Have you ever fantasized about quitting your day job to pursue your side hustle full time? You’re not alone. In fact, for many aspiring small business owners, being able to leave their current 9-5 job is their ultimate goal. This being said, if you’re hoping to transform your side business into your primary source of income, there are several steps that you’ll need to take before you hand in your resignation. In episode #127, Gene Marks and Elizabeth Larkin offer a practical guide on how to successfully transition from working a 9-5 job to running a small business.

Executive Summary

0:34—Today’s Topic: How Do I Transition from Working a 9-5 Job to Running a Small Business?

2:21—Before you make such an important decision, be sure to discuss it with all your family members because this transition will affect them too. It’s important to warn them about all the changes you will need to make and how these adjustments will impact them.

3:36—You need to know exactly when you want to quit your current job. Having a specific date will not only tell you how much money you’ll need to save up, but also how much time you’ll have to generate that necessary capital and client base.

5:45—Your next step will be to create a forecast or business plan that will give you a clear sense of what your finances will be like, once you leave your current job.

8:06—When calculating how much money you’ll need to save, examine how much you spend on your current lifestyle. The savings you generate should be enough to sustain your desired lifestyle.

10:08—Gene encourages small business owners to accept cash so that they don’t miss out on any potential clients or transactions.

Transcript

Elizabeth: Okay. Welcome back to the Small Biz Ahead podcast. This is Elizabeth Larkin from The Hartford and I’m here with our small business expert Gene Marks. Welcome Gene.

Gene: I am happy to be here Elizabeth.

Elizabeth: Good.

Gene: Thank you.

Elizabeth: I’m so glad. So today we’re going to talk about side hustles. What I mean by that is let’s say you’re working a full-time job … Hopefully you’re working a full-time job, and you decide you’re going to start your own business but you’re a 9-5 employee so how-

Gene: You’re not using this business to replace your job, it’s just a side hustle. Is that right?

Elizabeth: Well for now, it’s a side hustle but you want to transition from being a 9-5 employee to making your side hustle a successful small business.

Gene: So ultimately, you’re running your side hustle with the objective of leaving your job one day-

Elizabeth: Exactly.

Gene: … and running this new business. Okay.

Elizabeth: So we’re going to talk through the time frame, savings, what you need to … how you need to financially prepare yourself. We’re going to get to all of that after we hear from our sponsor.

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QUESTION: How Do You Transition From Full-Time Employee to Small Business Owner?

Elizabeth: And we’re back. So Gene, I want to start with a personal question for you. Tell us a little bit about how you transitioned from a full-time job into being a business owner.

Gene: So I was a corporate controller at a company with about 60 employees, so that was my full-time job. There was a lot of work that was involved in this job. But then I decided to … that I didn’t want to do that long term and I wanted to have my own business. My dad was starting up a company at the time. It was a fledgling. It was a software company and he asked me to join up with him. He had no money. He had no … It was just software that he had developed, like an accounting software. I had the skillset for doing that because … and we’ll get back to that but … my background, I’m a CPA so it fit right in. So I said, “Sure. Let’s do this.” So I made that decision. That-

Elizabeth: So first you talked to your wife.

Gene: I did. So it was a year and a half transition to do something like that is what it ultimately took. The very first thing that I did was you’re exactly right. I talked to my wife. People talk about what do I need to do to start up a business regardless of whether you’re working a full-time job or not. Many people do start it up from [inaudible] jobs. You need to have capital. It’s not just money in the bank, which we’ll get to in a minute, but time capital as well. You have to have the commitment of your family behind you.

Starting up a business is tough. Starting up a business if you even already have a full-time job means you’re essentially working two jobs, which is what I did. I would finish my job at the company I was at, then I would go home and be doing work for my other business at nights and on the weekends. That takes a lot of time away. There’s an age thing. When I did that I was in my late 20s, early 30s and so we had little kids at the time. These are things that people [inaudible] so it’s pressure away from the family and it’s pressure on your spouse. So I just have to say if you’re thinking of starting up your own business and you already have a full-time job, you’re now talking about working two jobs. Is your spouse ready for that? Make sure because it impacts everybody in the house. So that was number one.

Elizabeth: Okay.

Gene: Then we had to make sure we had enough money. So I sat and I … A lot of people keep this open but my advice is to set a date when you think you want to make this transition out, when you think you’re going to quit your full-time job and move into running your own business.

Elizabeth: So what do you think is … I’m sure the answers going to be it depends but …

Gene: It depends. I used a year and a half and I thought a year and a half was pretty good. I’ll tell you the reason why. It was funny, I was with my brother-in-law, this was last year, and I jumped down his throat because he was starting up a business and he was going to quit his job. He was convinced his business would be … he’d be making as much money in the next three months that he’s been making at his job. What you learn … If you’re an employee at a company and you’ve never run a business before, you have no idea how good you have it in some ways. You know what I mean? You have health insurance, you have that paycheck coming in-

Elizabeth: Benefits.

Gene: … you have benefits. If it’s a snow day, you still get paid. I mean there’s a lot of security in having a job. There’s a lot of benefits. When you go out and start your own business, it quickly becomes a very cold, hard and dark world. So you want to make sure … what makes that world brighter is money. So having enough capital and money in the bank will see you through and that’s why I say I … You’re right. It depends how long does this transition take but I think on average at least a year and a half. You want to give yourself 18 months before you actually cut the ties. That should give you enough time to build up a customer base, revenues coming in. So that if you transition over to your business you can at least … I mean it might not cover all of your expenses. Hopefully you’ve got some savings. But at least it’ll cover the great portion of your expenses as well.

Elizabeth: What are your benchmarks in your time line? What would you see as like … All right you started up. You have your first customer. Is it like you have your first 300 customers by six months out? Like what …

Gene: Right. So it’s again it comes down to dollars. So it’s not the number of customers.

Elizabeth: All right, how much are you making?

Gene: Yeah. It’s your cash flow. So what you do is … We talked about steps that you take. You’ve cleared it with your spouse. You’ve set yourself a goal, a time line is what you want to do. Next thing you want to do is you want to create a forecast and then you want to sit down …

Elizabeth: Okay.

Gene: By the way, some people start up businesses or they … Some people they don’t work … They’re fantastic at their jobs. They’re in marketing. They’re in engineering. They do something at the big company but they’re horrible with money or with numbers. You better realize quick if you’re going to run a business, you better know math pretty well. You got to be pretty familiar with dollars and cents. So you put together that forecast and that forecast is a cold, hard look at what life will be once you transition out of your job. So on day one, what will my revenues be? What do I project my revenues to be over the next two years after I leave my job? So now you’re looking three and a half years in front of you now. A year and a half-

Elizabeth: How do you figure that out?

Gene: Well, how does anybody figure that out? I mean if you’re going to have a business, you got to have a business plan. So if you’re even thinking of going into business, you’ve got to be doing it with some … You want to be making money at it. How do you figure out if a piece of equipment is going to pay you back on what you’re buying? Or if a loan is worth taking? You’ve got a business idea. Hopefully you take the time to look at your market and what your potential revenue’s can be, what you think that you can [inaudible]. Then you start coming up with estimates saying, “Listen, if I hustle or whatever I believe my business can generate X amount of customers generating this amount of income.” I mean you have to sit there … Any banker will ask you that question? Why should I finance you if I don’t … if you can’t even tell me what you’re forecasted revenues should be for a business like this? How big is the market? How many of these units can you sell or how many hours can you spend?

So you have to figure that out as to what your revenues will be and then you have to come up with your costs for the business as well because whatever’s left over hopefully will be your cash. Then you have to look and say, “Geez, it’s going to take me two years before I’ve got a positive cashflow,” or, “Two years before I’m actually earning the same kind of money I hope that I’m earning right now.”

So then the next question you ask yourself is: do you have savings in the bank to pay the bills for those two years? Because you can’t just be …

Elizabeth: Yeah.

Gene: You have to do that whole cash flow out for a good 24 month period after you start your business. That’s why I say if you get a head start, 18 months before you leave your job it’s … Hopefully that when you do pull the plug, you’ve actually got revenues coming in that helps cash flow a lot once you start up.

Elizabeth: So if you are working for corporate America right now or any … really any company if … so you take your salary it’s actually … I think it’s like a 150% more. So let’s say just for the sake of argument that you make a $100,000 a year, the company’s actually spending $150,000 a year to employ you.

Gene: Sure. Again my advice on this is you want to look at this zero sum. People start businesses for different reasons. It’s not necessarily all about the money although I think money should be a big factor in it. It’s not necessarily that you want to make as much money that you’re making at your job. Some people say, “If I can make half as much money but have more freedom and more flexibility, I’m happy.” So really what you have to look at is what will it cost to maintain your lifestyle that you want over the next two years?

Elizabeth: So if you want your current-

Gene: … that’s what you base your cash flow on. Forget about what you’re making now.

Elizabeth: Your current lifestyle though, you have to think about making 50% more than your current salary.

Gene: Yeah, well what you want … Yeah. Again it’s not your salary Elizabeth. It’s what is my mortgage, what is my auto payments, what is my … I want to take vacation a year, what are my school tuition, whatever it is, I got to look out over a 12 month period. These are the expenses I need to make sure I’m covering as well as extra discretionary cash. So I need to be making X dollars. I mean whatever I’m making now in my corporate job is irrelevant. It’s what I need to be making to cover my nut over the next two years. Then I’ll grow it from there. So that’s how you have to be thinking, that’s your mindset, not that you want to just replace your salary.

Elizabeth: Okay. We’ll be right back with “Gene’s Word of Brilliance”.

WORD OF BRILLIANCE: Cash

Elizabeth: All right. We’re back with “Gene’s Word of Brilliance”.

Gene: So my “Word of Brilliance” today – we’ve covered this before but not in the same terms – cash. Right now, we’re talking now, it’s the fall of 2018. The state of New Jersey, right now, is going through a debate about allowing businesses or excuse me, not allowing businesses to refuse cash paying customers. There was a bill that was recently passed in the New Jersey Assembly but it’s stalled in the Senate but it’s going to go back to a vote before the end of 2018. Some states actually have these laws in place. There is no federal law about this. It’s a controversial issue among small business owners. Do you think Elizabeth that … and the “Word of Brilliance” by the way is cash. Do you think that businesses, retailers, restaurants should be forced by the government to accept cash from their customers? Do you think that it should be a law that they have to accept cash?

Elizabeth: Yeah, if it’s my cash. Yeah.

Gene: So you think it should be a law? So if I’m a small … Sweetgreen for example is a very popular salad chain.

Elizabeth: Yeah, we’ve talked about that in the past.

Gene: They don’t accept cash in their business. Right now, Walmart is looking into doing the same. Starbucks is testing that out as well. In fact, Starbucks, Walmart, Amazon, they’re the ones that are contesting this thing going on in New Jersey.

Elizabeth: Well, I know how you would argue this. You would say you need to take payment from your customers any way they want to give it to you.

Gene: You know me so well. That’s the message here.

Elizabeth: I wouldn’t take Bitcoin but if I was starting a business I would take cash. I wouldn’t take checks probably but cash, credit card, yeah. I mean …

Gene: Okay.

Elizabeth: … to survive in business I feel like maybe Starbucks can get away with that.

Gene: Right. I couldn’t agree with you more. And you said you wouldn’t take Bitcoin but if enough of my customers are coming in wanting to pay in Bitcoin I’d-

Elizabeth: Really?

Gene: I’d start taking Bitcoin. Yeah. That’s-

Elizabeth: I thought you said they were.

Gene: No, no. I’m saying if somebody … if I had enough customers saying we want to pay you in Bitcoin then what am I going to do not take Bitcoin?

Elizabeth: No, that’s true.

Gene: Of course. I guess the takeaway that I could say is this if you’re running a business and either you refuse to accept cash, credit only or you do the opposite. I know we’ve had rants about that. There’s retailers that don’t accept credit cards and only accept cash.

Elizabeth: We’re gotten a lot of hate mail about that actually.

Gene: Well, people should be accepting whatever form of payment that their customers want to provide to them and you have to have the ability to do that.

Elizabeth: So you agree with this law?

Gene: No. I abhor the law. I detest the fact that the government actually has to tell business owners to accept cash when I believe that we, as business owners, should have the common sense to know that we should be accepting cash and any other form of payment that needs to be made.

Elizabeth: Do you take checks?

Gene: Yeah, we take checks. We take credit cards. We take cash from our clients.

Elizabeth: Yeah, but you’re taking payment from other businesses.

Gene: We are. So it’s a different world.

Elizabeth: If you were taking it from Joe Shmoe off the street and you were selling … You were a bakery and you were selling bread, would you accept checks?

Gene: It depends on how many customers are bringing in my checks. If that’s the case, then I would probably have an arrangement with the … check cashing service or something that would protect me against anybody.

Elizabeth: All right. Okay.

Gene: But nowadays it’s an odd customer that’s coming in with checks. It’s probably not something that would be worth my while.

Elizabeth: Yeah.

Gene: But if we have enough customers coming in with cash and I’m running a bakery or a restaurant, I should be accepting that cash.

Elizabeth: Yeah, I agree.

Gene: So the takeaway is this. Even though the legislature are trying to require this by law, we should all be accepting all forms of payment.

Elizabeth: Great. All right. We’ll be back with our next episode, which is about … I love this topic. It’s if a new business has a great idea and they shut down, is it legal to take that idea and open up your own small business?

Gene: That’s easy.

Elizabeth: We’ll talk to you in a couple days. Thanks for listening.

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