If you’re a budding entrepreneur or you started your LLC or Corporation and have seen an impressive amount of growth already, you may be contemplating quitting your day job in order to turn your business in to a full time venture. This may be the biggest decision you have made for your business since its inception and possibly the most risky decision you’ve made for your family’s personal finances. You have to make this decision at the right time. Is that right time now?
Do the Numbers Add Up?
How much are you making now? Let’s assume that your gross salary is $50,000 each year. Do you receive health insurance as part of your benefits package or could do you receive it from your husband or wife?
If your health insurance is covered by your spouse, your business will have to have gross receipts of $50,000 to maintain your current level of income. (A lot more if you have to purchase health insurance) Seems obvious, right? Not so fast. In your current job, you probably have little to no expenses associated with making your $50,000.
Your business will probably have a large amount of expenses associated with it. If you have $25,000 in expenses in order to have total revenue of $50,000, this means you need to bring in $75,000 in order to match your current income level. If you can’t match your current income level, starting your LLC may have been the perfect choice for a part time business for a while longer.
Do you have a Savings Account?
So you’re confident that your LLC can meet the $75,000 income number above? Congratulations but how sure are you, really? What would happen to your business if the economy was once again put under major pressure? Is your business an economically sensitive entity? What if your income goals end up not hitting that $75,000 goal? There are plenty of variables that you can plan for but the ones to truly be worried about are those variables that you can’t forecast and that’s why you need money set aside in a savings vehicle of some sort.
The more you can set aside the better but at least 3-6 months of your current job’s income is a good amount of save before making your LLC full time.
Is Your LLC registered?
Maybe your LLC isn’t yet an LLC at all. If that’s the case, now is the time. You must register your business to help protect against legal liability as well as being in compliance with certain state and federal tax laws. There are a variety of online resources that will help you register your business as an LLC, Sole Proprietorship, S Corporation or other designation.
The decision to quit your day job is one to make with caution. Your LLC will be there as long as you would like it to be so take your time and make sure that it’s the right decision at the right time.