Looking To Start A Business? Money Tips To Consider Before Quitting Your Job
Today, India is one of the world's biggest startup hubs, with an increasing number of professionals biting the bullet and beginning their entrepreneurial journey. Quitting a stable job for your own venture has big financial repercussions, especially in the initial phase, and hence, it should be done with careful planning. Here are a few areas you should have covered before you take the leap of faith and bid goodbye to your job:
Accumulate sufficient corpus to substitute monthly income
The first implication of your decision to quit your job would be the absence of monthly income in the form of salary. When you quit your job, your income would consequently stop. This necessitates the step of ensuring that you have accumulated sufficient corpus to act as substitute for your monthly income. This should be completely separate from the money you have put in place for your venture.
Since setting up and stabilizing your business to start generating income would take some time, this corpus should amount to at least a year's expenses, including existing EMIs and all monthly spends. Once you have set aside this corpus, it would act as cushion money and will see you through your entrepreneurship's initial period.
Ensure you have emergency fund in place
Creation and maintenance of emergency fund is important. This fund would assist you in handling financial exigencies such as severe medical issues. Ideally, before you let go of your current job to start new venture, you must have an emergency fund amounting to at least 6 months' expenses. Presence of this fund, along with corpus accumulated for income substitution, would financially relieve individual and enable her to comfortably focus on the new venture.
Outline possible lending options
One of the most important aspect of your business plan is acquisition of funds. Capital is needed to start and operate a business, whether it's a small scale or large scale venture. You cannot afford to quit your job and think of starting the venture without outlining the possible sources to acquire funds. It's best to have your business model and lenders in place before you quit your job.
Visit financial marketplaces online to look at various types of loans to fund your business, such as personal loan, business loan or loan against property. Online platforms enable you to choose the right kind of loan along with the appropriate lender for your business, by offering comparison amongst various available lenders.
Before you apply for a loan, ensure you have relevant papers and business model in place. Make sure you have a clear business model, including the business idea, purpose of your business, revenue generation and marketing strategies, source of funds etc. all ready to be analysed by the lender.
Your research should include aspects such as product's presence in market, competitor analysis, target audience, marketing channels available etc.
Continue your ongoing investments
Even as you look to start a new business upon quitting your job, you must not compromise with your life's financial goals and thus, continue your investments, earmarked for various financial goals. Whether it's long term goals such as child's higher education or marriage, or building retirement corpus, or short term ones like purchasing a vehicle in next 2-3 years, you must ensure that your investments are not hampered.
For instance, in case you have been investing in mutual funds through SIPs, stopping your SIPs for a few years would result in missing out on capital appreciation for that period. Since mutual funds, especially equities, have continuously proven to provide inflation beating returns and showcased the magic of compounding over the long term, pausing your investments should never be on your mind.
Make sure you are adequately insured against uncertainties
Amidst various decisions and steps required to build a plan to start your own venture, make sure you don't miss out on covering yourself and your family with adequate insurance. With rising costs of living and medical expenses, both term and health insurance have become necessities. Ideally, your term insurance cover's amount should be at least 10-15 times your annual income.
Since you won't be a salaried employee anymore post quitting your job, employer's health cover won't be available. For your family, you can opt for a family floater health policy, with your children included in it. Additionally, instead of regular medical insurance, consider taking a top up medical policy which covers the medical costs in case of disabilities and accidents more adequately.
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