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.
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.
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.
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.
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.
Review all the insurance coverage you need and obtain costs.
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.
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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