A few weeks ago, I put out a call on Twitter and on Facebook for detailed posts that people would like to see. I got enough great responses that I’m going to fill the entire month of July – one post per day – addressing these ideas.
Tammy on Facebook wants to know about “How to know when your part-time small business can transition into your full-time income.”
This is an experience I went through in 2007 and 2008 and an experience I’ve discussed privately with several other small business owners. It’s a scary transition indeed.
For me, there were five real factors I looked at before deciding to make the transition.
First, could I do the work consistently over a long period of time? In other words, would I still want to be doing this in, say, five years? I asked myself this question in 2007 and it’s now 2011, so I think I got the answer here right.
This is basically a passion gut check. It takes… something to be able to write two personal finance articles a day every day for years. Whatever it is that you’re doing, can you see yourself doing it every single day for years? Is this something that excites you from the moment you wake up?
For me, I often start my days with such relish that I can’t wait to get started with the writing. I’ll write my posts (an average of about three per weekday all year long), plus other contracted writing, plus additional things I’m writing for my own enjoyment (like my sometimes-mentioned fantasy novel). I love to write.
Second, is there a way to consistently earn money from this work? As long as I can consistently write content of a reasonably high quality, I’ll be able to earn enough money to get by with my work. The Simple Dollar earns money from ad revenue, but I have several outstanding offers to write for other sources.
Unless the environment of writing online drastically changes, I should be able to earn at least a limited income from my writing online. This gives me a route to consistently earn money.
What’s your pathway to consistent income? Do you have an abundance of prospects for earning money, or are those prospects limited?
Third, are you able to market yourself effectively to find more work? Are you able to find new clients for your work? Are you able to reach an audience for your work? Are you able to grow both of these things?
This likely involves the use of things like social media, effective emailing strategies, and so on. Without clients, fans, or customers, you can’t make it. Without tools with which to contact them, you can’t build them up.
I had the advantage of already having a large audience for The Simple Dollar when I chose to play it full time, and the site itself incorporates a lot of tools for audience members to share the content, which further expands the audience. For many people, social media (like a Facebook fan page or a Twitter account) is the tool with which they reach and expand their audience of readers, followers, clients, and employers.
Fourth, do you have an extremely healthy emergency fund? Do not dive into a side business, freelancing, or any form of self-employment without some sort of significant financial safety net. If you can’t live for a few months without any income, you’re not ready to make that jump.
Going solo means that you don’t have the reliability of a regular paycheck to rest your head upon. Instead, you will be going through periods with a lot of income and other periods with little income. The only real way to survive that is to have cash on hand to supplement your income during the dry periods.
When I walked away from my previous job, we had enough cash in savings to survive for several months even if I didn’t earn a dime in income. I would not have walked away without that support in hand.
Finally, do you have a sensible grasp of your accounting needs? Paying taxes, continuing to save for future goals, and maintaining a working household budget are tricky things to juggle when you’re self-employed (welcome to quarterly taxes!). You’ve got to have a plan for keeping things in order or else you’re going to wind up not getting financially ahead or, even worse, finding Uncle Sam on your tail.
You’ll find a lot of solutions out there for this. For me, the best approach was to take every dollar I earned and split it in half. Half of it went into a “tax” account and the other half went into our normal household account. Each quarter, I would pay income taxes out of the “tax” account, and I’d make up any shortfalls at the end of the year out of that account. Anything left would be rolled back into our household money.
You may find a different solution that works well for you. However, if you don’t have a clear plan in place for all of this, you’re going to run into some serious problems down the road. This must be in place before your business is large enough for you to seriously consider making the leap.
Cover these bases thoroughly and you’ll be in a much better position to transition from side business to full time concern.