How do you transition from employment to self-employed entrepreneur without losing your shirt? That is a fundamental question. If the business you want to start allows it—not all of them do—many people test the waters first by starting the business with limited funds in their spare time. Consider this option: ask yourself whether you could try it, does your employer allow it, and would it work? Some personal service businesses can work like this, but many cannot. Think about that first, for your business.

If you have a business that requires outside start-up investment, then you have a harder climb uphill. First you have to convince investors to buy into your business plan and invest with you, so you get the money, and then you can start the business. In this case your starting salary is funded by the investment, and has to be agreed upon by you and the investors, and it is negotiable. The more risk you take, the happier your investors, because they want to see you really committed. They don’t want you to suffer, they need you to survive, and even prosper, or else the business also fails, but they also don’t want to risk their money on the new business and make you too comfortable at their expense. Your present earning power is an important piece of information. On one hand, you will have trouble living on less and they know it. On the other, it is hard to ask an investor to put money into improving your lifestyle. Another point is equivalent salaries. Sophisticated investors have a sense of what is appropriate for what job description, in what industry, in what region; and if they don’t know, they research it.

The last point I’d like to make is that you should understand that there is risk. Few people have started businesses without taking that risk. It’s built in. You have to be sure you can take it. I can’t tell you how others do it without taking the risk, because I think most everybody who owns a business takes that risk all the time. Make sure the returns are worth it, or potentially worth it.

Tim BerryTim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Follow him on Twitter @Timberry.