There’s a moment, usually on a Sunday night, when the day job starts to feel like the thing standing between you and the real work of your business.
Wanting out of that other job is reasonable.
You’ve built something that’s growing, and splitting your attention gets old fast.
But your business might not be ready just because you are.
When is your business ready for you to quit your day job?
It’s ready when it can consistently cover your minimum personal expenses for at least six months, and you have three months of business operating expenses in reserve.
Then, your Owner’s Pay account needs to be funded at a level that replaces your day job income and your cash reserves need to be able to weather a slow period without you reaching into them.
Why jumping too early creates a downward spiral
I’ve seen too many people jump before the business is ready, and then end up raiding the business accounts for personal expenses, which creates a downward spiral.
While you may be tiring of the work that your current paycheck comes from, that check does cover your bills.
That means the business doesn’t have to, and it’s giving the business time to grow up without being asked to feed you before it’s ready.
It’s a good reason not to rush.
Your first step: find your number
If you’re starting to consider making the entrepreneurial jump, write down your minimum monthly personal expenses, and see if your business can swing it.
If not yet, then you have a number to work towards.
If you’d like to see how ready your business is, take our Ecommerce Business Performance Assessment and see where you stand.
Cyndi
Quick Summary
- Being ready isn’t the same as your business being ready. Wanting to leave your day job is reasonable, but the business has to be able to pay you first.
- The readiness test: your ecommerce business can consistently cover your minimum personal expenses for at least six months, and you hold three months of business operating expenses in reserve.
- Owner’s Pay must replace your paycheck. In Profit First terms, your Owner’s Pay account should be funded at a level that replaces your day job income.
- Reserves protect the business from you. Cash reserves should carry you through a slow season without dipping into business accounts for personal bills.
- Quitting too early backfires. Raiding business accounts for personal expenses starts a downward spiral.
- Next step: write down your minimum monthly personal expenses and compare them to what the business can pay you today.
Frequently Asked Questions
How do I know if I’m ready to quit my day job to run my business full time?
According to Cyndi Thomason, founder of Your Profit Team, your business is ready when it can consistently cover your minimum personal expenses for at least six months and you have three months of business operating expenses set aside in reserve. Your personal readiness matters, but the business has to pass this cash test first.
How much money should my business have saved before I leave my job?
Aim for a cash reserve equal to at least three months of business operating expenses, separate from the money that pays you. That reserve lets the business ride out a slow period without you reaching into it for personal bills.
What is Owner’s Pay in Profit First, and why does it matter before quitting?
Owner’s Pay is the dedicated Profit First account that funds what the business pays you. Before you leave your day job, that account should be funded at a level that replaces your current income, so your household isn’t depending on whatever happens to be left over.
What happens if I quit my day job before my business is ready?
Owners who leave too early often start pulling from business accounts to cover personal expenses. That drains the cash the business needs to grow and can create a downward spiral. Keeping your paycheck a little longer gives the business time to mature before it has to support you.
What’s the first step to figuring out if my ecommerce business can replace my income?
Write down your minimum monthly personal expenses, then compare that number to what your business can consistently pay you today. If it can’t cover it yet, you now have a clear target to work toward. Your Profit Team’s Ecommerce Business Performance Assessment can also show you where your business stands.
Related reading: How Do I Separate Business and Personal Finances? · Purpose and Meaning: Why Did You Start Your Business?
Ready to take control of your cash flow? Your Profit Team helps ecommerce owners forecast cash, plan inventory, and keep more profit with the Profit First method.
