- Before you quit your job, come to terms with the minimum income you need to survive.
- Methodically save money. See my article on financial independence for specific strategies.
- Don’t reverse engineer your former salary to come up with what you should charge. Learn more here.
- Get clients before you make the jump.
“It gets harder to contemplate going full time when your day job has a very high salary, great benefits, room for advancement and is in a explosive growth industry. (That also usually comes with long hours, lots of stress, and lots of travel, which can be a strain on your family.)
Any advice for people in a situation like this, where making the move from part time to full time freelancing would ultimately make them happier, but the leap gets more difficult to make?”
Before I started my product company, I used to run a consultancy. And in this consultancy, I had ten people who received benefits, paychecks, and a semblance of security from me. A few of the people who worked for me were originally freelancers but wanted to escape the “rat race” of finding and selling clients.
But Malcolm makes a very good point: What if you know that you’d be much happier controlling your own destiny by running your own freelancing business, but doing so would sacrifice the years of hard work, advancement, and pay that you’ve accrued at your current gig?
I’m sure I could Google a bunch of inspiration and motivational business quotes about perseverance and initiative and, and, and… but let’s be real here. Malcolm has a family. He has kids. He has a house. It’s one thing to be 20 and move across the continent to pursue entrepreneurship, but it’s an entirely different story when you’re trying to keep a household afloat.
I tend to steer clear of risk (unless I’m in a casino, where rationale and reason are blacked out with the sun.) So if I were Malcolm — and I have been Malcolm — here’s what I’d do…
- Come to terms with what you need to survive. If you’re salaried, you have income (paychecks) and liabilities (house, car, insurance, food, etc.) While few of us actually budget, which is probably why many of us live paycheck to paycheck, you should immediately start by setting up a basic budget. How much do you need to keep up your standard of living? If you’re adventurous, you might be able to cut away the fat and lower your monthly liabilities, but if you’re like me you enjoy life and want to be able to take your wife out on dates or buy Frozen on Blu-Ray for your kids. I’ve tried a bunch of budgeting apps but almost always come back to a simple spreadsheet. Make a list of everything you’re on the hook for each month, and realize you need to bring in that and more each month to succeed.
- Start saving. You need to set aside money in your business. It took me way too long to realize this. Finding clients, meeting with prospects, and everything else that doesn’t translate to a line item on an invoice is overhead. Invoices will be late. That dream client won’t start when they said they will (or they’ll vanish entirely.) You can’t pay bills on an IOU (OK, so there’s credit, but let’s not go there.) On top of saving about 30% for your taxes, try to tack on another 20% for cash flow insurance. My article on financial independence goes into more detail on specific strategies for saving,
- Understand that your benefits are just money. Medical insurance, dental, 401k, vision, free soda. These are all easily deconstructed into dollars and cents. It’s tempting to be glued to your benefits package, but ultimately those same benefits can be replaced (and then some) with your consulting income. It’s just money.
- Don’t reverse engineer your salary to come up with a rate. I can’t begin to count how many times I’ve heard a variation of the following: “I make $100k a year, which given a 2000 hour working year means I make $50 an hour. So I’ll charge about that.” First off, if you divide all of your income by two, you’re making $25 an hour now. And secondly, you can’t compare being an employee to being a freelancer. If I’m hiring an employee, I need to pay for recruitment (job ads, the overhead of hiring, finders fees, maybe recruiter fees.) I also need to pay for onboarding (getting you settled into the company.) But I’m also paying for your vacations, sick days, and time spent lounging around Reddit. Every employer on the planet knows no one fully commits to them full-time. So charge them for your uncanny ability to turn on-off with the flip of your time tracker’s timer. Your rate should reflect the fact that you’re drastically easier to hire and fire than your employed counterparts. If you need a little help justifying that higher rate, check out my free course. And if you’re already freelancing and want to see if you’re on track to hit your income goals, my new freelance rate calculator can help.
- Get your first few clients now. The last thing you want is to do a bunch of busywork before quitting and have no one ready to pay you once you’re on your own. What I mean by busywork is doing a bunch of stuff that looks productive, but really isn’t. This includes getting a lawyer to write up a contract, putting together a business plan, opening up a business bank account, designing that perfect website, and more. Sure, these are all good things, and things that need to get done. But these chores can often seem like you’re doing something big for your business, whereas you should be laser focused on finding people who will pay you money. That’s it. Start getting to know your local business community. Go to networking events. Tell everyone what you do and who you work with. Pick up a few Pete Drucker books and get to know how business owners think and talk (after all, you’re about to join their ranks.) If you’re valuable to your employer, you can often get them to be Client #1 (remember what a pain it is to recruit and onboard new employees?)
- You’re in charge of your own advancement. Want to get a raise? Charge more. Want to get promoted? Hire a few subcontractors or employees — congratulations, you’re now a manager! Love learning new things? Yes, it’ll be your credit card being charged to attend an industry conference and not your boss’s card, but it’s important to draw a distinction between “business money” and “personal money”.
I don’t believe that running your own business is for everyone. But for many of us, it’s a reachable reality. It’s a heck of a lot harder to become a freelance auto mechanic or bank teller than it is to write, design, code, and create for clients instead of a boss; but like Malcolm pointed out, a lot of our employers have us in golden handcuffs.
The worst that can happen is your business goes belly up and that you go back and get your old job back. Or you go back, get your job, and regroup until you’re ready to take a stab at entrepreneurship again. But by following the six points above, you’re less likely to fail — which is what matters most.