078: Employee to Entrepreneur: Preparing to Make the Transition [Podcast]

Are you thinking about moving from employee to entrepreneur? Over 50% of Americans want to start a business. And when you get to those in their 20’s and 30’s, that number increases to about 65%. Other countries have similar statistics. So if you are thinking about becoming an entrepreneur, you are in good company. But, how do you prepare to move from employee to entrepreneur? I am currently helping one of my clients, Bob (not his real name), who is preparing to make this transition from employee to entrepreneur. Here is a quick snapshot of the process we have been taking.

Employee to Entrepreneur: Making the transition

“Another Gorgeous Outer Banks Sunrise” by Michael Bentley licensed by CC 2.0. https://creativecommons.org/licenses/by/2.0/  Edited with text. 

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Employee to Entrepreneur Transition

A few years ago, my wife Lea and I felt like God was leading us to go into missions work. So, we began to seek counsel, starting with our pastor. He asked us how much we had been involved in missions in the past. Lea and I looked at each other oddly and realized the answer was almost none. Our pastor then made this statement that has stuck with me: “You do not go into missions, you grow into missions.”

Since then we realized the missions work God had for us was much different than what we typically think of as missions, in fact, it was serving others through business, writing, and podcasting. But the lessons I learned from the pastor have stuck with me. As a faculty member and coach, I often find I am working to help people “grow into business.” You do not go into business, you grow into business.

So as I began to work with Bob, I wanted to help him grow into his business. Just so you know, Bob actually likes his day job, and may never quit. Yet, he is feeling trapped. He wants to become independent so that the daily turmoil of the corporate setting does not create stress for him and  his ability to pay his bills and provide for his family. Bob is looking for a lifestyle business, one he can do on the side now and get freedom but may one day do full time.

1. Get Control of the Money

Most people in industrialized countries are in debt. Each month part of their income goes to pay for student loans, credit cards, and automobiles. And, their spending habits keep them in this trap. Are you in this trap? Make a list now of the debts you have. Who are they and how much do you owe each. Look at how much you spend month-to-month just keeping up with the minimum payments.

If you want to make a transition from employee to entrepreneur, you need to get control. Starting with a budget and paying off debt will free you from many of the traps that keep people in their day job. I am not a financial counselor, so I will point you to an excellent source to get out of this trap – The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness.

2. Start Your Business as an Income Source

Once you get a plan for the money and start working the plan, you now need to start a second income source. You could deliver pizza, but that will get you no closer to your goal. Instead, start your business. But, start it in a way that generates income instead of costing you cash. For instance, if you are looking at a food services business, instead of investing in a storefront, begin catering out of your kitchen. If you are developing a software tool to sale to the healthcare market, start now by offering consulting/contracting services to the healthcare market.

By taking these simple steps you will be entering your market with minimal investment. The benefits are extra income, knowledge of the business, and a growing reputation in the business.

3. Transition Bills to Business Income

As income starts to come in from the business, you can start to live on it. Bob has managed to grow his business to the point he can safety pull out $2000 per month from the business to pay his mortgage. Since his mortgage is $1500 monthly, he is actually paying his mortgage plus extra on the principal, therefore getting control of his money. Bob has no short term debt, if he did he would be using the extra $500 monthly to kill the credit cards or other debt. Since he has already completed step 1, he has started to live on part of his business. What about that $2000 monthly from his day job he is no longer spending? He divides it between debt (more on the house) and savings.

This might sound like a pointless game of moving money around, but it is psychological. Bob is now seeing he can live on his business. This is giving him momentum and motivation to grow his business.

4. Transition to 100%

My position here is very conservative. I am suggesting to Bob that he keeps growing his side business until he is living 100% on the business income and saving all of his employee income. The key here is that he does not touch that money from the day job for his monthly expenses. When he hits the 100% mark, he can, if he wants, quit his day job.

Some people need different plans. Some are ready to quit the day job when the business brings in 50% of their employee income. It depends on your level of risk and how much time your business takes. Bob’s side business takes very little time since he is selling products online in a niche market. His work in the business can be contained in after hours and weekends. If he had a time intensive business, he might need to make the transition at less than 100%. Either way, Bob has a plan.

The key is that you do not go into business, you grow into business.

Question: Are you planning a transition? Why? You can leave a comment by clicking here.

Resources

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Question: Are you planning a transition? Why? You can leave a comment by clicking here.

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