Due to job variability and the stigma of the profession, consulting can be a confusing career to get into. First, let’s tackle the definition of a consultant and the general functions provided by a consulting firm.
What is consulting?
Before you learn about how to start a consulting practice , it’s crucial to understand the role of a consultant.
The consulting industry is the business of giving expert advice to other professionals. While it sounds simple enough, your success as a consultant depends not only on having expertise in the industry but also on a natural ability to solve problems and make decisions.
What does a consultant do?
Consultants are hired for a variety of reasons that span from implementing simple changes to completely overhauling current business systems.
Here are five reasons you might be hired for your consulting services :
- To teach expertise: Many businesses lack expertise in certain departments and need a consultant’s help to drive growth. In these situations, you’re hired to come in and educate staff on processes that elevate their business.
- To identify problems: You may be hired to use your expertise to identify problems in a business model. If you are hired in this scenario, it’s your responsibility to identify weaknesses that are bogging down the business.
- To improve processes: Some businesses can identify the problem but can’t find the solution. In these situations, a business hires you to create a plan to remedy key pain points.
- To execute new methods: While some consulting businesses advise, others actually implement. A business may ask for your counsel regarding the health of its business, but you may also follow up with the implementation of your suggested plan.
- To oversee business development: When entrepreneurs decide to open a business, they might ask a consultant to oversee their business’s development. Depending on your niche, you might advise on entering the market or provide financial oversight.
Steps to start a consulting business
Once you’ve pinpointed your consulting skill set, it’s time to take the steps to actually become a consultant and start a consulting small business. Here’s where you need:
1. Determine your specialty
Whether you are ready to open your consulting business or you are just beginning to think about it, it’s important to understand what consultants specialize in so you can define the type of business you want to start and where you will fit in the market.
Consulting can be categorized into two main sectors:
Strategy consultants focus their efforts on beating the competition and elevating business profit. When clients are struggling with a specific business direction, strategy consultants address the question of how to do it. Strategy consultants specialize in several types of business objectives, such as:
- Digital strategy consulting: As digital transformation impacts companies, organizations are using digital strategy consultants to help them plan and implement new digital strategies. They can also help educate and train employees on new ways of working.
- Launch strategy consulting: Companies with new business divisions or important new products or business startups may hire a launch strategy consultant to help prioritize and execute the launch.
- Budget strategy consulting: Organizations that want to boost profits may hire a budget strategy consultant who can objectively evaluate their finances and make recommendations for cutting costs.
Management consultants are responsible for the process of developing or improving business strategies. Management consultants often specialize in a particular industry, some of which include:
- Human resources consulting: An HR consultant addresses human resources tasks and processes in the overall business model.
- IT consulting: An IT consultant specializes in optimizing information systems and has a sound understanding of technology services. Sometimes referred to as a technology consultant, this consultant work with clients to improve the structure and efficiency of technical systems.
- Health care consulting: A health care consultant is responsible for identifying efficiency gaps to improve the structure and operation of health care organizations.
2. Set up your business structure
Choose the business entity that is right for you, such as sole proprietorship, partnership, limited liability company (LLC), or corporation. Each type has specific legal, tax, and structural implications. It’s a good idea to consult a reputable accountant and lawyer when making this decision. You can also get good information on the IRS’s website.
Depending on where your business is located, you may need to register a business license with the county clerk’s office or your state government. LLCs and corporations will file under their business name. Sole proprietors or partners that are operating under a name other than their own will file DBA (doing business as) paperwork.
3. Research certifications
Having certifications can help attract clients. The certified management consultant (CMC) certification is awarded to consultants who have met global standards of performance in technical competency, ethics, consulting competency, project management, and personal conduct.
4. Take care of your finances
Starting a company is a spendy proposition, so it’s important to create a budget that lays out all your costs. You may decide that you need additional capital to be successful. If you do take out a loan, make sure that you know how you will spend it. A problem many consultants face is separating personal finances from business finances when they first start. To avoid spending mishaps, implement ways to distinguish your business costs from your personal costs.
5. Set your consulting fees
What are customers willing to pay for your services? This is an important question to hash out when you frst start a consulting business. Consulting fees should be based on the value of your work and there are different consulting fee models. Ultimately you want to base your rate on your clients, the services you offer, and the time a service takes.
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You’re probably wondering how much you should charge for my services. Self-employed consultants charge by the hour, project, or performance based on experience and industry standards.
The easiest way to set an hourly rate for your pricing is to determine the annual salary you’d like to draw. Divide that number by 52 work weeks and then divide that number by 40 work hours in a week. You can add an additional 25 to 30% markup to compensate for the hours you will spend off the clock on your own business needs, such as marketing and administrative tasks.
To quote project rates, estimate the time you will spend on the project. Multiply that number by your hourly rate. Some consultants charge by performance. For example, if you are a marketing consultant and help your client increase sales by 50%, you could set a rate that is a percentage of profits. Be careful with performance rates, however. You may risk compensation if the results are out of your control.
After you determine your consulting fees, you need to select a software that allows your clients to pay for services. Many consultants use contracts and invoices to bill clients for the hours worked. With a robust invoice system you can fill out your client’s information (which is saved in a customer directory) and send the billing statement in seconds via email. If you rely on your phone when running your business, an invoicing app can give you to be flexibility and send professional invoices to your clients in a snap.
6. Create a business plan
Now it’s time to write a business plan. Your value proposition and target market are the base of your plan and should be highlighted at the beginning of the document.
From there, you want to create a plan that includes competitive analysis and financial considerations, including the cost of your consulting business and your forecasted profit.
Take note that business plans change over time and that’s okay. Don’t be afraid to modify your business plan when long-term goals evolve and new opportunities arise.
7. Create a marketing plan
Because the consulting business is competitive, a marketing plan is crucial for new clients. Networking is the best method to secure consulting work from companies that hire consultants. A good consultant will want to become a reputable source whose opinion is valued in the industry. To do so, you have to constantly network and build loyalty among your client base.
Some of the best ways for consultants to reach potential clients is through word-of-mouth referrals. Satisfied clients are often happy to share your name and testimonials with their colleagues. Be sure to attend networking events with business cards in hand to help build your circle within your target audience. Have an elevator pitch ready to convey what you do and the value you offer. Another way to build your client base is by offering to speak at industry events or to write guest blog posts for trade publications. By sharing your knowledge, you set yourself up as an expert. Make sure to update your LinkedIn and other social media profiles.
8. Create a contract
Client contracts are essential for consultants because they put you and your client on the same page, establishing expectations and defining the working arrangements. They also protect business owners because they’re legally binding documents.
A contract should include the following information:
- Contact information for both parties
- Project terms and scope
- Payment details, such as rate, terms, deliverables, and acceptable payment methods
- Project schedule
- Consequences if the contract is terminated or broken
It’s wise to hire an attorney who can customize the contract for your business to ensure the agreement you present is legally binding.
How to stand out above the rest
Anyone with knowledge in a specific industry might try their hand at consulting, but expertise alone won’t make you successful. Effective independent consultants have an appetite and drive for excellence, which allows them to stand out above others.
Don’t let the competition or market saturation scare you away from the profession. Here are a few ways to separate yourself and elevate your work:
Find ways to exploit knowledge gaps
Each industry has unique challenges, which is where the opportunity lies for consultants. Being able to provide answers to tough questions in the industry isn’t easy, but it does guarantee success.
Focus on your clients, not the cash
Each client has a unique story, and it’s important for you to invest in the entire landscape. Let the client’s challenges motivate you rather than the money being offered to solve them.
Sell your results, not your services
The proposal you create to win a client should be based on your previous results. To win their business, show them how you have helped solve a problem similar to the one they’re facing.
Constantly question your value proposition
The value you add to your client’s business is the ultimate measure of success. Be sure to constantly check in on the work you’re doing and be sure it is unique among competing consultants in the industry.
Keeping your cash flow organized and orderly might sound simple enough, but a small slipup can lead to a major headache. By learning how to manage your invoices effectively, you can decrease the risk of error and improve your business cash flow.
Starting your own successful consulting business is a great way to be your own boss and share the industry wisdom you’ve collected over the years. Square can help you get organized with a variety of tools, such as Square Appointments, Square Customer Directory, Square Invoices, Square Estimates, and more. Click here to learn how Square can help you launch and grow your consulting business.
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