Should you leave your job to start a business? Seven steps to consider before making the leap
Mon 28 August 2017 - 9:00 amAdvice | Entrepreneur | Featured
Founders often ask me ‘how do you know when is the right time to leave a corporate role and start your own business?’ Despite the fact I have a strong accounting background and am very much a numbers person, life experience has taught me this initial decision often needs to be based more on a gut feeling than any hard metrics.
[Editor’s note: This is the second in a 12-part series, by serial entrepreneur Tanya Titman, on the secrets to building and scaling a successful SME]
When I left my secure role with an accounting firm to branch out on my own, close to a decade ago, it was based on a feeling this was the most important next step for me. I had fallen out of love with my existing role. I felt a yearning for a bigger challenge and the freedom to take a fresh approach to the services I wanted to bring to market. On a practical level, I also craved a lifestyle change so I could have more control over how I spent time with my young family. (This last point is a common factor with female founders and can be a dangerous assessment around the work/lifestyle balance elements of running your own small to medium size business. More on that later.)
There is no magic moment to make the leap. Like many of life’s milestone decisions, if you wait for the “right time” or the “perfect time”, it will probably never happen. The key element that prompts most founders to cross the line is passion about what it is you plan to create. This is very important – it should be passion, and not fear or anger, which fuels your move from employee to employer.
1. Crunch the numbers
Whilst the commitment to make the decision often comes down to the passion, this must of course be grounded in some kind of commercial reality. It’s important to sit down and make some projections around the revenue that may flow from your new business venture. Sounds simple, yet research demonstrates not enough people take this important step before they start. Here are a few questions to get you started:
- What types of revenue streams can you attach to your services or products?
- What is the benchmark – or price range – currently for these sorts of figures? (Do research if you don’t know this already)
- Is there scope to make more than a market-based salary from your new business and how will you achieve this?
- What foundation revenue can you generate from day one?
- What is your plan for replacing the salary you are currently on and how quickly can you do this?
- Do you have enough cash in the bank to allow yourself the time and space to build towards this goal?
2. Test the idea
In the startup world, rigorous testing of a product takes place at the early stage of building a business and certainly prior to launching. It should be the same with an SME concept. How can you road test your business idea before you make the change? Assuming you are staying in a similar space professionally to the role you are leaving, can you test your assumed product or service structure on some trusted industry experts or stakeholders? If you are planning to launch an entirely separate business, you need to consider testing the idea on your end user or target audience in formal or informal focus groups – extending feedback beyond friends and families into your potential target markets to make sure this product or service is genuinely of interest and something people are willing to pay for. Just because people like the idea, doesn’t mean you can commercialise it as many have learned only too painfully.
3. Plan a good exit
It is important to understand contractually what your commitments are to your existing employer before you start to communicate your exit process. Trying to do the right thing by your employer, however you may feel about them, ensures you have a base of goodwill when you start rather than an unpleasant vibe or nasty legal battle. Keep in mind, the person you are working for has gone to great lengths to build that business – often at great sacrifice and risk. Breaching your employee obligations or unethically poaching clients is like stealing. At some point in the future, you will be in a situation where you have employees exiting to start their own venture and it is fair to say that what goes around, comes around in these scenarios. Put yourself in their shoes and operate as you would hope your employees will operate in the future. Whilst you cannot always control every element, a respectful, goodwill exit is worth striving for.
In my situation, I had to buy into the partnership where I was working. This meant I had two options on exiting – either to get paid out, or to take my client base. I negotiated this on my terms and said I would like to take staff and clients. It was a grown up discussion and left us on good terms.
4. Communicate clearly
When you are ready to communicate your move to your employer, be as clear and transparent as possible about your intentions so you maintain trust in the relationship and they can work with you. Like any relationship break up, the breaker is often seen as having the upper hand while the breakee can feel jilted and blindsided. This is human nature and often what can start out as an intense initial emotional response will settle into a calm and pragmatic set of dialogue once that person has time to adjust. A few tips:
- Do resign in person, and have a written follow up notice containing all the important details including dates and any response to contractual obligations.
- Allow as much time as possible for the employer to adjust their own business so your departure is smooth.
- Work with the employer when it comes to communicating your exit to staff and clients, but have the key messages ready that you would like to convey and negotiate the use of these so everyone looks honest and unified. This is in both parties interest.
- It may not be possible in all instances, but do explore whether there is a way you could work together. It is often possible to use your existing employer as a stepping stone to building a business – for example, taking clients across with you with their agreement.
5. Set up financial safety nets
Aside from evaluating the safety nets of your family or partner if things go wrong, there are a number of other protections you should consider before you start.
- Income protection insurance: Particularly where a business is solely reliant on your time in the first instance.
- Part-time employment: You might be able to come up with an arrangement of working 2 – 3 days a week with your existing employer so you aren’t fully cutting off the salary in the first instance. My former Personal Assistant set up a party planning business as a side-hustle for several years and cut back to four days a week – taking the ultimate leap of shifting to a full time focus when she had the faith to do so. As someone with a low risk profile, this was the best exit plan for her.
6. Build an appropriate legal structure
Working through what is the best legal structure for your new business venture is an entire conversation in itself. The key thing is that it really does matter how you start out – don’t leave this step as something you can ‘figure out later’, or change on the run. Without proper consideration, as your business grows you may find yourself needing to restructure. Consult an accountant in the first instance and potentially a lawyer, before you decide on your business structure. Another important pre-launch legal document when you have a business partner or investors is a shareholders agreement and partnership agreement, which are like pre-nuptial documents. Taking sound advice around how to appropriately and practically divide shares and salary is critical before you start – rather than when you fall into dispute.
7. Keep your significant family and friends informed
Support from friends and family is critical when building and managing a new venture – they are your cheer squad and often the financial and personal support structure beneath you. Talking to them should really happen early on in the planning stages. Involving them too late could damage the trust and support in the relationship. Having said that, it is important that whilst there is no better group to place your faith in when it comes to emotional support – it’s important to listen to proven experts in the field when it comes to taking advice on how you go about setting up and operating your business.
About the author
Tanya Titman is a serial entrepreneur and Founder of SME focused accountancy practice Consolid8 and Female SME growth program Acceler8. She was recently interviewed by Dynamic Business for the feature article Financial literacy, not gut feelings, key to female founders scaling past the $1m mark.