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how to start a consulting business : Tips and tricks

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A Guide to Starting and Running a Consulting BusinessBy sharing the richness of your previous business Table of contents experiences, a consultant can help other companies Consulting business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 see their operations differently and more effi - ciently. But operating as a free agent can have Special considerations for starting your consulting business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 its advantages and disadvantages, personally and l Preliminary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 professionally. Learn to how to help your business succeed as you help others to do the same. These l Do you have what it takes to start a consulting business? . . . . . 5 are just some of the special considerations of Competence and character essential for starting a consulting business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 consulting businesses that will be outlined in Constraints on launching a successful consulting business . . . . 6 this Guide to Starting and Running a Consulting The keys to success in consulting . . . . . . . . . . . . . . . . . . . . . . . 7 Business, brought to you by BizFilings and Business l Owner’s Toolkit®. Your roles as owner of a consulting business . . . . . . . . . . . . . . . . 8 l Planning your consulting business . . . . . . . . . . . . . . . . . . . . . . . . 8 l Structuring and operating your consulting business . . . . . . . . . . 9 What form of business entity will you choose? . . . . . . . . . . . . 9 How will you operate and organize your business functions? . . 10 l What consulting services will you offer? . . . . . . . . . . . . . . . . . . . 10 l Will you develop products as you provide consulting services? . 11 l Setting your pricing for consulting services . . . . . . . . . . . . . . . . 11 l Your marketing strategy for your consulting business . . . . . . . 12 l Tapping existing relationships for consulting business . . . . . . . 13 l Financing your startup consulting business . . . . . . . . . . . . . . . . 13 l Tax and legal obligations of consulting businesses . . . . . . . . . 14 Special considerations for running and growing your consulting business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 l Updating your consulting competencies through continuous learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 l Expanding your consulting network and relationships . . . . . . . 16 l Promoting and marketing your consulting services . . . . . . . . . 16 l M onitoring billing and collecting in your consulting business . . . 16 l Managing compliance issues in consulting . . . . . . . . . . . . . . . . 16 l Mentoring consultants for your business’s growth . . . . . . . . . . . . . 17 l Improving your consulting communication skills . . . . . . . . . . . . . . 17 l Building the character of your consulting business . . . . . . . . . . 17 – 2 –Consulting Business The consulting industry thrives. Welcome to the world of How do you start, run and grow your consulting business? consulting — a dynamic part of the ever-growing service In these next several pages, we review a series of consid- sector of our economy Whether you will be helping to erations and decision points you will face in the process solve problems and make decisions, to offer instruction of planning for a new consulting business and then imple- and training to staff, or to serve as a catalyst for change (or menting the plan . do the “dirty work” of change), you will be providing an • First, we take a look at the many challenges of starting essential service to your clients . You have the opportunity to a new consulting business . It begins with the initial add signic fi ant value to their operations and to help them soul-searching question — ”Do I have what it takes?” be the best that they can be . — and continues on through a series of practical Consultants add value. A consultant is a person consid- considerations that must be faced as you plan and ered an expert in a specified field — with a wide knowledge initiate your business . These considerations include, of the subject matter and a depth of experience — who among others, understanding your roles in running gives professional advice and counsel to another . You your business, structuring your business, defining and can put your special knowledge and experience to marketing your services, and setting-up recordkeep- work, and provide an important service, by sharing your ing and compliance procedures . wisdom and expertise with others . Consulting is simply • Then, we identify the continuing challenges of running the sharing of knowledge, wisdom and experience . And and growing your consulting business after you get it maybe one thing more — a passion and enthusiasm for off the ground . The analysis here focuses attention the subject matter, whatever it may be . to the ongoing needs of the business — things like continuous learning, effective networking, consistent Clients need consultants. Engaging a consultant offers the promotion and marketing of your services, and main- client some real added value — access to deeper levels of taining adequate cash flow . experience and expertise for a special, often short-term, need when it is not feasible to accomplish a particular goal through in-house experts . It is cost-effective because the client can purchase only as much service from the consul- tant as is necessary to meet the need . – 3 –Special Considerations for Starting Your Consulting Business Consultants add value to their clients’ businesses. New and different types of consulting continue to blossom Consultants are hired by clients to help develop and and grow . Consultants are used for training, personal implement solutions to their operational or organizational coaching and team building . There are consultants for problems and challenges . A consultant’s services can marketing, for fundraising, and, of course, for campaigning . be targeted on very specic fi challenges: bringing a fresh In short, if there is an activity in life, and you have experi- perspective to an old, nagging problem; offering objectiv- ence in that activity, you could become a consultant in that ity in a situation where emotions and biases may run deep; e fi ld, whatever the activity may be . Consulting is simply the sharing special knowledge and/or experience in tackling a sharing of knowledge, wisdom and experience . And maybe particular type of problem or challenge . one thing more — a passion and enthusiasm for the subject matter, whatever it may be . Your clients will be looking to you for some particular skills such as critical thinking, problem-solving, or project management . They will look to you for leadership and rely Preliminary questions on your communication skills to achieve the goals for which What do you need to know before you begin? they seek your service . Before you begin your consulting business, there are A client will come to you because of a belief that he or she many things to be considered . Ask yourself a series of personally does not have the necessary capacity, or the questions, and be thoughtful in your responses to them . necessary capacity can not be found within their organiza- tion, to address a particular challenge . The client will look • Do I have what it takes to start a consulting business? to you, the consultant, for wisdom and good judgment . Running a consulting business requires more than You may have heard the old saying, “Good judgment merely providing consulting to clients . Whether I have comes from experience, and experience comes from bad the competence and capability to provide a valuable judgment . ” A wise client wants to learn not only from your service is just the r fi st consideration . Is my character up earlier successes, but from your earlier mistakes, too . From to the challenge of leading a business, effectively coordi- whatever source it comes, your client wants the benet fi of nating all the responsibilities of a professional enterprise, your wisdom . and balancing the needs of the business and the clients with the needs of family and personal relationships? Do I Consulting comes in many shapes and sizes. Different types want the responsibility? of consulting exist, each with a slightly different focus . For example, strategic consulting aims at identifying the overall • What roles will I have to perform that I don’t perform direction, goals and strategies of a company or organization now? Managing a business, promoting a business, within its specic fi industry sector . Management consulting providing a service to clients, billing and collecting fees, focuses on how an organization can achieve its stated goals maintaining records, employing people and paying through choosing and implementing strategies, enhancing taxes are just a few of the responsibilities of running a and streamlining operations, and improving information business . Which of these roles can I perform? What are technology . Information technology (IT) consulting, as its my strengths and weaknesses? How can I compensate name suggests, pursues applications of technology to for my lack of skills in a given area? help an organization become more efc fi ient and achieve • What will my business plan look like? If I am going to start its goals . Industry specic fi consulting focuses on an indus- a successful business, I need a business plan to identify try’s special concerns, but may involve any or all the other my goals and lay out the steps for achieving those goals . aspects of consulting described above . What are my goals? What are my strategies for success? – 4 –• How will I structure and operate my business? What kind Do you have what it takes to start a of business entity do I need to set-up? Can I be informal, consulting business? or do I need to set up a corporation or LLC? How will I obtain the services I need to operate the business? Will I Starting a consulting business is not a decision to be hire employees, either full-time or part-time, or will I hire taken lightly . You need to think seriously about whether independent contractors to meet my needs? Will I buy you have what it takes . It involves a substantial commit - or lease an ofc fi e facility and equipment, or will I start out ment of personal time and energy . Before you get started, at home with what I have? you need to do a preliminary gut-check and ask yourself the question, “Am I ready, willing and able to start, run • How will I den fi e the consulting service I intend to and grow a consulting business?” provide? Can I describe what I have to offer in a way that helps me know who my target market is and helps my Are you ready? You must already have the skills, experi- target market know the value I can add with my services? ence and maturity that will benefit your potential clients . But in addition you must ready yourself for a broad array • Will I provide products with my services? If I use training of responsibilities related to operating a business, and materials, DVDs or other products when I consult, how you must have the confidence that you can effectively will I protect my rights in these products? If a consult- coordinate all your business and consulting activities at ing project includes the development of products, who one time . actually owns them — me or my client? How should ownership issues be clarie fi d? Perhaps you have been a professional in your particular • How do I determine my pricing? Settling pricing issues field for a number of years already . The expertise you in my own mind up-front will eliminate ongoing stress . have developed and the business relationships that have How much do I need to charge to be satise fi d with my grown through the years are likely to help you tremen- compensation? How do I determine market rates? Do I dously as you begin your new adventure . In fact, more use hourly rates? Project rates? Monthly retainers? than anything, your experience and relationships will be the key foundation on which to build your business . • How will I market myself and my business? Self-promotion Can you add value to the lives or businesses of your target may have to become a basic part of my life as I start and clientele? Can you transform your current relationships into grow this business . Am I ready, willing and able to do a customer base and/or a pipeline for business referrals? that? How can I do that in a positive way? Are you willing? Armed with special knowledge and expe- • How can my current relationships help me in starting my rience in your field, and having relationships that can be business? Can I identify current business or personal rela- transformed into business, you meet the first criterion for tionships that are likely to refer future clients or become having what it takes . But there is more . You need to be future clients? What strategies can I implement to benet fi ready to run a business . Are you willing to take on the from these existing relationships? What obstacles stand added responsibility of starting and running a business, in the way, such as non-compete agreements? not just providing a service as a consultant? • How will I n fi ance my start-up? There are some up-front Will you take the initiative to see to it that all the tasks costs to starting a business, though perhaps not so much to keep the business going will be carried-out? Will you for a consulting business . Have I thought adequately put energy into promoting the business and pursuing about how I will make it through the early stages of the new clients? Will you “do what it takes” to successfully business from a n fi ancial perspective? meet the needs of your clients through the performance • How will I handle compliance issues? What tax compli- of your consulting services? Will you stay on top of grim ance matters will I have? What legal and regulatory ongoing administrative matters like recordkeeping, tax compliance matters will I face? Do I need help? Can I compliance and collecting fees? In short, does your n fi d resources on the Internet, or do I need a lawyer or passion and enthusiasm extend beyond mere consulting tax accountant? to running a business? – 5 –If you can get excited about both serving your clients In addition to having the capability and competence to and running your business, then you meet the second run the business, you need to consider whether your criterion for having what it takes to start your own consult- character is up to the task . Do you have the character ing business . qualities necessary to make a success of your business venture? Are you a self-starter that can take the initiative Are you able? Armed with your expertise in your field of to build a business and keep it running? Can you set a consulting and your passion for both serving clients and vision, plan a course of action, and enthusiastically pursue running a business, you have passed the first two tests it? Can you discern your strengths and weaknesses and for starting your business . You next need to consider creatively work with them and work on them to bring out your capacity for running a business in terms of both the best in yourself and others? Can you balance the competence and character . You also need to think about responsibilities of your work with your responsibilities to whether there are any constraints on your ability to start your family and friends? your business . Finally, you need to assess the various keys to success in consulting . Here is a list of just a few character qualities that can be put to good use in starting and running a consult- ing business: Attentiveness; boldness; dependability; Competence and character essential for determination; endurance; enthusiasm; initiative; order- starting a consulting business liness; resourcefulness; thoroughness; truthfulness; and Do you have the management skills and temperament to wisdom . There are many other character qualities to run your own business? Do you have the capability and take into account, as well . In the same way you did an competence to run a business? You surely have strengths inventory of strengths and weaknesses in your skill set, and weaknesses, and it will be important to consider do an inventory of your strengths and weaknesses related the impact of your strengths and weaknesses on your to these and other character qualities . Before you move ability to run a business . Essentially, you want to take full ahead, be certain that you have both the competence advantage of your strengths while either working on or and the character qualities that you need to succeed . compensating for your weaknesses . Constraints on launching a successful For example, you may know a lot about your field of consulting business consulting and can be very orderly and methodical in providing your service, but you’ve never kept business When you have completed your consideration of the books and records or filed tax forms before . How are issues surrounding your competence and character, you going to deal with that weakness? You may need you next need to consider the circumstances you find to obtain some training in that specific skill, or perhaps yourself in . Are there circumstances that would restrict you can hire an accountant to perform that task for you . your ability to move forward with plans to start a consult- Maybe you’re great at one-on-one interaction, but you’re ing business? Constraints can come in various shapes not very gregarious, and self-promotion and marketing and sizes They can be legal, financial or personal . . are just plain scary to you . How will you accomplish the necessary business-building communication? Do you From a legal perspective, to perform some types of need another person to be your promoter and cheer- consulting a license or certification may be necessary . leader, or do you need to take public speaking classes or Even if it is not mandatory, you may find that having join Toastmasters? additional training that results in earning a special certi- fication will be important for marketing your consulting business . Special credentials speak to potential clients about your professionalism . – 6 –Also, if you are intending to consult in the same field The keys to success in consulting in which you are currently working, you may need to A successful consulting business doesn’t just happen . consider any conflict of interest that would arise by There are several, inter-related keys to success . consulting with a competitor of your current employer . If you have entered into a non-compete agreement with First, you must have a solid base of knowledge and expe- your employer, you must abide by the provisions of the rience in your field that you can effectively share with your agreement . Often, when employees and officials leave client to add value to his or her life or business . And, as a government post they are prohibited from consulting time goes on, you must continue to grow and develop with contractors in a manner that would be considered your expertise, keeping up to date in your field . lobbying . Be certain that you don’t create an ethical Second, you must have an existing set of relationships hazard for yourself as you start your business . that can be transformed into clients or into referrals for From a financial perspective, you need to consider clients . These are the people that know you and your whether you can afford to make the jump into starting capabilities best . They know the value you can add . Enlist a consulting business . Do you know how you will finance their support . your start-up? If you already have clients in the pipeline, Third, you need a dynamic plan to promote your business you may be in great shape, with a source of new revenue and yourself to your target market . Networking will be ready and waiting . If not, then your strategy for starting- key to growth . Take opportunities — and make oppor - up should take into account your financial needs . You may tunities — to expand your network of relationships with need to continue working your “day job” as you begin others in your field and with potential clients . to set-up your business to keep some income flowing your way or perhaps to maintain your health insurance Fourth, your ability to communicate effectively with coverage for a family member with health problems . You both the spoken word and the written word will be your may need to work out of your home instead of opening strongest and most essential tool for starting, running an office right away . Remember to “count the cost” and growing your consulting business . After all, what before you make the jump . is consulting but communication? Keeping clients informed, communicating explanations and recommen- Finally, from a personal perspective, you must count the dations clearly, listening carefully and speaking truthfully cost of starting your own business on your relationships are all essential aspects of effective communication that with family and friends . While it is possible that starting will lead you to success . your own consulting business will be less demanding than continuing to do what you are doing now, the likeli- Fifth, your reputation for excellence and effectiveness hood is that you are taking on a greater workload that will be key to your ongoing success in the consulting will take more of your time and energy and attention field . But a good reputation is only secure when built than work currently requires . Be aware of this, and work upon a foundation of good character . Give the best that through these issues with your family as you make your you have, and work for your clients with an attitude of decision to start your business . service and a passion for excellence . Finally, make sure you enjoy your work . Your passion and enthusiasm for work you enjoy can be contagious . Find ways to keep the business fresh and exciting, and share your enthusiasm with those around you . – 7 –Personnel manager. There may come a time when you are Your roles as owner of a consulting ready to hire staff or some outside help to assist you in business providing consulting or performing some of these other functions of operating a business . You’ll need to have Running a consulting business requires a whole lot more some understanding of employment law, payroll taxes, than merely providing consulting services to your clients . and other related matters, and then begin to manage Certainly, that is the core of the business, but it takes a people as well as functions . lot of effort in other areas in order to be able to perform your consulting service on an ongoing basis . Let’s look at Janitor. Just a reminder that you’re responsible for every- some of your other roles . thing as you start your business . Rainmaker (promoter) . If you don’t have a client, you can’t consult . It’s that simple . Therefore, rainmaking is your first role — promoting your business and yourself, Planning your consulting business and bringing in the clients . You may do this by transform - ing current relationships into sources of referral or actual Early in the process of starting your consulting business, clients . Networking (and a bit of self-promotion) will be having a business plan will help direct you through the various steps of building your enterprise . As with other key to this role . You may even have to learn how to do decisions and choices you must make, keeping the some cold-calling to mine for clients . business plan relatively simply is a good idea . Focus Client relations manager. Careful attention must be given on the ‘who, what, when, where, why and how’ of your to your relationships with your clients . Merely providing consulting business . Outline your goals in terms of the type and the amount of consulting work you want to specified consulting services won’t be enough . Rather, have and also in terms of the financial results you want to the relationships must be nurtured to assure client satis- achieve . Describe how you intend to achieve the goals faction and to encourage a continuing business relation- operationally . Provide a marketing plan that you can ship . Clients may not be aware that they have needs for implement in your drive to achieve your goals . additional service unless you let them know . The purpose of the business plan is to make you think Marketing/advertising manager. Marketing method- about your goals and what you must do to achieve them . ologies will have to be developed and implemented . When you know your goals, you can plan effective strat- Whether it’s simply the creation and distribution of a egies to identify and overcome obstacles . Preparing a homemade brochure, establishment of a website, or business plan early in your start-up process will even help development and purchase of print, radio or television you decide whether to keep moving forward with your plan . advertising, you will need to pursue a marketing strategy . As you consider your goals, think about both the time you can devote to actual consulting and the time you will Office manager. The general administrative activities have to devote to running your business . Your consulting related to running a business must be handled . Until you revenues will have to cover all of your time and expenses, can hire some support, the responsibility rests with you . so consider these issues as you plan your hourly rate structure . For instance, based on a regular work week Accountant/bookkeeper/tax manager. Organization and of 40 hours for 50 out of 52 weeks in the year, there are orderliness are important characteristics of a well-run 2,000 hours to allocate . How much do you expect to (and business . Accounting and recordkeeping are key to how much can you) devote to consulting, and how much maintaining order in your business . You’ll be much will you devote to running the business . If 80 percent of happier in the long run if you keep up with these duties on those hours are devoted to consulting, then you need to a routine basis . make all your income for the year on 1,600 hours of work . You need to set your hourly rate accordingly . Collections manager. The lifeblood of a small business is cash flow . Billing and collecting fees cannot be ignored . Set this function in place right away . – 8 –Then consider how you will meet your goals operation- in a consulting business is likely to be your own profes- ally — keeping expenses low by having a home office sional malpractice, which you can’t escape by operating and using temporary help to meet some of your needs in a corporate entity . for administrative support; creating efficiencies such as There are a couple of practical downsides to operating template documents that can be used for routine activi- ties; developing brochures and other effective marketing as a proprietor, too . First, many potential clients will only and promotional tools . Describe how you will implement want to contract with a consultant who is operating as marketing and promotional activities that allow you to either a corporation, limited liability company (LLC) or reach your goals . limited liability partnership (LLP) . They are concerned that the IRS might later interpret the relationship with the One other word of advice — don’t get so caught up in consultant as an employment relationship rather than an preparing a perfect business plan that you never begin independent contractor relationship, which would result to consult and perform billable services . Don’t let the in the imposition of taxes and penalties . Second, many business plan be an obstacle to taking first steps to initiate your business . It can, and should, routinely be clients just perceive that a person operating in a corpora- revised and updated . tion or LLC is more professional . It’s not the reality, but it is the perception of some . To address the legal and practical downsides of operating Structuring and operating your as a sole proprietor, you may want to structure your consulting business consulting business as a corporation, LLC or LLP . If you set up your business as a corporation, it is probably best Settling the legal structure of your consulting business to apply with the IRS to be an S-corporation, because early in the process helps to get things on track with if you set up as a regular corporation you will be taxed your business . Different factors will come into play as you as a “professional service corporation,” for which higher make the decision on choosing a formal business entity . tax rates apply at the corporate level . If you set up as an A handful of operational matters require your attention S-corporation, all income tax issues flow-trough to you early in the process of setting-up your consulting as an individual, but you still have the protection of a business . You need to think about how you are actually corporate entity . going to accomplish the various tasks of operating your An LLC or LLP provides the same kind of liability protec- business . Just as with choosing your legal structure, tion as a corporate entity as well as the flow-through of keeping things simple should be your watchword . income tax issues that exists with the S-corporation . LLCs and LLPs are a bit more flexible than S-corporations, and What form of business entity will you choose? require less administrative effort to keep up-to-date will legal compliance requirements . If you are starting out relatively small, then keeping it simple may work best . Working as a sole proprietor is the Setting-up your business in corporate, LLC or LLP form easiest way to begin . You really don’t have to do anything could offer you some additional tax planning flexibility, to get started, unless you are going to operate under an too, especially when it comes to issues related to salaries, assumed name, in which case you’ll need to file for the distributions, and employee benefits . use of the assumed name . Otherwise, there isn’t much you need to do . In short, keep your business structure as simple as possible, especially as you are starting out . But be aware The only legal downside to a proprietorship is that you that you may have greater success building your business will remain personally liable for legal liabilities incurred if you set it up in a corporate, LLC or LLP legal structure in your business . However, your biggest risk of liability relatively early in the life of your business . – 9 –How will you operate and organize your business can provide your clients with efficient service and profes - sional-looking work product . functions? First, are you going to do it all yourself, or are you going Another business office basic that will prove valuable to enlist the help of others? And, if you get help from to you over time is the development of templates for others, will you hire them as either part-time or full-time some of your basic business transactions — especially employees, or will you seek their services as indepen- a template for proposals to provide consulting services . dent contractors? The simplest approach when starting This will protect you from “reinventing the wheel” each out small is to contract for the services you need . But you time you make a proposal . Templates are also useful have to be careful to treat the work relationship properly for consulting contracts and standard forms of work for tax compliance purposes . If you hire a person to do product created during consulting, and even for promo- office work under your supervision, in essence to function tional talking points, mini sales pitches and scripts for as an employee, don’t treat the relationship as an inde- cold-calling . pendent contractor type . However, if you hire someone to handle the accounting, run a marketing campaign or provide legal services, those professional services fall What consulting services will you offer? pretty safely into the category of independent contrac- tor relationships . Think through the services you need It sounds simplistic to remind you that you need to help with — functions you’re weak in or functions you know what you’re selling . But consulting comes in many just can’t devote time to — and get the help you need . shapes and sizes . And selling consulting services isn’t the same as selling a TV or a car, where the customer/ Second, how will you set up your base of operations? Do client is already in the market when they start looking . you want to start out in an office in your home, or do Sometimes, a potential consulting client may not even you feel you need to have a business office? Can you be aware yet that they need your services . Thus, you perform your consulting services at your client’s business have to be able to describe to them both your service location? Your decision on this subject will be based on and their need for it . financial considerations, client service requirements, and attitudes about professionalism and the kind of image The focus of your consulting services can have many vari- you want to project . Remember, simple is better when ations . It may vary from client to client or from project to you’re starting out . You can always make adjustments as project . So it is important for you to know what your focus is you grow and prosper . and what value you can provide to your potential clients . It is important so that you can clearly explain it to them . Third, what are some of the “business office basics” that you need to have in the early stages of your consulting Clients may want to hire you as a consultant for any of a business? Many of these basics relate to communication . number of reasons . They may want you simply to identify You’ll need a business phone (land line, cell or both) with and analyze problems or needs inside their organiza- an answering service or voice mail . You’ll want a business tions . You may be asked to design and/or implement a email address and, preferably, a web site so that people project . They may just want you to supplement their staff can access your business on the Internet . Old fashioned for a short-term need . A client may want you to serve as forms of communication live on, too, so you will want a catalyst for change, as an objective outsider applying business cards, letterhead and invoice statements, a fresh perspective in a challenging situation, or as a and a brochure that describes you and your business . “hired-gun” to do its dirty work in the midst of reorganiza- Obviously, good computers and a high-quality printer tion and downsizing . are also important business assets to have so that you – 10 –Or you may be hired to teach/train your clients or their staff Setting your pricing for consulting services members in a skill so that they can then perform the task for As you get started in your consulting business, you must themselves (give a man a s fi h and you feed him for a day; seriously consider how much you will charge and in what teach a man to s fi h and you feed him for a lifetime) . manner you will charge your clients . These may be the most Another possibility is that you may be asked to inu fl ence important issues you need to g fi ure out before getting others on behalf of your client . Lobbying, campaigning, fund- started . To settle these issues in your own mind up-front will raising and marketing activities would fall into this category . remove much of the ongoing stress of revisiting the issues from scratch with every potential new client . You can still be Be clear — for yourself and for your potential clients — e fl xible on the questions of how and how much, but having about the services you are prepared to offer and perform . a “standard” practice will help you analyze just how e fl xible Be clear about the value you can add to your potential you want to be . client’s organization or operations . As far as ‘how much’ is concerned, look at it from more than one perspective . First, what do you need to make to be satise fi d that you are being paid adequately for your Will you develop products as you service and that you are earning enough to make a suffi - provide consulting services? cient living? Recognize that the rates you charge for your consulting services have to cover all of your costs of running Consulting is a service business . It’s easy to forget that the business, too — your time devoted to management, in the process of providing a service, you may also be marketing and administration, all of your operating and producing a product . Take, for instance, a consulting overhead expenses, and so on . And don’t forget the costs contract that calls for the development of a training of health insurance and retirement savings you want to program . Perhaps you provide the training live for the provide for, or the taxes you will pay . staff of your client, but you produce a DVD or CD with the same presentation that can be sold or distributed more Second, what do you need to charge so that the clients you broadly . Or perhaps you tape the live training session so are intending to attract will n fi d the price attractive? Another that it can be used later . way of asking that question is how can you make your rates competitive in the market? Before you set your rates, This raises some questions that you will need to consider consider doing a survey of other consultants your market as you plan your business . First, when you create training area to see what their fees are and how they calculate them . materials, for instance, in the form of a DVD, CD, or This can help you set your rate and your n fi ancial expecta - hardcopy materials and later sell them or incorporate tions realistically . them into your consulting work, how will you protect your rights in these products . Copyrights can be an important You have many options to choose from as a rate-setting protection for your work . And when a consulting project methodology, including hourly rates for services, lump-sum includes the development of such materials or other forms fees for specic fi projects or retainers for your ongoing avail - of work product, a question is raised regarding who actually ability . Whichever methodology you use, remember that owns the materials — the consultant or the client . your rates need to cover more than just your time spent in consulting, as described above . Your rates must be set Be careful to protect your rights to products that you so that they can cover all your costs . Yet, they must also be develop on your own for use in later consulting activi- competitive in the market . ties . Also, if work product is to be developed within the parameters of a consulting contract, address clearly the issue of ownership and control of the work product after completion of the contract . – 11 –Different clients will typically have different preferences But you need to continuously expand your network about rate methodology . Some like the hourly basis of of relationships that can serve as a pipeline for new charging while others would much rather know the overall business . Networking through participation in various cost of a proposed project . Others prefer having your business and civic organizations can be very important ongoing availability over a period of time on a retainer in this effort . The more contacts you have, the better basis, where you and your client set a periodic fee (eg, . your chances of getting new clients . Having a standard monthly) and you agree to be available for work for your presentation about you and your consulting business client for a certain number of hours . This method can be that you can quickly and comfortably communicate in particularly useful when you are seeking to establish a conversation with new acquaintances can be a big help . long-term relationship with your client and develop a You can expand on the networking theme by making secure financial base for your business . Many consultants yourself available for public speaking . You can even feel that they can offer a discount for a client willing to develop some specific presentations that would be of establish a retainer-based relationship . interest to certain audiences and would spotlight your However you design your pricing structure, be sure to expertise . If public speaking isn’t your bailiwick, then put it in writing . Know it well enough so that it rolls perhaps writing articles or newsletters is more your cup easily off your tongue when someone asks you about of tea . Whether in print or online, your byline at the it . Then, when a potential client is ready to get serious beginning of a well-crafted story or article (or even a about working with you, you can be as flexible or book) serves as a great promotional device for you and inflexible as you want to be about the pricing for that your business . particular proposal . You may want to use more traditional methods of adver- tising to draw new clientele, as well . Print advertising in newspapers or business journals that relate to the type of Your marketing strategy for your consulting you do can draw clientele your way, and there may be a place for some form of direct mail advertising, consulting business especially when you have a specific target market . Don’t believe that excellent skills and a good reputa- Finally, don’t forget everyone’s favorite method for tion alone will keep you in business . Your reputation for getting new business — cold-calling . With effective competence and character among friends and colleagues researching and listening skills to ascertain a potential may get you your first client or two as you start-up your client’s needs, and a solid sales presentation that consulting business, but don’t expect it to grow dramati- clearly explains what those needs are and shows how cally without conscious and very intentional marketing your services can address them, you can influence the and promotional efforts . Unless other potential clients decision-makers in potential client organizations and have exposure to you and your business, how can they win new business . know to seek you out? In short, winning new business requires more than just Certainly, transforming existing relationships with people being a great consultant . It requires a constant process you know into consulting relationships is step one in your of self-marketing and self-promotion . Hopefully, a lot of marketing efforts . Step two may be to seek referrals from the promotion comes from others so you don’t have to this group of people, and to encourage them to pass on ‘blow your own horn’ so much . But you can’t just focus on the news of your new business by word of mouth . being a consultant . You can’t sit back and wait for your next client . You need to promote your business — and yourself – 12 –Maybe you have participated in organizations or activities Tapping existing relationships for where you met others who are prominent in your e fi ld or who consulting business work in organizations that could benet fi from your services . Who among this group do you think would be interested in Your current pool of business and personal relationships your success and willing to help you get started? Give them almost certainly will be the source of your r fi st clients as the opportunity to help you grow your business . you start-up your consulting business . Your reputation for competence and character among these people, and their interest in your future success, will be key to getting your business going . Transforming some of these relationships Financing your startup consulting business into consultant/client relationships may be the r fi st step in your marketing plan . The transformation can occur in two The good news on the n fi ancial front is that a consulting ways — r fi st, by winning some of these people over as business typically doesn’t require a substantial up-front invest- clients and, second, by winning their support as cheerlead- ment as you begin to do business . But that doesn’t mean you ers for your business and sources for referrals . can ignore n fi ancial concerns as you start your business . Make sure you enlist the support of the people you know Unless you already have your r fi st clients lined up, and they best, and who know you best . Identify the people who are ready to pay you a retainer, you may need to consider you think would most want to help you as you start your how you are going to survive n fi ancially during the early business . Also identify the people who you think would be days of your new consulting business . It may mean you start most able to help you . Let them know what you are doing, consulting part-time as you continue to work in your employ- and give them the opportunity to help with business oppor- ment capacity . It may mean that you minimize your business tunities or referrals . expenses until you are satise fi d that the o fl w of income is If, prior to starting your business, you spent many years sufc fi ient to expand . It may mean that you negotiate with working as an employee of a company, perhaps you can that r fi st client for an advance payment of part of your fee . treat the company as your r fi st potential client . The people And it may mean seeking n fi ancing through small business you have been working with, more than anyone else, know loans or other sources . your capabilities . They know your value to the ongoing Often, a consultant starting a new business can get started operations of the company . If you have good working using personal funds . Even if that is true, it is a good time relations with leadership and staff in the company, then to develop a business relationship with a local banker so they may want to continue the relationship on a contractual that the relationship is there as n fi ancing needs arise in basis, especially if you can identify specic fi ways in which the future as your business grows . You will want to have a you can provide valuable service . If the company can’t separate bank account for your business, and you may want become a client, perhaps it can still become a cheerleader to establish a line of credit or obtain a business debit or and source of referrals . credit card for more convenient n fi ancing and recordkeep - Perhaps you have developed solid business relationships ing for your business . through the years with customers or suppliers or business You will want to plan for uncertainties . You can’t assume partners of the companies you have worked for . Could that the cash o fl w will constantly or consistently pour in as these businesses have need of the services you intend to you conduct your consulting business . There are likely to be provide? If so, pursue these business relationships to see down times when there isn’t much work, or times when it’s what develops . tough to get the clients to pay . So right from the beginning, try to set aside some of your revenues to cover yourself during those more difc fi ult times . – 13 –Here are just a few of the issues you will need to learn Tax and legal obligations of about: Federal income tax and payroll taxes (FICA); consulting businesses federal self-employment tax; state and local income taxes; state and local sales taxes; federal and state If you set up a corporation, LLC or LLP in which to operate unemployment insurance programs and related payroll your new consulting business, you will have a lot of taxes; state workers’ compensation programs; local new legal and tax compliance obligations as you begin business licenses or permits; assumed name authori- business . You can handle all these things yourself if you zations . Each of these areas should be studied so that want to, but you’ll probably be better off looking for some you understand your compliance obligations before help . Bizfilings can help you register a new corporate or you are forced to learn the hard way — by getting limited liability entity, and can help you maintain compli- caught out of compliance . ance with state registration and reporting requirements over the lifetime of your business . Some states may also have requirements for minimum professional liability insurance coverage for your new In addition, it may be well, early in the process of starting consulting business . As you set up your entity and your business, to hire an attorney and/or a tax specialist register with state authorities, be sure to confirm your to help you with many of the other tax and regulatory obligations for coverage . compliance issues that you will face in your new business . Also, some states may have registration or certification requirements for those who perform consulting services in your particular field . You will want to make sure that you comply with these requirements before starting out . – 14 –Special Considerations for Running & Growing Your Consulting Business So now you’ve gotten your consulting business started . Updating your consulting competencies Congratulations Now comes the harder part — running through continuous learning and growing your business day by day . Maybe you think that starting a business is the hardest part, and then The foundation of your consulting business is your ability it’s all a downhill ride after that . Well, if that’s what you to provide special knowledge and experience in your think, it may be time for a bit of an attitude adjustment . field to your clients . A consultant must pursue continuous Running a business is a constant responsibility, and the learning so that he or she maintains up-to-date skills and responsibility only grows as the business grows . abilities . You cannot grow a consulting business without keeping abreast of the latest information and methods Starting a business is new and adventurous and exciting, in your field . so it’s pretty easy to maintain enthusiasm . Running a business is more about persistence, perseverance and Information is part of the lifeblood of the consulting processes . It’s about consistently maintaining business industry . Therefore, you will want to make sure you know function . Growing a business takes creativity . You have to and use the resources that will provide you with the best have energy and imagination to pursue your vision and information in your field . For consulting generally, there flexibility to make course corrections along the way to are many associations and institutes that support the keep things fresh . industry with information available on the Internet, with distance learning programs, with seminars and confer- In the following pages, we’ll be looking at a number of ences, and with training materials and periodicals that the special considerations for running and growing your offer the latest information . Here are just a few of these consulting business, including: resources: • Updating your consulting competencies through • Institute of Management Consultants USA continuous learning wwwimcusa . .org • Expanding your consulting network and relationships • Association of Professional Consultants www .consultapcor . g • Promoting and marketing your consulting services • Association of Communications Consultants • Monitoring billing and collecting in your consulting wwwconsultingsuccess . .org business • Independent Computer Consultants Association • Managing compliance issues in consulting wwwicca . .org • Mentoring consultants for your business’s growth • Consultants Mall • Improving your consulting communication skills wwwconsultants-mall . .com • Building the character of your consulting business – 15 –Expanding your consulting network Monitoring billing and collecting and relationships in your consulting business A successful consulting business is a game of numbers, In the consulting business, just like in any other small and expanding the number of people you know and, more business, cash o fl w is king . We all know that billing and importantly, who know you is essential to the ongoing collecting our fees is a tedious task, but an essential one . health of your consulting business . So don’t stop . Don’t ignore the cash o fl w needs of your business . Find new ways to connect with people that can help you Develop and maintain routine practices of billing your grow your business . Stay active in business and industry clients and following-up to make sure that payment is associations related to consulting and, more specic fi ally, to made . Developing strong client relations is really the key the e fi ld in which you specialize . to making the billing and collection process o fl w smoothly . Clear communication about your fees and about your client’s level of satisfaction with your services will go a long Promoting and marketing your way toward making this task easier on everyone . consulting services Never stop promoting yourself and your business . Managing compliance issues Consulting is a pipeline business . It is often several months between the time you r fi st start to pursue a client rela - in consulting tionship, then make a proposal and then actually enter a Few people like to spend much time thinking about the contract and begin to provide services . That means you details of compliance with tax and regulatory requirements . always want to have that next client or that next project It’s boring, it’s tedious, and it can get you into a whole lot somewhere in the pipeline . of trouble if you’re not attentive to it . So the message is So take advantage of opportunities to speak at public simple — just do it . events about your e fi ld of work . Write articles and newslet- Make sure that you have procedures in place to comply with ters that you can make available to your clients and potential lfi ing requirements and payment requirements in a timely clients so that they have a better understanding of the value fashion . Talk to a lawyer and/or a tax accountant about the that you can add to their organizations or operations with various obligations your business will have for withholding your consulting services . Market yourself and your business and paying income taxes and payroll taxes, unemployment actively, and encourage your clients to refer you to others . and workers’ compensation obligations, annual organiza- Don’t forget that you can advertise, do some direct mailing, tional reports and other matters . and even do some cold-calling to sell your services to Don’t make the mistake of ignoring it until you have a potential clients who you don’t know and who don’t know big legal problem or a big n fi ancial obligation for taxes about you…yet . and penalties . – 16 –business grows, and you have others working with you, Mentoring consultants for your and more work to do, and more deadlines squeezing business’s growth together, and more pressure building, then the role of timely, constructive, encouraging communication If you want your consulting business to grow and prosper, becomes crucial . then you need to think about training-up a new genera- tion of consultants to work with you and after you in your • To promote your business, communication skills are business . You may want to slow down some day, but at the essential . Just having the ability to describe who you same time keep your business going and growing . are and what you do in your business in a 30-second sound bite during everyday conversation can help That will be possible if you begin to work with and train grow your business . In addition, the ability to perform other consultants to take on greater responsibilities . public speaking or to write readable articles and Consider managing and mentoring other consultants in newsletters provides an excellent avenue for raising your business as your business grows and you have more awareness of your business and your expertise . work than what you can do by yourself . It will pay dividends Developing brochures, web sites, advertising, and later on . phone scripts that can effectively speak to your target market can boost your client base, and it all hinges on effective communication . Improving your consulting Don’t underestimate the value of effective communica- communication skills tion for growing your consulting business . Everything in consulting revolves around communication . Everything . Therefore, make excellence in communication your goal from the beginning, and never let the level of Building the character of your excellence falter . consulting business What is it about communication that makes it so key to the A lot of people count on their reputation to get them by growth and success of a consulting business? in business . But reputation without a strong foundation in character is a very insecure asset that can be lost in the • Client satisfaction is the core measure of success in wink of an eye . consulting, and building a strong relationship with a client through consistent, straightforward communica- Make character count in your consulting business, and tion is essential to that satisfaction . you will find that you will have more satisfaction in your successes and greater peace and confidence during the • Consulting itself is communication . Without effective challenging times . Show your character not only in your communication skills, you can’t provide the basic actions but your attitudes . service of your industry . • As you get busier, coordination of business functions You are providing a service, so be service-minded, and requires more effective communication, especially as treat your clients the way you want to be treated yourself . more people become involved in the process . As your – 17 –
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