Quitting your job to launch a business? Prepare your personal finances first

“You need to survive in order to run the business,” said N. Raghu Kumar, a Bengaluru-based registered investment adviser, 41, with the Securities and Exchange Board of India.

Mint Money spoke to three individuals who left their corporate jobs to become entrepreneurs, to get their learnings on managing finances at home without a steady income to count on.

Build a runway

Well before you quit, start building a corpus which will fund your home bills until the new business takes off.

Begin by calculating your monthly expenses, including obligations like rent, children’s school fees and insurance premiums. Estimate how long it would be before your new business might start earning revenue.

“Whatever your first thought is, just double it in terms of expenses and timelines,” said Jugal Wadhwani, 39, who launched his own software-as-a-service company in Noida.

For nearly 10 years, Wadhwani worked at startups or companies where he got a steady paycheck, including as a digital transformation consultant for Radio Mirchi, but he quit in 2023. He had estimated it would take around six months to get revenues going, but it ended up being more than a year before the first deal happened.

For the first few years, “you’re just struggling. Nobody wants to be with you, even if you have the best of products or services,” said Wadhwani.

While his business is generating revenue now, it is yet to make a profit. So, drawing a salary or earning income from the business could be a while away.

One has to be prepared when quitting a job. “If I draw ₹5 lakhs per month, when can I draw this the next? Not before next 3-4 years,” said Wadhwani.

If you have a partner who has a steady income, it helps in household expenses. In Wadhwani’s case, he and his wife quit their jobs at the same time to launch a venture together. “We had to dig into our resources… which we were not supposed to take out.”

The corpus for your home finances should be kept aside in an easy-to-access location. Raghu Kumar suggested a money market fund, an ultra-short duration mutual fund or an arbitrage fund. Up to one to two months of money can sit in the savings bank account, given the very low interest rates of 2.5% to 3% currently.

Safety Nets

Before giving up a steady income, get your safety nets in place.

Raghu Kumar was in a corporate job for 15 years. He quit his job at a US investment bank in November 2020 to start his business in the financial services space named FinSim. He set up a mutual fund distribution business, and later became a full-time financial planner after getting his registration as an investment adviser last year.

Before quitting, he set aside capital to fund the business, three years of household expenses, and a separate emergency fund.

He also bought health insurance for himself and his family members. “It’s mandatory,” said Raghu Kumar. “Because one medical emergency, and you’re back to employment,” he said.

The spending balance

If you’re bootstrapping a company, be prepared to be frugal — both in the new business and at home.

“When people are in their jobs, they are used to a certain kind of lifestyle,” said Wadhwani. This could involve extravagant spending or travel, all of which isn’t advisable when you don’t know when your next paycheck will come.

“Just be mentally prepared for delayed gratification,” said Wadhwani. On the business front, entrepreneurs advise watching costs because, initially, that money too is likely coming out of your pocket.

“You’ve got to be extremely spartan,” said Shirshendu Banerjee, 57, founder of Soundboard Media, a broadcasting and media production company in Delhi. He said sometimes when a deal or income comes through, it’s easy to get carried away and spend big. “Don’t get caught in this idea that the image needs to be bigger than the product. It falls through eventually.”

Banerjee, who started out as a radio jockey and later was the chief operating officer for Zee Group’s radio assets, launched his first business venture in 2010. It was to run a mall radio. However, within a few years, some major media companies got into that business and priced him out. In 2015, Banerjee shut his business. In 2016, he started out again, this time to run a podcast for bikers, which has now grown into a broadcasting company.

Banerjee stressed the need to avoid wastefulness when making decisions about business expenses. However, being overly cheap can hurt the business.

For instance, Soundboard invested in expensive microphones because good sound is critical in the podcast business. “Product quality required it,” he said.

In trying to be cost-conscious, Raghu regrets not having invested in the business enough for marketing or technology early on.

“Your mindset will have to change from an employee to an entrepreneur,” said Raghu Kumar.

The debt equation

As far as possible, settle your loans and credit card debt before setting forth on your venture.

“Ideally, one should not be coupling this with 10 types of EMIs,” said Wadhwani. However, in case you have an unavoidable EMI, include that in the monthly expenses.

While on the personal front, debt is best avoided, in the business, it makes sense at certain stages.

“If an individual has spent about two years in the business, they would know if they were to spend some additional time, there is light in sight,” said Raghu Kumar.

For instance, if it appears that some profit or a new client might come through soon. “Then it makes sense to go ahead and take that loan, sustain yourself for some more period,” he said.

However, a business loan is expensive, and the decision to take it should not be based on gut feeling but on numbers.

For instance, consider the revenues generated in the previous year and the pipeline in the near future, to figure out how feasible it would be to pay off the debt. “That has to be a calculated move,” said Raghu Kumar.

Have a Plan B in case the business goes south. Back to employment may be one option, said Raghu Kumar.

A side gig

Not every businesses succeeds and multiple attempts may be required.

When Banerjee was looking to expand his venture and was reinvesting the earnings back into the business, he started side gigs to bring in some income. He teaches podcasting and has started producing podcasts for others. “I make use of my knowledge,” he said.

Entrepreneurs said quitting a job should follow careful thought and research about whether business ownership suits you. “Everything that I thought about running a business turned out to be so different,” said Wadhwani.

Avoid being swayed by others’ success stories. “For every Chetan Bhagat, there are so many non-Bhagats,” said Banerjee.

Once you take the leap, perseverance matters. There will be moments of doubt, but decisions should be driven by logic, not emotion. “It’s more of a mental ballgame,” said Wadhwani.