But a prospective self-employed – especially one whose financial situation has been made more precarious by a layoff — is wise to test the waters first.  Why?  As Small Business Administration (SBA) legend has it, only about half of new businesses survive past year 4.  This SBA article lists the reasons, but they pretty much add up to one thing: cash flow, cash flow, cash flow.

So how to make sure cash from your new business flows in the right direction?  In the Wall Street Journal article Becoming the Boss Can Cost Plenty, a few who’ve recently found themselves in over their heads share what they’ve learned about launching a start-up and how they would do things differently if they had it to do over again.

In the not-too-distant past, this was hardly even an issue because 1) employer-sponsored life insurance could usually be converted to a policy you could take with you, and 2) employment gaps were typically few, far between, and relatively short.  Unless you’ve been living under a rock, you know that the latter is no longer true.  

But for the first time, at the Dynamic Networking Group meeting, I heard from a group member about an employer-sponsored policy that was not portable.   Theoretically, this was always possible, that such policies were out there;  I’d just never run across one.  Now I don’t mean to attach too much significance to one instance of this, or suggest that it’s a trend.  However, in thinking about the damage that could be done to a family’s security by overlooking this, I’m adding it to my checklist of items permanent employees will want to start paying more attention to in our new, pink slip-happy world, and I recommend you do the same.

• Employed-but-worried: Are You Financially Prepared for a Layoff?
• Just laid off: Laid Off or Displaced? Get Help

Can’t make the webinar? The AARP Web site offers a myriad of other resources — checklists, an online community, contact information of organizations offering help, and more — for those laid off in their prime. A truly comprehensive resource!

So if you’re among the many Americans who remain “employed but worried,” there’s no time like the present to make sure you squeeze every last drop out of your employee benefits before news of a pink slip puts them out of reach.  For starters, take a look at:

• Flex Spending Accounts - Get familiar with your plan’s details and deadlines. If necessary, move up eligible expenses to ensure you spend your share before you lose the chance. 
• Group Health Insurance – Schedule known needed treatment ASAP, before you get laid off.  For example, if you’ve been putting off making that allergy, dentist, or eye doctor appointment, waiting until after a layoff could cost you.  First, if your new health coverage is not as comprehensive, a likely scenario, you’ll end up paying more out of pocket.  Second, if you can’t pay with Flex Spending plan dollars, you’ll get whacked again.  (NOTE: If you are eligible for a spouse’s health insurance or for COBRA continuation coverage assistance, you may have some wiggle room, but check to be sure!)  
• Life Insurance — If you need insurance and your only coverage is through your employer’s group plan, start doing some research ASAP to determine the best way to make up for the loss of this coverage.   Term life insurance is the best, most cost-effective option for many people, but if your health history prevents you from obtaining affordable — or any — private coverage, it may make sense to take your group policy with you, if you can.  Either way, compare rates and benefits so you don’t have to decide in a hurry.
• 401k Loans –  If you have an outstanding 401k loan that you’ll be required to repay in the event of a layoff, but you don’t have the cash to do so, you may be in for an unwelcome surprise next tax season.  That’s because, if the loan is not paid off, the IRS will treat it as a taxable distribution. If you’re under 59 1/2, you’ll also be subject to a 10% penalty.  (Here’s a good article from Kiplinger.)   One option:  If you have been continuing to contribute while you repay your loan, you might be better off directing the contribution toward paying off your loan – unless you are getting an employer match on your current 401k contributions (& perhaps even then.)   As always, the right answer varies depending on the situation.  Do the math to determine what’s best for you!
• Outplacement benefits – Be sure to take advantage of whatever services your ex-employer-to-be provides to help you secure a new job. 

Oh, and about that Pink Slip Lemonade drink recipe… in case you didn’t catch it on Twitter earlier today, Chef Patti of Anastasia’s Table personal chef service has completed her testing and released the recipe for Pink Slip Lemonade… just in time for the weekend. Enjoy!

In my article Survival Skills: Man vs. Wild Economy in last month’s NEW MEANS News, I discuss how cash is the water that enables an unwitting participant in a wild economy to survive.  For those in or perilously close to the land of the laid-off, the case for cash cannot be overstated.  Without reserved cash (water) to get you through a dry spell when access to a fresh supply is cut off, the system starts to break down, and things start to get ugly, in a hurry.

So if you do one and only one thing to thing to survive the wild economy, my recommendation would be this: calculate how much money you’d need to cover living expenses through a period of unemployment, and pull out all the stops to fill up your Emergency Fund with that amount. 

• How to calculate?  Use the New Means Cash Flow Questionnaire, mint.com, Quicken, MS Money, or pad/pencil to figure out what you need to pay the bills each month.  (Don’t forget those paid annually or semi-annually like real estate tax.)
• How long?  Research how long it’s been taking others in similar situations to find new work.  Check both online and locally, perhaps via job search networking groups such as Network for Work.
• How to save?  Read the Survival Skills article for ideas on how to scrape together cash, even if you think you’ve exhausted all the possibilities. 
• How to invest it?  Put this money in the safest, most stable vehicle you can find: a savings or money market account, maybe a portion in a CD, preferably all FDIC-insured.  Yes, it will earn a paltry return, but making a killing is not its job.  Being around if and when you need it is.

Then, once back in a safer, more predictable environment, you can put this precious ingredient (cash/water) to more interesting use – as a key component of Pink Slip Lemonade. 

In my recent post about my own career change story, one of the things I listed as a “woulda, coulda, shoulda done” before being laid off was to research my career options.  If only this book had been available at the time, that would have been a whole lot easier!

That’s because Pam interviewed a lot of career changers, documenting their stories and identifying the different strategies that made them successful.  In addition to the “Let’s Get Practical” section specifically addressing the financial piece of the puzzle, the book includes sections on why today’s job market differs so much from those past,  identifying your true calling, various options for “escape routes” out of a dead-end job, and tips for finding the courage to take the plunge when the time comes.  She looks at the pros and cons of many paths out of corporate disillusionment, including corporate jobs that “don’t suck,” joining a start-up, becoming a solopreneur or entrepreneur, and going to a non-profit.   She also explores the question of fit, i.e. what makes a particular path a good choice for a particular kind of person, maybe you?  Better yet, she does all this in a hip, slightly irreverent way that makes the book a fun read.

In the year since the book was launched, Pam’s “Escape from Corporate America” Web site and blog have grown exponentially to include many more profiles of escape artists, escape clubs, interviews with career experts, workshops, and other resources designed to help — as Pam might say — the “cubicle-bound” and the “corner-office-cornered” break free to the career of their dreams.  Check ‘em out!

Being on the receiving end of the news that — along with much of the company — I’d been laid off, going from essential contributor to essentially expendable in a matter of minutes, was a gigantic, world-view-shifting wake-up call.  Well, OK, I’d been inching towards an escape from my position, company, industry… for quite a while, but somehow I always imagined the timing would be up to me. Ha, sweet kid!

At first, I was none too pleased to be among “the chosen,” but over time, I began to see this as one of my lucky days.  Frankly, were it not for being shoved, I don’t know how long it would have taken me to muster the courage to jump off this particular cliff. Not usually one to “jump and grow wings on the way down,” I am thankful for the nudge.

The other thing that allows me to be grateful is that, on some level, I had been preparing myself for a shift for quite some time.  In fact, it would be fair to say that, before I even finished my Electrical Engineering undergrad degree, I already wanted to do something else.  Problem was: I didn’t know what the something was.

In a classic case of not seeing my own nose in front of me, it turns out that “something” must have been financial planner all along.  And I now know that because (consciously or no) I had already been doing many of the things that a financial planner would recommend to a prospective career changer:

• Spend beneath your means
• Avoid “bad” debt
• Save money from raises & bonuses
• Take advantage of employee benefits
• Invest Escape Fund (i.e. money for the transition) conservatively

There was also plenty I woulda, coulda, shoulda done, but didn’t. For starters:

• Review insurance coverage, especially health insurance
• Research career options
• Get a home equity line of credit

As Pink Slip Lemonade month continues, look for details on these and other ideas for prepping yourself for a period — voluntary or otherwise – of earning less, as well as Parts II & III on what to do in the immediate aftermath of layoff, then later once your transition is complete.  Happy Trails!