1. Evaluate your current financials
Before you make a full-time commitment to your business idea, dig into your current finances. Examine your expenses and consider how you could reduce your monthly spend if your income dips unexpectedly. For example, by tracking how much you’re spending on meals out, entertainment, health club memberships, clothes and other discretionary costs, you can more easily set a goal for how to reduce that spending, if needed.
You’ll also want to evaluate your outstanding debt and craft a plan to reduce it before you leave your day job. Pay special attention to credit card debt, which often comes with high interest rates. Then create a new, more conservative budget that reflects your potentially reduced income as you build your business.
Finally, set aside an emergency fund. This is a small amount of savings that you will not put toward your business and keep in reserve for unexpected expenses, such as a car repair or medical bill. Remember, the longer you can defer a salary, the more resources you can devote to your business.
2. Put skin in the game
Many founders personally fund their first prototypes through a variety of means. They may tap their own savings or ask friends and family members for a small seed round to develop a minimal viable product. To potential investors, this willingness to commit your own money can signal commitment and passion for your idea.
However, be thoughtful about how you invest your own money—even in yourself. If, for example, you are considering pulling funds from your retirement accounts, educate yourself on the ramifications first—including any early withdrawal penalties on money you take from your 401(k) savings. And, if possible, steer clear of using loans or credit cards with high interest rates to fund the first stage of your business.
3. Before you quit your job, develop a prototype
As you plan your foray into the entrepreneurial world, your regular paycheck represents security. That’s why many founders keep their day jobs, spending nights and weekends developing their business idea for as long as possible before they go all in. Give yourself the time you need to understand the problem you want to solve and how you will solve it, the market potential for your product and the ways in which you can interest potential customers before making the move from full-time paycheck to uncertain compensation.
To do this, you may build out a beta software release or simply assemble a well-researched deck. Either way, preparation on the front end helps eliminate costly surprises further down the road. It can also help you decide whether your idea is worth taking the financial risk of quitting your day job.
4. Investigate early-stage funding options
Once you’re confident that your idea has real legs, you can explore some options for early-stage funding from angel investors and venture capital firms. If your idea is consumer-facing, check out various crowdfunding sites where you can further test the market for your idea and possibly raise a first round of funds to get your business off the ground.
Other options are startup accelerator and incubator programs, which are widespread. While each program is unique, many offer a combination of seed funding and expert business guidance.
Starting a business is exciting, but never simple. But by evaluating your finances beforehand, developing a prototype and educating yourself on your funding options—including investing some of your own funds—you’ll be able to focus your energy less on financial worries and more on your new startup.