Should I quit my day job before starting a business?

If you're thinking about wading into entrepreneurship for the first time, keeping your day job is a great way to test the waters without making a full-time commitment. Being a small business owner is a tall task and it's not for everyone, so testing your concept first can be a good idea. That way, if you find that it's not for you, your finances are still in good shape. But doing two jobs at once can be demanding and may ultimately hurt your business if you don't have the energy to devote to growth.

So should you quit your day job before you start a business? CNBC Select breaks down what you need to know below.

Before you hand in your two weeks' notice to go all in on your small business, consider these pros and cons.

Pros

You can dedicate more time to your business

Quitting your job means getting to invest way more time in working on your business. With limited time to balance both, you're at the mercy of how exhausted you feel after a long day of work. Plus, weekends become your golden opportunity to churn out as much as you can before the work week begins again — which means that you might find yourself declining weekend trips with family or brunch with friends, which can create some challenges for those relationships.

Leaving your day job allows you to fully focus on your small business from 9 a.m. to 5 p.m. — if those are the hours you set for yourself, of course. You get to dictate your schedule and spend significant time building and nurturing your business, which is especially important in the first year.

You can publicly talk about your venture

Some people are afraid of what their managers and coworkers might say if they found out about their business. But when you no longer have a manager or coworkers, you might feel like you can more freely share your business activities and progress in public. Since social media can be a great way to get the word out about your business — this might be a worthy trade-off.

You business can grow faster

Dedicating more of your time and energy to your business might mean it grows faster than it would if you were left holding both bags. You can get serious work done without having to pull all-nighters doing both.

Cons

You'll have less income to live off of

Whether you're single and live alone or are partnered up, sacrificing an income source is no easy feat. You'll have to cut back on your budget and use your savings to cover the costs of living (especially if you're using funds from your day job to get your side hustle going).

For some people, not having a reliable source of income can cause more stress than doing two jobs at once. In this case, sometimes it may be better to keep your job and build your business slowly. Also keep in mind that it's harder to cut back if you have pets or kids versus if it's just you.

It can put a strain on your relationship

If your partner is generously footing all of your household expenses while you're building your business and don't have income to contribute, it may put a strain on your relationship. They may feel increased pressure to keep their own job or not make risky career moves. Some may even feel a bit resentful after a while from the pressure of being the sole income earner. Be sure you're on the same page before making any big decisions.

Sometimes, full-time entrepreneurship can challenge other interpersonal relationships, too. You may start declining nights out with close friends because you have to be conservative with your cash.

Your business may be more expensive than you think

Even when you've already made a plan and created a business budget, sometimes things change. You may decide to take your business in a different direction that winds up being more expensive. Or maybe you realize you need to hire a specialist to help you create a proper minimum viable product. Or perhaps your equipment breaks down and you need a new replacement ASAP.

This can sometimes take a surprisingly expensive turn and you may need to rely on your savings to float those costs, which also means you risk burning through your nest egg faster.

It's possible (and often even advised) to start your business while keeping your day job. This lets you safely cover the costs of starting your business and validate products and services without the fear of not being able to pay your rent, mortgage or other bills. Plus, you can weather long gaps without new customers or clients without being afraid of not paying your bills.

At the very least, you can start creating a detailed plan for your business while you're still employed. But before you do anything, you'll want to double check to make sure that starting a business on the side isn't against your employer's policies.

Wondering at what point you can consider yourself "financially ready" to quit your job and be a full-time entrepreneur? Here are some things to consider.

• Have an emergency fund with at least 6–12 months' worth of expenses
• Use any money in your FSA since this account is use it or lose it (good time to stock up on health essentials!)
• Cut back on discretionary spending a few months before you quit so you can save extra cash
• Speak to a financial planner for a closer look at your financial situation (and for personalized recommendations)
• Pay down expensive, high-interest debt (like credit card debt) so you don't have to worry about it when you quit your job
• Come up with a plan for covering unexpected business expenses
• Figure out what you'll do with your 401(k)
• Come up with a contingency plan in case you run through your nest egg and your business isn't earning revenue yet

If quitting your job cold turkey to be self-employed just isn't your cup of tea, there are still ways you can dip your toe into entrepreneurship.

Maybe you start a side hustle instead of a full-blown business. Side hustles are often run as sole proprietorships so you may not even need to register your business as an LLC like most do. Sole proprietorships are the simplest type of business "structure" so all your business income goes through your personal tax return. If you do decide to register an LLC for your side hustle, you can use a formation service like Northwest Registered Agent or ZenBusiness. They offer services at relatively low costs plus you can upgrade for additional services and add-on features like website and business email setup.

Another alternative? Instead of quitting your job altogether, consider working part-time or seeing if your company would hire you as a freelancer. This way, you can still get income that's a bit more predictable, and you won't have to cut ties with your company altogether. Though, keep in mind that you may lose your benefits like health insurance and 401(k) plan.

Still, if you're not ready to be fully self-employed, part-time work can be a good middle ground.

Quitting your job to run a business isn't ideal for everyone. While full-time entrepreneurship lets you focus on your business and grow faster, sometimes not having predictable income can take a worse toll than having to pull late nights.

If you're really having trouble growing your business and working full-time but don't want to quit your job, a solid middle ground option is shifting to a part-time schedule at your job.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of small business products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best LLC services for small businesses.

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