Many entrepreneurs launch their business on the nights and weekends, and then are faced with the incredibly difficult question, “When do I quit my day job?”
So today I wanted to give you my opinion on how to know when it is time to leave your day job. Additionally, I have created an Excel Spreadsheet tool to help you make the decision to leave or to stay.
You can download the spreadsheet I have created here - Quit Your Day Job Spreadsheet
Let me start by giving you 4 things that I think you should have in place before you consider leaving your day job.
1. Credit Score Over 700 – I strongly encourage you to get your personal credit score in order before you consider leaving your day job. A 700 credit score does not guarantee that you will be able to secure a loan, but I can tell you that a startup, with an owner that has less than a 700 credit score is not a risk that most lenders are willing to take. If your business will require outside funding, make sure that your personal credit score is healthy before you consider leaving your day job.
2. 6 Month Emergency Fund – I believe that you should always have at least a 6 month emergency fund in savings. This means, if your family income went to 0 would you be able to pay all of your expenses from savings for 6 months? If the answer is no, you probably need to build up more savings before taking the jump into entrepreneurship.
3. 6 Month Cash Burn Fund – You can calculate your estimated cash burn per month by taking your monthly income minus your personal and business expenses. If you do this and find that with your spouse’s income you are only burning through $500 in cash per month, then you should have an extra $3,000 (6 months worth of cash burn) in savings.
4. Revenue – I am sure that not everyone will agree with me, and certainly there are many businesses that never generated a dollar of revenue before a huge acquisition. For example, Instagram, was acquired by Facebook for $1 Billion before they generated their first dollar of revenue. BUT for 99% of you, I would suggest that you prove your business model before you leave your day job. Generate sales, ensure that customers are willing to pay enough for your product or service, that you can have a profitable business model. The last thing you want to do is leave your day job only to find out that you can’t sell your product or service.
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Is it time to quit your day job and focus on your own business? Use this tool to find out now – businessplanexecutivesummary.com/2012/04/is-it-…
— Adam Hoeksema (@ExecutivePlan) April 18, 2012
So here are the questions you need to answer in the Excel Spreadsheet I have provided in order to determine if you are ready to quit your day job yet, and if not, how much longer you should stay at your current job.
1. What is your personal monthly expense budget? We need to know what your family typically spends in a month.
2. What is the dollar amount of your other sources of income? For example, if you are married, your spouse’s salary needs to go into the equation as other income.
3. What is the average dollar amount you invest into the business each month of your personal money?
4. What is the average dollar amount that you withdraw from the business each month as an owner?
5. How much cash do you have in savings that is available to spend if needed?
6. With your current job, how much are you able to put into savings each month?
Once you answer those 6 questions, our spreadsheet (which you can download above) will automatically spit out some recommendations. At the end the spreadsheet will tell you how many more months you will need to stay at your day job in order to save enough money to make a comfortable transition. If the answer is 0 months, and your credit score is over 700, and you have started to generate revenue from your business, then it might finally be time for you to take that leap.
About the Author: Adam Hoeksema is the Founder of ExecutivePlan. ExecutivePlan helps entrepreneurs write powerful business plan executive summaries in order to raise capital.