After watching many of her colleagues be laid off, Jessica Cooper walked away from her job in the marketing department of a business intelligence research company in August 2023. She’d been dreaming of running a business full-time, and the moment seemed right.
“I was one of the last people remaining,” she recalls. “My father had just passed away. I wanted a change. And because I had laid the groundwork the year before, I saw the opportunity to start my own business.”
Cooper, the mother of a four-year-old, now partners with her sister to run Young Eden from her home in Daly City, California. The online children’s clothing marketplace specializes in organic and sustainable apparel for babies and toddlers.
To pay for startup expenses and give herself the six-to-12-month runway that her research —and experience running a vintage shop with her sister on Etsy — had told her it would take to get the business off the ground, Cooper built up $10,000 in savings.
While people leave their jobs for a variety of reasons, one study found that nearly a third quit in order to start their own business. Quitting without a savings plan can put not only your new business’s finances in jeopardy, but your personal finances as well. “When many people start a business, it may be months before they are paid for the first time,” notes Ryan Derousseau, a financial advisor at United Financial Planning Group in Hauppauge, N.Y. “You’ll need a lot of savings to ensure you get over those few months — or many months.”
Fortunately, as Cooper has found, if you save ahead of time and keep your spending down, you can quit your 9-to-5 job and start a business. Here are five rules to follow:
One reason Cooper was able to launch the shop, despite living in an area with a high cost of living, was because she’d tucked away every financial gift and small windfall in a checking account. At the same time, she kept spending down through measures like using a grocery store app to find out what was on sale before she set foot in the store. “I’m careful about what I buy, and if I don’t need something, I’m not going to spend money on it,” she says.
The start-up costs for a new business vary by industry. But a good rule of thumb is to save at least three months’ worth of business and living expenses to give yourself a cushion. Planning to live on less will lower the amount you have to save.
How do you estimate your business overhead before you’re up and running? Research is essential, and there is a wealth of information you can gather from entrepreneurship books and industry journals, YouTube videos, events in the field you want to enter and conversations with people in the industry. Keep in mind that you’ll go through your savings faster if it takes months to build a steady customer base, slower if you can start earning money from day one by doing project work.
Ask detailed questions about start-up costs so you can get the most bang for your buck. “I did a ton of research on the lowest cost of entry for running our business,” says Cooper. She opted for an e-commerce store on the Shopify platform, which made it easy to create the site she wanted without hiring a designer. “We got a really easy, plug-and-play website,” she says.
During the critical early months of your business, you’ll likely be living more on your savings and any side income you have than on revenue from the business. Keeping a close eye on your personal spending — and reducing small splurges — can go a long way. “I have a monthly spreadsheet in my personal life where I see all of the money coming in and going out, so I don’t put myself in a situation where I’m spending more than I’m willing to,” Cooper says. Just in case revenue comes in more slowly than she anticipates, she takes on freelance marketing projects from industry colleagues to keep the cash flowing as she begins to market her wares to parents.
It will be hard to project how much revenue you will bring in from your business the first year, because you will not have experienced seasonal patterns in sales. Keep as much as possible tucked away in your business bank account to protect yourself from revenue swings. “Just because you had a good month, don’t pay yourself more. You’re going to have bad months, too,” says Derousseau.
Ultimately, starting a business takes financial planning — both for your personal life and your business. The good news is that if you save up enough to give yourself some runway and keep an eye on your finances, it’s possible to take the same leap Cooper did and embrace your dream of business ownership.