How to leave your job to start a consulting practice

Decide when, using signals

There's rarely a perfect moment. A better test is whether a few things are in place. You don't need all of them, but the more you have, the calmer the first months will be.

• Your runway is saved (see below).
• You know who your first clients are likely to be, and a few have said they'd want to talk once you're available.
• You've read your employment agreement and know what you can and can't do.
• Your health insurance plan is decided.
• Your offer and price are drafted, so you can say yes quickly when someone asks.

Work out your runway

Your runway is how many months you can pay your bills before the practice pays you. Add your monthly personal costs and expected business costs. The SBA suggests separating one-time costs from monthly ones and adding a cushion of about 10% for things you can't predict.

Remember that no one withholds tax for you anymore. The IRS says individuals who expect to owe $1,000 or more in tax generally need to make estimated payments across four periods in the year. Also expect a gap between doing the first piece of work and being paid for it: an invoice on 30-day terms means cash arrives weeks after the work starts.

Read what you signed

Before you contact clients or colleagues about your plans, find your offer letter, employment agreement and employee handbook. Look for four kinds of terms.

• Non-compete: limits on working in the same field or for competitors for a time after you leave.
• Non-solicitation: limits on approaching your employer's clients or staff.
• Confidentiality: what information you can't take or use.
• Intellectual property: who owns work, materials or ideas you created while employed, sometimes including work done in your own time.

How non-competes stand in the US

The Federal Trade Commission issued a rule in 2024 to ban most non-competes, but a federal court blocked it. The FTC's own page now says the rule is not in effect and is not enforceable. So enforceability is decided under state law, and it varies widely. California, for example, prohibits non-compete agreements for employees, and its Attorney General has said this applies to out-of-state employers with California workers.

Non-solicitation and confidentiality terms are often treated differently from non-competes, and can still apply even where non-competes are limited. Don't take client lists, files or other confidential material with you.

This guide is general information, not legal or tax advice. Rules change and depend on your state and situation, so check with a lawyer or tax professional before you act. An hour with an employment lawyer before you resign is usually worth it if your agreement has any of these terms.

Plan your health insurance

If your employer has 20 or more employees, COBRA generally lets you keep your workplace health plan after you leave. The Department of Labor explains that after leaving a job this usually lasts up to 18 months, that you have at least 60 days to choose it, and that you may have to pay up to 102% of the plan's cost, since your employer no longer pays a share.

The alternative is a Marketplace plan. HealthCare.gov says losing job-based health insurance gives you a Special Enrollment Period: you can enroll if you lost it in the past 60 days or expect to lose it in the next 60. If you start COBRA and later drop it by choice, that doesn't give you a new enrollment window, so compare both before you decide. HealthCare.gov also notes that self-employed people with no employees use the individual Marketplace, and that savings are based on your estimated income for the year.

A spouse's or partner's workplace plan may be another option. If you pay for your own health insurance once self-employed, the IRS's Form 7206 is used to work out the self-employed health insurance deduction; ask your tax professional whether you qualify.

Tell your employer, then tell everyone else

Give the notice your agreement asks for, and offer a clean handover. Tell your manager before you tell colleagues or clients. Keep your plans professional and simple: you're starting your own practice, and you'd like to leave things in good order.

If your agreement allows it, your employer may be your first client: finishing a project, covering a gap or advising your replacement. Former managers often become referrers later, so how you leave matters.

Once you've left, announce your practice to your wider network with a clear description of who you help. Business Launch Authority's Business Launch System covers this stage: your offer, website, Google profile, a launch announcement published on news sites and a plan for your first clients.

Questions

Sources

• Federal Trade Commission: Noncompete Rule (status page)
• California Attorney General: Noncompete agreements are not enforceable under California law (2022)
• U.S. Department of Labor: COBRA (keeping your workplace health plan)
• U.S. Department of Labor: An employee's guide to health benefits under COBRA (PDF)
• HealthCare.gov: Special Enrollment Period
• HealthCare.gov: Health insurance options for the self-employed
• IRS: About Form 7206, Self-Employed Health Insurance Deduction
• IRS: Estimated taxes

General information, not legal, tax or financial advice. Rules differ by location; check with your own adviser.