Published Article Details

3 tips on how to switch from high salaried job to entrepreneurship

Posted by: Arti Bhargva on Jun 08, 2020, 06.30 AM IST

Jay has worked for 20 years in senior positions in large companies. Now he wants to quit his job and become an entrepreneur as he is confident of his business idea. He holds a large portfolio of assets, including some real estate, stocks, mutual funds and bonds. His two children are pursuing their under graduation. He plans to fund their higher education with his savings and education loans. What precautions should Jay take before quitting his job at this stage of his life?

Jay’s family would have been used to a particular lifestyle, given his income and position in society. As a household moves up the income ladder, what would have been discretionary spending earlier, become essential expenses. This may include salaries of support staff, entertainment and socialising costs, travel and other such expenses. Jay has to make a realistic estimate of these and deploy an adequate corpus so as to insulate these from the volatilities of the enterprise he begins. The corpus should be able to cover three years’ expenses, adjusted for inflation.

Next, Jay should be careful about how his enterprise is funded. He should keep his contribution limited and in phases, so that he does not get desperate when the early uncertainties of a new business hit him. He can begin with a small capital and seek funding as he builds the business, so that he allows for the early mistakes and modifications. A first generation entrepreneur has to allow the business idea to grow without demanding too much of funding too early. The business needs to demonstrate its sustainability, to be able to attract funding from investors. Efficient use of capital is required when the pockets are not too deep.

Finally, Jay should ensure that he separates and insulates his business from his family. Pledging personal assets, providing personal guarantees, deploying personal capital into business and repaying it from time to time, involving the spouse as the dormant partner, are all business practices that smudge the distinction between personal and professional. These practices are convenient to start with, but can create problems in the long run for a professionally managed business.

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