I’ve been asked how to start a consulting business by friends leaving the corporate world. My usual answer is that in many ways, it’s not unlike starting most other businesses, but there are a few gotchas for the aspiring business consultant. We’ll run through those here.
First, whether you’re asking yourself how to start a consulting business or any other business, you’ll typically want to start in the same place: do I (or does my business) have something to offer that solves a problem for potential clients, and perhaps most importantly, a problem they are willing to pay (maybe even dearly) to have solved?
Second, if you’ve found an answer to what service(s) you can offer as an independent consultant that will add value to clients, before providing any services, you’ll want to create a limited liability entity, which you’ll use to contract with clients for your consulting work, as well as with other third parties. One of the most typical entities used these days is an LLC, which comes in many flavors, including single-member and multi-member. The advantage to having such an entity is that if properly created and maintained, it can help to protect your personal assets. There are other types of entities you’ll want to consider as well. Do your research, but also work with a capable attorney. This is not a step that you want to take lightly.
Third, in considering how to start a consulting business, once you have your service and your entity sorted, you’ll need to create a template contract (aka agreement) to use to work with clients. For every engagement, you’ll want to make sure you have a signed contract. This is very important, in case disputes arise in the future you want it to be very clear what the parties agreed to. Make sure the contract is clear on the scope of work, so you can reference the contract if you get into a dreaded, but common, scope creep situation. This is where the client is asking you to do more than was agreed and not expecting to pay you more money.
You’ll also want to make sure the contract is very clear on how and when you’ll get paid, as well as how and when the contract can be terminated by either party. There’s quite a bit more that needs to go into the contract, so you will want to work with an attorney on this as well, but whether or not you use an attorney, you’ll absolutely want to make sure the contract includes a limitation of liability. It’s a norm in the consulting business to cap liability at some multiple of the fees you will receive, often times 1x the fees you’ll receive in that particular contract.
Fourth, when looking at how to start a consulting business, you’ll need to figure out how to price your services. This is a tricky one, particularly for people who are just starting out. There is a tendency with new consultants to price their services too low. While this is tempting, because you just want to get those first clients in the door, it can be a big mistake.
As a consultant, most of what you’re selling is your time and expertise. Time is a finite resource and if you price too many clients too cheaply, you won’t be making enough money overall and you’ll have little or no time to take on new clients at higher rates. When considering how to price your service, which will usually be by the hour or by the project, think about it relative to the value that you will be delivering to the client (“value based pricing”). Most business owners you deal with, including small business owners, will understand that you need to charge a reasonable fee for your services (i.e. you shouldn’t be under-pricing your services just to get a particular client. In my experience, clients will respect you more and attribute more value to what you do, if your fees are “a little high,” especially if you let them talk you down just a bit.
Often times you can charge more, sometimes far more than you think, and the client won’t even bat an eye. That said, you can’t be outrageous and you do, of course, need to deliver on the value you are proposing to provide to the client, but as long as you’re reasonable in your pricing, they’re not going to tell you to get lost. At worst, the client may say “that’s outside my budget” and ask you to give them a discount, cut your hourly rates or project fee a bit, or cut back on the scope of services a bit, so they can afford it. At best, they will accept your proposal and you will have a new client at a price that makes you happy and works for the client.
Fifth, and last for now, you need to find clients to work with. When you’re thinking about how to start a consulting business, you need to find paying clients, without which you have a hobby, not a business.
In step one above, you determined what your service offering(s) would be that would provide value to prospective clients to the point where they’d be willing to pay you, hopefully dearly, to solve the problems/issues they’re facing. Presumably, as part of that exercise, you considered clients with whom you’ve worked in the past or with which you’ve discussed the prospects of opening your new consulting business. The last thing you want to do is plan in a vacuum. Ideally, you want to have your first five, or however many you can find, clients lined up before you even open your business.
In my experience in the consulting business over many years, the best clients I’ve worked with have come from referrals from other satisfied customers. An existing client that thinks your a good consultant, or even a great consultant, can be solid gold when it comes to finding new clients. This creates a bit of a catch-22 at the beginning of your business, as you’ve not yet worked with other customers in that business. That said, you’ve undoubtedly worked with other people in the past in other jobs or other businesses. Make sure you are getting recommendations (and referrals) from all people and companies that make sense and leverage those to get your first few clients. Make sure you leave all of your happy clients with a stack of your business cards!
You can also use traditional advertising as well as social media, either on a paid or organic basis, or both, to begin to get the word out there about your consulting business and the services you offer to your target audience (but, more importantly, the problems you solve for them). Ideally, you’ll want to develop a full marketing plan and business plan, even if you don’t have time to do so initially. Depending on your startup budget and how quickly you want to grow, you may want to enlist the services of a marketing consultant to help you put your marketing plan and strategy together.
There are, of course, MANY more steps you’ll need to take as you work through starting your consulting business, but the five above should get you off to a good start on building long term client relationships and a successful consulting business.
Image by Gerd Altmann from Pixabay
