How Do You Know When it’s Time to Start Your Own Firm?

I was recently talking to my husband about a few things we had going on.

“Remember when I started my practice?” He replied,“Of course, I was scared to death.”

News to me, but it would not have mattered. I knew when I was 22 years old that I would eventually be working for myself, and by the time I started Kildal Services LLC, I also knew giving up my day job was the right choice.

I think I also should have been as terrified as he was. The truth is, it never occurred to me that it wouldn’t work out, and once I got to a point where I realized, “Whoa, this is all on me; I’m the one that has to get the clients, do the work and stay current on just about everything,” there just wasn’t any time to be scared.

Whether you’re starting your own tax practice or looking for monthly service clients, going out on your own takes a leap of faith – and a truckload of hustle – to start your own business. Here are seven ways you know you’re ready to start your own firm:

1. You current job isn’t giving you a buzz. By all means, don’t run out to start your own practice if you’re not fulfilled in your work. Instead, examine why you’re dissatisfied. Maybe tax and accounting isn’t for you, but if you love parts of what you do, instead of the structure imposed on you by your employer, it may be the right time to start your own business and focus on the work you love.
2. You know your stuff. There’s a distinct advantage to having seen how a business is run, from sales to operations. If you’re still employed, but think you want to do your own thing, spend some time observing how your current employer is handling things.
3. But, you don’t know it all. Owning your own business is a bit like parenting – you think you know what to expect, but once it happens, you realize you had NO IDEA WHATSOEVER. Starting your own business will teach you a lot about yourself, the types of people you like to work with, what you’re good at doing and what you’re really not good at doing. If you aren’t ready to see the hard truth about yourself, starting your own practice may not be for you.
4. You’re ready to work hard. Many people love the freedom of not having a boss, yet underestimate the amount of work involved. Owning your own business is hard work. You have to find clients, do their work, and manage the infrastructure and administrative tasks, such as your own invoicing and bookkeeping. Seriously, be ready to work twice as many hours, often at odd times.
5. You know the risks. Before you start your own firm, examine the risks. There’s the loss of a regular paycheck and medical insurance benefits, of course, but there are additional risks you may need to factor before making a decision. One rule of thumb is to have three to six months of living expenses put away, but everyone’s situation is different. It’s better to err on the side of less conservative spending, just in case you need the extra money.
6. You aren’t afraid of failure. There are some nasty statistics out there: eight out of 10 businesses fail in the first year, and 96 percent of businesses dissolve within 10 years. There will be things you try, just to crash and burn in a glorious ball of fire. Own those mistakes and learn from them. If you’re going out on your own, you need to be ready to define your own success and not worry about what other people are doing.
7. You’ve got a vision. You need to know the type of clients you want to work with, where you’ll find them, the services you’ll offer and how you want to run the administrative part of your business. You’ll also need income goals and a plan for how to get there. I still do it the old fashioned way: I write it down into five-year, one-year, quarterly and monthly goals.

Starting your own business isn’t for the weak at heart, but it’s well worth the time, energy and sweat. You’ll need to weigh the pros and cons, including practical concerns and those that impact your psyche. Good luck!

Editor’s note: Is it time for you to start your own practice? If so, check out our guide to “How to Start a Professional Tax Practice, ” or read “Buying and Selling a Tax Practice.”