When Is It Wise To Make The Jump And Take Financial Risks?

I always get asked about the right time to quit a job and start a new business. The answer usually depends on a lot of variables such as the maturity of the individual, the business, and the market conditions just to name a few. So I decided to start a new series to address the broad question of when is it wise to start a new business.

I believe that one of the first guidelines has to do with financial management. One of the top line questions then becomes …

How much money do I need to have saved before I even start my new business?

There are two main considerations for this question. The first one is that you need to have an emergency fund. In June 2013, Bankrate published survey results showing that almost 75% of Americans don’t have enough savings to cover their expenses for just 6 months. Unfortunately, these individuals suffer during recessions and hard financial times. So before taking any actions with your finances, you need to make sure that you have an emergency fund of at least 6 months. Bankrate actually recommends that your emergency fund should be at least 9 months.

The second consideration is how long does it usually take to know if your business idea is actually a viable one. In my opinion, it takes about a year of iterations, talking to customers, talking to advisors, and potential investors before you know that you have something worth investing more time into. In a very simplistic world, that means that you need another 12 months of savings before you are ready to fully quit your job.

TL;DR — If you are serious about quitting your job to start a new business, then I recommend you have at least 18 months of savings before you quit your job, get rid of all distractions, roll up your sleeves, and go deep on your idea.

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