One big question home-based entrepreneurs ask me is how much they need to earn before quitting their day job.
The simple answer is you need to earn the same amount as you’re earning in your job.
However, there are a few things to consider first …
- Will you use your new-found spare time to grow your business faster? Going full-time give you heaps of free time, but you won’t increase your income unless you dedicate some of this to growth activities.
- Could there be unexpected expenses? Running your own business is awesome because your earning capacity is potentially unlimited.
However, you need to cover new expenses, especially as soon as you go full time. These could include insurances, customer returns, deals which go wrong and so on. Hope for the best … but plan for the worst.
- Can you cover the loss of your employee benefits? Being an employee has a lot of perks. They include superannuation, sick leave, holidays, novated car leases and other goodies. So make sure you take these into account when you’re working out your magic number.
- Another thing to consider is that businesses go up and down. So while you’ll have bumper months, you also need to cover the slower ones.
Also, remember to put aside some money before you start. In some businesses you need to invest in stock and advertising before making sales. So even though it’s profitable, you still need enough to fund these activities.
And remember this important point.
Right now your employer pays your taxes and gives you what’s left.
As a business owner, you’re responsible for this.
So make sure you can afford to put your tax obligations aside untouched otherwise you could be in for a nasty surprise.
Now, as you can see there’s no right or wrong answer. However, in my opinion you eventually need to earn 50% MORE in your own business to make it worthwhile. That covers the loss of your employee benefits, the things which can go wrong, and the extra responsibility you’re taking on.
Of course, making this amount is easier when you’re full-time. So yes, your part-time business should be earning enough to replace the income from your job before you go full-time. And have the potential to add an extra 50% within a few months.
Finally, make sure you’ve got some money tucked away too so you can keep going in the first few months.