How to Start a Consulting Business

How to Start Your
Independent Consulting
p g
Business

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Copyright © 2008 MBO Partners. All rights reserved.

Presenter

Gene Zaino
President & CEO
MBO Partners

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Overview
The Entrepreneur
Pros & cons of being in
business for yourself
Is consulting right for me?
Big vs. small

Business Structure
1099, sole proprietor ?
S-Corp, C-Corp, LLC, PER ?
p, p, ,
Self-employed tax benefits
Compliance, Insurance
Sales & Marketing and Accounting
Tax d i i t ti
T administration
Finding work
Business insurance
Marketing your services
Cash flow: billing,
Networking and backlog
collections, expenses
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Is Consulting Right for Me?
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Successful independent
consultants have tenacity, talent,
and an entrepreneurial mindset.
d t i l i d t

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Some Key Success Factors
Core Competencies of Independent Consultants
p p
Defined, verifiable expertise
Maintain high integrity
Comfortable with marketing and self promotion
Able to develop high quality network and clientele
Vision to easily identify opportunities and present ideas

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More Key Success Factors
Core Competencies of Independent Consultants
p p
Skill to efficiently apply knowledge and expertise
Highlight results that add value to clients
Create strong references (happy clients)
Maintain a pipeline of potential new assignments without
compromising existing client work
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Assemble a strong support team to minimize time on
financial, legal and business administration activities

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The Independent Lifestyle
Benefits of the consulting lifestyle
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Autonomy to do what you love
Build the skills you want to develop
Pick the projects you want
Avoid office politics
Flexibility and control
Be your own boss
Deliver your work, your way
Manage your work / life balance
Financial rewards
Fi i l d
Profit from owning your talent
Leverage your experience
Own valuable relationships
Launch pad to big business

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Why the Time Is Right
for an Independent Career
p

Build career resilience in
uncertain economic times
Diversify your career portfolio
“All eggs are NOT in one basket”
Create flow of opportunities
C t a fl f t iti
Go-to network of relationships
Trend toward companies
shifting to flexible workforce
More contractors and less full-timers
Less fixed, long-term costs

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Migrating to an
Independent Career
p
Set up your consulting parameters
Build a 12 to 36 month plan
Where do you want to work?
When do you want to work?
How many clients do you want?
Stay l
St solo or grow? ?
Set up shop at home
Quiet place with internet access
Keep overhead low
Build a financial bridge
Plan now
Start while still generating other income
Allocate six months of cash flow
Invest in you

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Migrating to an
Independent Career
p
Hone your assignments to improve your marketability
What’s in demand in your industry?
Round out your experience based on market demand
Learn the market rates (bill rates and pay rates)
Focus on assignments that are your strengths
Build a personal skills development plan
p p p

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Migrating to an
Independent Career
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Do you have ideas for your first contract?
Anyone you can approach?
Maybe lower your rates f right assignment to build reference base
for f
You can raise or lower rates on future assignments, just get started

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Build Your Brand
Build marketing materials
List your skills and credentials
Professional,
Professional high quality business cards
Select list of projects and case studies
Need both a Resume and Services brochure

Position yourself as an expert
Establish credibility
Online discussion boards, blogs, or articles

Build online profile or website:
LinkedIn, Network Solutions, VisualCV, or MBO Partners
Key words to emphasize Services, Projects and Results

Email your contacts and provide them with your materials
Follow-up with key business relationships

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Stay Connected
y
Network with friends, past
employers,
employers professional
associations, online markets
Read professional journals
Attend conferences and workshops
Collect business cards, follow up
Connect with other consultants
Find a mentor or two

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Market Yourself
Directly to Organizations
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Use corporate web site to identify opportunities
Get names of HR contacts and recruiters from job postings
j p g
Promotion notices in local business publications
Develop rapport with internal recruiter (or anyone)
Call high in the organization and leave voicemail or email
Just Do It! – activity breeds activity

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When to Use Recruiting Firm
or Staffing Company
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If you can’t find a project directly or through referrals:

Important tips dealing with Staffing / Recruiting firms
Protect the integrity of your resume
No changes without permission
Protect your references
No contact without permission
Protect your freedom to work “directly”
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Do not sign broad non-competes
Try to establish a corp-to-corp contract
Or use a PER (more on that next)

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Legal Structures
Choosing a Legal Framework for Your Business
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Limited
Limited
Sole
C Corp
C-Corp S Corp
S-Corp
S Corp
S-Corp Liability
Liability
Proprietor
P i
Corporation Proprietor
Corporation
Status Incorporated Incorporated Incorporated 1099

Personal Asset Protection? Yes Yes Yes No
Corp. taxed 1040 1040 1040
How is Corp. Taxed? separately Schedule C Schedule C Schedule C

Double T ti ?
D bl Taxation? Yes
Y No
N No
N No
N

Shareholders Unlimited Limited Limited N/A

Investor-Friendly? Very Yes No No

Audit Risk Moderate High High High

Level of Administration Highest
g High
g Moderate Lower

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Business Insurance
What you need to “do business”
y

Workers Compensation
Compensation if injured at work
Generally required by clients to engage you as a contractor
General Liability
Liability arising from personal injury to others or property damage
Professional Liability (Errors and Omissions)
Liability arising from errors or omissions in services you deliver to clients

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Vendor Qualifications
How to get “on the list”
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Qualifying for the vendor list
Getting on is no small feat
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Corporate trend is less suppliers
Increased concern over
reclassification risk
GSA best for government work

Some general qualifiers
Years in business
Financial strength
Legal structure
Business insurance
Strategic to organization
Security clearance?

Negotiating contract terms
Can take a long time
Seek good counsel

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Accounting
Getting systems in place
g y p

Invoicing
Hourly, by the project, by the piece
Monthly or project-based billing
Collections
Expenses
Some may be billable to clients
Out-of-pocket, tax deductible
Management options
Software, e.g. Quickbooks
Hired accountant
Portable Employer of Record – manages back office (more later)

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Tax Management
Maximizing your tax benefits
gy
Tax management (Schedule C filers)
Quarterly estimated taxes based on projected profit
Self-employment
Self employment taxes (same as employer side taxes)
employer-side
Manage your “audit risk”
Maximize business tax deductions, legally and wisely
Office supplies computer equipment communications
supplies, equipment,
Advertising, home office, seminars
Meals, travel and entertainment
Business mileage
Per Diem for out-of-town travel for business

Tax-advantaged employee benefits
Medical insurance premiums
Retirement programs
Out-of-pocket medical
Continuing education related to industry
Dependent / child care or elder care expenses

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Securing Affordable Medical
g
Group versus individual
Through a spouse
Professional association plans
Individually rated plans – caveats
State programs

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Retirement and
Financial Planning
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Popular self-employed retirement programs
If unincorporated, investigate
SEP (Simplified Employee Pension) or SIMPLE IRA
Keogh Plan (Qualified Pension/Profit Sharing Plan)
Solo 401k
Good retirement vehicles but not Schedule C deductions
You pay your share of self-employment payroll tax
on the retirement contributions

Most
M t popular incorporated programs
l i t d
401k
Employee defers similar to above
Corporation matches employee or more
p p y
The amount invested by the corporation is
not subject to payroll tax

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What About Hiring Staff?
g
HR & payrolling a team
Make sure you are legally compliant (exempt vs non-exempt)
Don’t misclassify employees as contractors
Employee benefits
Medical, dental, life, disability

Retirement for your staff
401(k) program
Tax deferred
ERISA compliant

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There Are Other Options
p
Consulting companies
Staffing
St ffi agencies
i
Portable Employer of Record firms (PER)
Disclosure: MBO Partners was the first Portable Employer of Record

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Understanding a PER:
It’s Your Business, Make the Most of It
,

Take everything you love
about consulting…
consulting
Operate as your own boss
Pick your own engagements
Set your own rate and terms
you o ate a d te s
Work multiple projects
Build project teams
Maximize your tax benefits
…and add:
Complete back-office support
Personal account service
An “in” to huge clients
Improved cash flow
Affordable group benefits
Free GL, E&O, and crime bond
, ,
Online system to track it all

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Comparing the Alternatives
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1099 or Corporation PER Staffing/Cons.

Level
Le el of reclassification risk to your client?
o r High None None (if W 2)
W-2)

Find projects yourself? Yes Yes No

Who handles client billings and collections? Self PER Staff/Cons Company

Deduct business expenses? Yes Yes No

Deduct medical expenses?* No Yes No

Who handles financial admin? Self PER Staff/Cons Company

Who carries business liability? Self/Corp PER Staff/Cons Company

When do I get paid? Upon client payment Upon client payment** Bi-weekly

Overall benefits quality? Varies High Low to medium

Benefits cost? Very high Medium Low to medium

Who absorbs employer payroll tax? Self/Corp Self/PER Staff/Cons Company

Personal audit risk? High Low Low

Credit profile? Weak Excellent Good

What % of billing rate is kept? ??? 92-97% 40% - 60%

26 *Assumes under 7.5% of annual AGI in medical expenses
** May qualify for advanced financing Copyright © 2008 MBO Partners. All rights reserved.

Next Steps
p
Do the math and build the plan
Calculate hourly bill rates and projected work
Cash analysis: understand your financial needs
Plan on what, when, and where
Gut check for feasibility
Start networking and learning
Talk with people that have “done it already”
Research your industry
Topic-specific
Topic specific seminars and conferences
Connect with peers through LinkedIn, Facebook, Twitter

Contact us
Slides and contact info will be emailed
Complimentary MBO Partners consultation
Email Gene Zaino: gene@mbopartners.com

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Thank you for your time!

For over 22 years, MBO Partners
has been making it easier
for independent consultants
and their clients
to work together.

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How to Start a Consulting Business

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