need prior to making the shift in employment, as working as a sole proprietor or LLC owner is very different from serving as an employee at an already established corporation. Business is 10% products, plus services, and 90% business, so if you don't know the logistics, make sure to invest in learning or hiring someone that specializes in it.
- Research about business plans, structures, failures, and common mistakes
- Consult with a legal representative to discuss all areas related to a new business entity
- Find a legitimate and reputable mentor that you trust and like working with
- Learn about business funding (loans, seed capital, crowd funding). You may not need it now, but if you needed one million dollars to make $10 million, it's good to understand this earlier versus later, especially if actions are time sensitive
