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There are two mistakes that people make when transitioning away from their day job to focus on their business full time. Some entrepreneurs quit too early in the process and others hold onto their day job far longer than they should. There are some entrepreneurs that will quit their day job as soon as they decide that they want to start a business. They jump off a cliff and hope that they’ll be able to build a parachute on the way down. They believe that having no safety net will encourage them to work harder and increase their likelihood for success. I don’t believe this is a winning game plan. When your business has to generate sufficient cash-flow to pay for your family’s living expenses right away, you tend to get desperate and take deals that you might not normally take. You might be more inclined to take on deals that are significantly discounted or have onerous terms that come back to bite you later. You might take business from someone that you know is going to be a problem customer. You might lose focus and accept any work that comes to you that pays the bills. You might also inclined to try to grow your business too quickly and scale your company before you have a proven business model. This can be dangerous because any fatal flaws in your business model will be magnified at scale.

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There are also people that hang on to their day jobs far longer than they should. They hang on to their day jobs far longer than they should because they see receiving a steady paycheck as a safety net of sorts. Even if your business fails, you still have your day job to fall back on. This sounds like a nice idea for the risk adverse, but there’s a big opportunity cost to keeping your day job. Your best energy and work effort are being directed toward growing your employer’s business, not your own. Your business is getting short-changed and you’re probably not pursuing as many opportunities to improve your business as you would if you were fully dedicated to your business.

Some people hold onto their day jobs for too long because their employer provides health insurance and other benefits. While acquiring an individual health insurance policy was a significant roadblock to self-employment in the past, this is no longer the case. The Affordable Care Act prevents health insurers from rejecting your insurance application because of pre-existing conditions. You can also easily shop for a policy through one of the state insurance exchanges or through an independent insurance agent. If you’re self employed and are paying for your own health insurance, there’s a good chance that you’ll be able to deduct what you pay for health insurance from your taxes. Depending on your income, you may also qualify for federal subsidy toward the cost of your insurance policy. Paying for a health insurance policy on a monthly basis can still be very expensive, but it’s not an insurmountable challenge that should prevent you from going full-time with your business.

I was in the camp that held onto their day job for too long. After I got out of college, I took a job working for a local website design firm in mid-2008. My business was generating as much revenue as my day job was by the middle of 2010, but it wasn’t until November of 2012 that I finally decided to quit my day job to focus on my business on a full-time basis. I didn’t mind the work that I did for my day job and thought that I had plenty of time to build my business and complete all of the projects I was assigned for my day job. When my son was born in September of 2012, I realized that I didn’t have the time to work two full-time jobs and be a full-time dad, so I started to make plans to transition away from my day job. I told my employer that I would be leaving with four-weeks notice and was self-employed soon after. It would be easy to think that my business would suffer with a newborn in the household, but just the opposite happened. Since I was able to put all of my best work energy toward my business, I was able to pursue all of the ideas to grow my business that had been floating at the back of my mind, but never had the time to do. Within six months of quitting my day job, my business’s monthly income literally doubled and has been growing at a steady clip since then.

The question of when exactly you should jump ship from your day job and focus on your business isn’t easy to answer because we don’t know what the future holds. If you were able to see future income statements for your business, the decision would be much easier. If you knew your business was going to grow significantly during the next few years, you’d be more inclined to quit sooner rather than later. If you knew that your company’s revenue was going to tank, you would hold on to your day job for dear life. Unfortunately, you don’t know for certain how your company’s going to perform in the months and years after you quit your day job, so you have to act on the best information you have available. I recommend you quit your day job when your business has generated more net profit than your salary for three consecutive months and you believe there’s a reasonably good chance that trend will continue. While working toward this goal, I recommend only living on your salary and using the net profit from your business to pay off debt or build an emergency fund. This will help put you in a much better financial position when it is time to quit your day job and will prevent you from building an expensive lifestyle that requires the income from both your day job and your business.