08/04/2014 02:00 pm ET Updated Dec 06, 2017

The Road Between Employment and Entrepreneurship: Let's Talk About Money


Earlier this year I surveyed individuals who desire to make the transition from employment to entrepreneurship. I discovered that, overwhelmingly, the biggest roadblock that keeps people from taking action is fear about money.

The question for everyone is the same: Will the passion business I create earn enough income to support me?

The answer is also the same: Who knows? The only way to find out is to test your business idea and learn how to be nimble enough to make tweaks here and there until you find a business model that works. That's understandably overwhelming and stressful, and I can empathize with those who get scared into staying put.

Fortunately there's a way to feel less scared about money and you can get started right away on eliminating the fear and overwhelm.

First I have a question for you. How would it feel if you could quit your job knowing you had a nice plush "money cushion" to support you as your build your passion business? What if you felt comfortable knowing that you can access extra cash to cover your expenses if your business doesn't hit its monthly sales goal? How would you act if you had peace of mind about money? Would it help you be more courageous in starting and growing your business?

If there's one thing that I could do over again, it would be to diligently focus on having at least 18 months worth of expenses in accessible cash (e.g., savings accounts and short-term securities, etc.). The reason for this is because it's jarring going from immediately having a steady stream of income (i.e., a paycheck) to having to rely solely on yourself for income (i.e., what's left after paying business expenses). The more plush your money cushion is, the easier it will be to handle the transition.

Here are some tips to help you build your money cushion faster:

1. Calculate how much you'll need to cover 18 months worth of expenses

In order to determine how large your money cushion should be, you first need to know how much your life costs. Using last month's bank statement, tally up your recurring expenses (mortgage, utilities, cell phone, etc.) and multiply this number by 18. This is your savings goal.

2. Trim your spending

It's easy to robotically spend money on things that you don't necessarily need, yet add up quickly. (For me it was 2 venti vanilla soy lattes per day). Look for ways to cut back or eliminate these expenses altogether. For example, consider canceling subscriptions you don't use or transferring credit card balances to cards that offer an introductory 0% rate. The extra cash you save can go into your savings account.

3. Talk to your financial advisor

Your financial advisor or planner should know of your plans to start a business so that he or she can make recommendations for modifying your savings and investment strategy. Ask if there are attractive short-term securities you can invest in and if there are other things you can do to grow your money cushion quickly.

4. Watch your money cushion grow

Once you've completed the above, keep an eye on your money cushion regularly so that you'll know when you've reached your goal.

Money doesn't have to be the thing that keeps you from traveling the road between employment and entrepreneurship. With focus, dedication and patience, you'll find yourself well-equipped for the journey ahead.