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Quitting Your Job and Heading Out as a Full-Timer

Quitting Your Job and Heading Out as a Full-Timer

By: Martin M. Shenkman, CPA, MBA, JD

Introduction

   

So you’ve part-timed in your RV and are ready to pull the plug and quit your old job and take up on your own – your own business in your own RV. There's lots of excitement in gaining what might be the ultimate in flexibility and control over your life. But, there's also lots of trepidation as to whether you’ll be able to "make it" financially, and in other ways. Before sending in your resignation letter, there might be some important steps to plan and evaluate to help launch your new self-employed life. The following discussion addresses a few of them.

 

 

 

Shareholders’ Agreement

   

If you are a shareholder or partner in the business you are leaving, you might have a host of obligations in addition to a non-complete. There may be confidentiality provisions that prevent you from disclosing or using key business information or technology. You may have a much longer advance notice requirement than an employee. You might have to give notice as much as several months, or more, to your partners. Failing to follow the detailed requirements of the agreement may reduce or eliminate any buy out (price paid for your ownership interests) that you might be entitled to.

   

Employment Agreement

   

Read and study whatever employment or similar agreement you have with your employer long before you actually give notice. There could be a host of points that could be important to how, when, and possibly even if, you depart to start your own business. Some of the matters are administrative others go to the core of your ability to launch a new business.

   

A key provision to consider is a covenant not to compete. This is a legal restriction found in many employment agreements designed to make it difficult for you to complete with your former employer. If you had planned on opening a similar business on your own you must understand the nuances of what this restriction includes. RV Don’t assume that simply because you’ll be hopping in an RV and driving across a state line, or hundreds of miles away, that you’re in the clear. Covenants not to compete can be structured in many different ways. Covenants may prohibit you from doing business with customers of your employer for several years. A customer non-compete might be, depending on your plans, much tougher, than the commonly used mileage covenants. Those types of restrictions generally prohibit you from competing within a certain number of miles of your former employer. These, too, can be tricky. How are the locations of your employer defined? Is it every warehouse and office or just the headquarters? With the internet being so important to many businesses, the clauses might be quite broad and complex. If you have any doubts about whether you will be clear to conduct the business you anticipate, hire an employment lawyer to review it for you.

   

Cost Estimates and Cash Flow

   

Crunch the numbers before you jump. One of the biggest challenges to a new business is cash flow. It can be especially dangerous if you underestimate costs.  If you’ve worked for an employer, some significant costs of running a similar business may not be obvious. After you’ve done whatever research you can, and put together projections, hire a CPA to review the numbers and discuss them with you. Even if you want to keep costs to the bone and will use Quickbooks or a similar program to handle your own accounting, investing in a consultation with a CPA that knows your type of business may be wise. Many of the costs of running a business on your own, will differ from the costs a larger employer faces. RV Costs of running your business out of an RV may differ even more. Some much less, others more.

   

Arrange for lines of credit and other financing before leaving your current employer. Even if your projections show that you should have very little risk of not having the cash to fund your business, a few unanticipated bumps in the road could destroy your plans. Having an available business line of credit, even a family member committed to making a loan, can all prove to be lifesavers. Arrange them in advance. Nothing can be a bigger scare to a potential lender than the fate of your business depending on their giving a loan. Getting credit lined up based on reasonable projections, especially if reviewed by a CPA, is much safer. RV  It may be easier to arrange financing for your RV than to borrow money to buy inventory or set up a website. Use whatever works, but be conscious of the interest charges and other fees, and what liens the lender might insist on filing.

   

Insurance Coverage

   

Review all the insurance coverage you need and obtain costs. RV Be careful to evaluate insurance coverage in light of any unique circumstances working from an RV might create. Consider both general types of insurance as well as coverage you might need for your specific type of business.

     
  • Health insurance. This is the Big Gorilla. Investigate the costs of keeping your health insurance through your employer. You might be able to do this under federal law called COBRA for 18 months. But look into state law as well. Some states may offer other options. You will pay your former employer 102% of the cost of coverage (the 2% covers their administrative costs).
 
  • Business coverage. You may need business liability insurance, coverage for damage to business equipment and property, etc.
 
  • Business interruption and/or disability insurance. Once you’re fully on your own, if you get sick or something happens to prevent you from working, some of your business overhead and other costs will continue, your need for cash flow to pay expenses will continue, etc. So, review the costs of insurance coverage. Even if you opt not to buy the coverage, it can be informative to investigate or even apply to see what the dollars will get you. You have to get disability coverage while you have earnings to replace. If you apply after you’ve started your new business, so that there is no assured income flow, you may not qualify for coverage.
 
  • Liability insurance.  This will depend on the nature of your business.
   

Taxes

   

If you set up your own business and operate it individually, you’re a “sole proprietor.” You’ll simply report business income and expenses on your personal income tax return, Form 1040, Schedule C. If you set up an entity to operate your business other tax forms as well as tax and legal issues will have to be addressed. This topic will be addressed in several future columns.

   

While you’re an employee, your employer withholds taxes from your income and pays the appropriate tax authorities. When you’re self employed, there is no withholding and you have to pay estimated taxes every quarter to the IRS and perhaps state tax authorities. Be sure to investigate the rules and plan ahead to address filing requirements and cash flow.

   

Conclusion

   

Starting your own RV business can be exciting, liberating and challenging. Plan ahead, long before you stop your current job. Look into all the possible implications of your resigning your existing job, as well as starting your new job.

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