Starting your own consulting business is a huge leap of faith – in yourself! Assuming that this is how you plan to make your living (not just a retirement pursuit) here are 3 practical tips to create a safety net for yourself. So before you quit your “day job” make sure you do the following:

Make sure you have 18 months of living expenses planned out.

  • New consultants usually give themselves a year to make it before they decide to bail out, and that is way too soon! You need to give it at least 18 months in order for marketing to kick in and generate the kinds of referrals that become the staple of any consulting business.
  • My own business turned the corner in my 15th month. I was thrilled when it happened and relieved that I was able to support yourself during that start-up phase.

Arrange for a signature line of credit.

  • I’d suggest at least $50,000 US, more if you can get it.   That’s because there may be unanticipated expenses for you or your business, and you want to be able to absorb them.
  • However, you need to get this line of credit BEFORE you start your business, while you are still employed and getting a salary! That’s because once you quit, you may not be credit worthy for a while — finance companies will want to see two years of business tax returns.
  • In my own business I realized this too late. When I needed to invest in a new computer system and marketing collateral, I had difficulty getting a loan and often had to rely on credit cards with a much higher interest rate.

Get disability insurance before you quit.

  • The fact is, you are more likely to become disabled than die, so life insurance although nice will not help you if you get into a situation in which you cannot work for an extended period of time.
  • I learned the hard way that applying for this AFTER you start your business means lower benefits for a higher rate. Why? Insurance companies need to prove you are working before agreeing to sign you.   They like to look at a pay stub or tax returns and be able to see you come and go.
  • If you are in the start-up phase, you may not be able to provide the financial evidence needed for the amount you want to insure, and if you work out of a home office, you won’t be “coming and going” on a regular 9-5 basis. As one insurance agent said to me, “How do I know you are not just watching daytime TV?”

So while you are planning your own consulting business, put in the effort to soften any hard falls. It will still be a scary leap, but you will sleep better knowing that you have a safety net!

Cathy Perme is the co-owner of Perme & Peterson Associates, LLC.

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Catherine Perme

Fizz! How to Succeed as an Independent Consultant author Cathy Perme also wrote Confucius in My Cubicle: Practical Wisdom for the Leader in All of Us, released by Wisdom Editions.