How to Weigh the Risks of Employment vs. Self-Employment
What are the risks of employment vs. self-employment?
Employment vs. Self-Employment
Working for someone else is like renting an apartment. You are at the discretion of your boss, co-workers, and the company you represent. Your hours are set and you know what is expected.
Being self-employed is like owning your own home. You get to be your own boss, control your own hours, and make your own decisions. You’re in charge! This also means that your 9-to-5 routine is gone and your hours, especially during start-up, may be longer.
How to Reduce Your Risk
Start with a plan. If you’re leaning toward the idea of making the leap, take the following into consideration before quitting your job.
Be Financially Prepared
A sizeable nest egg of three to six months’ worth of your basic living expenses is a good guide to follow. If you have a monthly budget, multiply it by six. If not, now is the time to sit down and make a rough estimate. Many new businesses take longer to ramp up to profitability and cost more than anticipated. Make sure you can survive the transition period.
It’s also a good idea to understand how to move your money. If you have a 401k, or other money coming back to you as you leave your current employment, be sure you understand how the transition or payout works. Also, look into information about health benefits, vacation compensation, and other benefits you will not have at your disposal after you quit.
Write a Business Plan
Think of a business plan as a blueprint for your business; you wouldn’t build a house without a blueprint and you shouldn’t start a business without a plan. It will help you test your business idea, flesh out how you intend to make your business survive, and see what capital you may need to get started. It also will allow you to be clear about why you want to start a business. Is your idea viable? Is there a market for your idea? Who are your customers?
Many entrepreneurs are bootstrapping their businesses, i.e., financing their ventures using personal income. If you’re willing to put that level of skin in the game, you can leverage your savings accounts, zero interest credits cards, and personal assets to avoid borrowing money.
If you don’t have enough resources of your own, asking family and friends to help fund your business may be right for you. Those who know you the best may believe in you as much as you do. However, success is not imminent in starting any business. You need to take this into consideration, along with how it could affect the personal relationships you have, when you work with these potential investors.
If bootstrapping your business or asking family and friends for seed money aren’t viable options, you’ll need a startup loan. There are multiple types of startup funds including business credit cards, SBA loans, and term loans. Having a solid business plan that demonstrates the value of investing in your company will notably boost the odds of securing the funding you need.
Check back next week for part three: The Difference in Income: Employment vs. Self-Employment.
Read about the four paths to business ownership in part one: Is Starting a Business Safer Than Your Job?