Starting a business is exciting. The top two reasons why people start a business, according to Guidant Financial, are dissatisfaction with corporate America and a desire to be their own boss. In practical terms, this means getting the chance to finally work on an idea you’re passionate about or escaping a corporate job you dislike. 

Either way, if you already have a day job, you’ll eventually have to decide if and when to leave it.  If you’re considering quitting your job to start a business, here’s some guidance on how to choose the best path for your entrepreneurial journey.

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Choosing The Path That’s Right For You

There are two main paths you could take when starting a business. 

The first is to make a clean transition: quit your current job and start your business. The advantage of taking this path is that it gives you enough time to focus on your business without juggling the demands of your day job. 

But it’s also the riskier path. For context, 20% of small businesses fail within the first year and 50% within the first five years. In addition, most businesses take at least two or three years to be profitable. While those are sobering statistics, the upside is that, with proper planning, your business would have a better chance of overcoming those initial challenges.

That's why many people consider taking the second path, which is to keep your day job and start your business as a side hustle. 

There are advantages to doing this:

  • You can test your idea properly to ensure market fit.
  • You have an established customer base before you quit.
  • You have a financial safety net if things take longer than planned.

Of course, this path also has its disadvantages. The major downside is that success may take more time because your day job will have priority. Your business idea may also conflict with existing contracts with your employer, which means you may need to quit before starting your business. 

For most people, the answer to the question, “Should I quit my job and start a business?” is no. It’s best to start your business as a side hustle while keeping your day job. Your goal is to make sure you properly test your idea and have a solid plan before you quit. So the more appropriate question to ask is this: "When is the right time to turn my side hustle into a full-time job?"

Here are some questions to guide you in your decision-making process.

5 Questions To Answer Before You Quit Your Job To Start A Business

1. Is there a steady demand for your product or service?

The first thing to do is validate the market for your product. According to research by CB Insights, one of the main reasons startups fail is that there's no market need for their product or service. Ideally, this means you should have validated your idea. One way to do this is to get your first handful of paying customers. 

Once you've confirmed the market need, ensure there’s a steady demand for the product or service. As a business owner, your most important task is to find customers. You’ll need to make sales every month in order to pay your bills and keep your business afloat once you quit your job. Develop a solid marketing strategy and create a solid plan around how you will attract customers to your business.

2. Are you legally prepared?

For a start, your business needs a clear legal structure — this could be a sole proprietorship, partnership, limited liability company, or a corporation. 

Also, consider the accompanying legal requirements, such as taxes, licenses, permits, and other regulations that may apply to your business type. For example, irrespective of the type of business structure you choose, you’re legally required to pay taxes. This means you may need to hire an expert or figure out your tax requirements yourself. Carefully consider these areas, and be sure you have a crystal clear plan for how to handle them. 

3. Do you have a team?

While it's perfectly fine to start as a solo entrepreneur, you’d likely need help in some areas of your business — marketing, bookkeeping, or simply day-to-day administrative tasks — when you go full-time. 

Trying to do everything by yourself could lead to burnout and mental stress. So it’s important you plan ahead and figure out how to manage all the responsibilities that come with a new business.  

4. Are you financially prepared?

Lack of capital is the number one reason why businesses fail. You’ll need money not only to keep your business afloat, but also for your living expenses. (This includes your health insurance, since that will no longer be covered by your employer.) That’s why it’s best to have an emergency fund that covers six months to one year of living expenses. 

Also consider how your business will be funded. If you’re completely bootstrapping, what are your plans for the first two years? If you will seek investment, what are the options available to your business and how quickly will you be able to access them after you leave your job? 

Think through your sales strategy and figure out how to maintain a healthy cash flow. This is important because your business could have money on paper (money owed to you by customers), but if those dollars don’t arrive in your bank account quickly enough, it will hinder your ability to run your business day to day.

5. Are you mentally ready?

Running a business requires an insane amount of motivation and effort. While it might seem exciting in the beginning, there will be days when you’ll second-guess your decision. This means you need to have a strong “why” before you take the leap. 

While one of the perks of starting your own business is the freedom it affords you, you’ll still need to treat your business like a job to ensure success. Since you won’t have a boss or senior colleague to hold you accountable, you’ll need to develop the discipline required to make your business successful.

List of things to do before quitting your job to start a business

Here’s a handy checklist of things to do before quitting your current job to start a business:

  • Test your business idea — i.e., get your first customer(s)
  • Define your business structure
  • List your funding options
  • Write a formal business plan
  • Create a sales and marketing strategy
  • Create personal and business emergency fund
  • Plan for insurance

Get your finances right from day one with Zeni.

Beyond creating your emergency fund and securing funding, you also need to understand basic accounting principles to meet legal and financial reporting requirements. Financial reporting is required by law for tax purposes. 

Unfortunately, most entrepreneurs don’t have a finance background and struggle with bookkeeping, accounting, and other financial aspects of their business. This is where a tool like Zeni can help. Zeni is an AI-powered finance platform that can handle your bookkeeping, taxes, bills, and invoices and provide CFO services — all for a flat monthly fee.

Zeni Dashboard

In your Zeni dashboard, you can see how much money you have in the bank and how much you’re spending in real-time. Zeni provides easy-to-read reports that break down your financials month over month and updates your balance sheet in real-time. This means you gain insight into your financial standing when you need it — no waiting until your books are closed at the end of the month. This type of insight is super helpful when running a new business and is crucial for making informed financial decisions that will help your business thrive. 

Sign up for a demo to see how Zeni can make it easier to manage your business finances.