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How to Start a Consulting Business

Everyone has an untapped reservoir of knowledge. Put yours to work as a consultant and teach your skills to others.

Opinions expressed by Entrepreneur contributors are their own.

The dictionary defines a consultant as "an expert in aparticular field who works as an advisor either to a company or toanother individual." Sounds pretty vague, doesn't it? Butunless you've been in a coma for the past decade, you probablyhave a good idea what a consultant is.

Businesses certainly understand what consultants are. In 1997U.S. businesses spent just over $12 billion on consulting.According to Anna Flowers, spokesperson for the Association ofProfessional Consultants in Irvine, California, the association hasrecently noticed an increase in calls for information from peoplewho want to get into the business. "The market is opening upfor [the consulting-for-businesses] arena," Flowers says.

Melinda P., an independent consultant in Arlington, Virginia,thinks more people are getting into the consulting field becausetechnology has made it easier to do so. "The same technologythat has helped me to be successful as a consultant has made iteasier for others to do the same," she says.

A consultant's job is to consult. Nothing more, nothingless. It's that simple. There's no magic formula or secretthat makes one consultant more successful than another one.

But what separates a good consultant from a bad consultant is apassion and drive for excellence. And--oh yes--a good consultantshould be knowledgeable about the subject he or she is consultingin. That does make a difference.

You see, in this day and age, anyone can be a consultant. Allyou need to discover is what your particular gift is. For example,are you very comfortable working around computers? Do you keep upwith the latest software and hardware information, which seems tobe changing almost daily? And are you able to take that knowledgeyou have gained and turn it into a resource that someone would bewilling to pay money for? Then you would have no trouble working asa computer consultant.

Or are you an expert in the fund-raising field? Maybe you haveworked for nonprofit agencies in the field of fund-raising,marketing, public relations or sales, and over the years you havediscovered how to raise money. As someone who has turned a decadeof fund-raising successes into a lucrative consulting business, Ican tell you that fund-raising consulting is indeed a growingindustry.

Things to Consider Before You Become a Consultant

  • What certifications and special licensing will I need?Depending upon your profession, you may need special certificationor a special license before you can begin operating as aconsultant. For example, fund-raising consultants don't needspecial certification, although you can become certified throughthe National Society of Fund Raising Executives. And in somestates, you may need to register as a professional fund-raisingconsultant before starting your business.
  • Am I qualified to become a consultant? Before you hangout your shingle and hope that clients begin beating your door downto hire you, make sure you have the qualifications necessary to getthe job done. If you want to be a computer consultant, for example,make sure you are up to date in the knowledge department with allthe trends and changes in the computer industry.
  • Am I organized enough to become a consultant? Do I liketo plan my day? Am I an expert when it comes to time management?You should have answered "yes" to all three of thosequestions!
  • Do I like to network? Networking is critical to thesuccess of any type of consultant today. Begin building yournetwork of contacts immediately.
  • Have I set long-term and short-term goals? And do theyallow for me to become a consultant? If your goals do not match upwith the time and energy it takes to open and successfully build aconsulting business, then reconsider before making any move in thisdirection!

Top 20 Consulting Businesses Thriving Today

Although you can be a consultant in just about any field thesedays, the current top 20 consulting businesses include:

1. Accounting: Accounting is something that everybusiness needs, no matter how large or small. Accountingconsultants can help a business with all of its financialneeds.

2. Advertising: This type of consultant is normally hiredby a business to develop a good strategic advertising campaign.

3. Auditing: From consultants who audit utility bills forsmall businesses to consultants who handle major work fortelecommunications firms, auditing consultants are enjoying thefruits of their labor.

4. Business: Know how to help a business turn a profit?If you have a good business sense, then you'll do well as abusiness consultant. After computer consulting, people in thisfield are the next most sought after.

5. Business writing: Everyone knows that mostbusinesspeople have trouble when it comes to writing a report--oreven a simple memo. Enter the business writing consultant, andeveryone is happy!

6. Career counseling: With more and more people findingthemselves victims of a corporate downsizing, career counselorswill always be in demand. Career counselors guide their clientsinto a profession or job that will help them be both happy andproductive as an employee.

7. Communications: Communications consultants specializein helping employees in both large and small businesses bettercommunicate with each other, which ultimately makes the businessmore efficient and operate smoothly.

8. Computer consulting: From software to hardware, andeverything in between, if you know computers, your biggest problemwill be not having enough hours in the day to meet yourclients' demands!

9. Editorial services: From producing newsletters tocorporate annual reports, consultants who are experts in theeditorial field will always be appreciated.

10. Executive search/headhunter firms: While this is notfor everyone, there are people who enjoy finding talent foremployers.

11. Gardening: In the past decade the demand forgardening consultants has blossomed (pun intended) into a $1million-a-year business. Not only are businesses hiring gardeningconsultants; so are people who are too busy to take care of theirgardens at home.

12. Grantsmanship: Once you learn how to write a grantproposal, you can name your price.

13. Human resources: As long as businesses have peopleproblems (and they always will), consultants in this field willenjoy a never-ending supply of corporate clients, both large andsmall. (People-problem prevention programs could include teachingemployees to get along with others, respect and even violenceprevention in the workplace.)

14. Insurance: Everyone needs insurance, and everyoneneeds an insurance consultant to help them find the best plan andpricing for them.

15. Marketing: Can you help a business write a marketingplan? Or do you have ideas that you feel will help promote abusiness? If so, why not try your hand as a marketingconsultant?

16. Payroll management: Everyone needs to get paid. Byusing your knowledge and expertise in payroll management, you canprovide this service to many businesses, both large and small.

17. Public relations: Getting good press coverage for anyorganization is a real art. When an organization finds a good PRconsultant, they hang on to them for life!

18. Publishing: If you're interested in thepublishing field, then learn everything you can and you, too, canbe a publishing consultant. A publishing consultant usually helpsnew ventures when they are ready to launch a new newspaper,magazine, newsletter--and even Web sites and electronicnewsletters.

19. Taxes: With the right marketing and business plan(and a sincere interest in taxes), your career as a tax consultantcan be very lucrative. A tax consultant advises businesses on thelegal methods to pay the least amount of tax possible.

20. Writing services: Anything related to the writtenword will always be in demand. Find your specialty in the writingfield, and the sky will be the limit!


The contents of this Start-Up Kit are excerpted from Howto Start a Consulting Service, an Entrepreneur Start-Up Guide.Visit SmallBizBooks.com for moreinformation.

Target Market

Your idea may be the best one you have ever thought of, butthere needs to be a market for your ideas. Someone must be willingand able to pay you for your expert advice.

In other words, who are your potential clients? Will you bemarketing your consulting services to large corporations? Or willyou offer a specialty that would only be of interest to smallerbusinesses? Perhaps your services will be sought after by nonprofitorganizations. Whatever the case, before you go forward, make sureyou spend time preparing both a business plan and a marketing plan.You won't be disappointed with the results--especially whenclients begin paying you!

Why an Organization Wants to Hire You

According to a recent survey, here are the top 10 reasonsorganizations hire consultants:

1. A consultant may be hired because of his or herexpertise. This is where it pays to not only be really good inthe field you have chosen to consult in, but to have some type oftrack record that speaks for itself. For example, when I mentionedearlier that I had become an expert as a fund-raising consultant, Iknew that every client who hired me was doing so partly on thebasis of my track record alone. After all, if you are a nonprofitorganization that needs to raise $1 million, it makes sense to hiresomeone who has already raised millions for otherorganizations.

2. A consultant may be hired to identify problems.Sometimes employees are too close to a problem inside anorganization to identify it. That's when a consultant rides inon his or her white horse to save the day.

3. A consultant may be hired to supplement the staff.Sometimes a business discovers that it can save thousands ofdollars a week by hiring consultants when they are needed, ratherthan hiring full-time employees. Businesses realize they saveadditional money by not having to pay benefits for consultants theyhire. Even though a consultant's fees are generally higher thanan employee's salary, over the long haul, it simply makes goodeconomic sense to hire a consultant.

4. A consultant may be hired to act as a catalyst.Let's face it. No one likes change, especially corporateAmerica. But sometimes change is needed, and a consultant may bebrought in to "get the ball rolling." In other words, theconsultant can do things without worrying about the corporateculture, employee morale or other issues that get in the way whenan organization is trying to institute change.

5. A consultant may be hired to provide much-neededobjectivity. Who else is more qualified to identify a problemthan a consultant? A good consultant provides an objective, freshviewpoint--without worrying about what people in the organizationmight think about the results and how they were achieved.

6. A consultant may be hired to teach. These days if youare a computer consultant who can show employees how to master anew program, then your telephone probably hasn't stoppedringing for a while. A consultant may be asked to teach employeesany number of different skills. However, a consultant must bewilling to keep up with new discoveries in their field ofexpertise--and be ready to teach new clients what they need to staycompetitive.

7. A consultant may be hired to do the "dirtywork." Let's face it: No one wants to be the personwho has to make cuts in the staff or to eliminate an entiredivision.

8. A consultant may be hired to bring new life to anorganization. If you are good at coming up with new ideas thatwork, then you won't have any trouble finding clients. At onetime or another, most businesses need someone to administer"first aid" to get things rolling again.

9. A consultant may be hired to create a new business.There are consultants who have become experts in this field. Noteveryone, though, has the ability to conceive an idea and develop agame plan.

10. A consultant may be hired to influence other people.Do you like to hang out with the rich and famous in your town? Ifso, you may be hired to do a consulting job simply based on who youknow. Although most consultants in this field are working aslobbyists, there has been an increase in the number of peopleentering the entertainment consulting business.


The contents of this Start-Up Kit are excerpted from Howto Start a Consulting Service, an Entrepreneur Start-Up Guide.Visit SmallBizBooks.com for moreinformation.

Location and Employees

Your consulting business will probably not require a largecapital investment at first. In fact, if you are able to, youshould consider operating out of your home. (Certain deedrestrictions and local laws may prohibit you from doing this; checkwith an attorney before you proceed.)

There are many advantages to having a home office. Among themare:

  • Low overhead expenses. You don't have to worry aboutpaying rent or utilities for an office; you will appreciate thisfeature until you establish a regular client base.
  • Flexibility. There is little doubt that operating as aconsultant at home gives you a great deal of flexibility. You canset your own hours and take time off as you need it.
  • No rush-hour nightmares. For anyone who has had tocommute to and from a job during rush hour, this will be a welcomechange of pace.
  • Your home office space will most likely betax-deductible. The IRS has relaxed the rules for people whowork at home, but check with your account or income tax preparer tosee if you qualify for this deduction.

Employees

When you first open the doors to your consulting practice, youmay be able to handle all the operations by yourself. But as yourconsulting business begins to grow, you may need help handlingadministrative details or help completing the actual consultingassignments.

You need to make some important decisions. For example, do youhave the time it will take to make labels and insert your brochureinto 1,000 envelopes? Can you afford to spend time doingadministrative tasks when you could be using that time effectivelymarketing your services--and signing up new clients?

There are many options when it comes time to decide if you needhelp with your paperwork. For example, a quick look through theYellow Pages will reveal a number of small secretarial supportfirms. The rates will depend on a variety of factors, including howlarge or small an organization it is and what types of services itprovides.

While it will pay you to shop around for these types ofservices, don't select a secretarial service just because ithappens to have the lowest prices in town. Instead, ask forreferences, preferably from other consultants who have used theirservices, or from small-business owners. A good, reliable supportservice is worth the price in the long run.

There will come a time, however, when you may find it morecost-effective to hire someone to work in the office with you.Hiring a good administrative support person can sometimes mean thedifference between success and failure--between obtaining moreclients or constantly losing clients. There are some benefits tohaving someone in the office with you. Among them are:

  • You save time and money. By having someone concentrateon the more routine tasks (opening the mail, filing, answeringphones, etc.) you can focus all your efforts on recruiting newclients. Think about this: Would you want to lose a $500-a-dayclient because you were too cheap to hire someone to stuff yourbrochures into envelopes?
  • You don't worry about being out of the office. Ifyou are a one-person operation, it's hard to be out on the roadmarketing your services if you're worried about clientscalling--and only getting your answering machine.
  • You have someone to offer another perspective. Sometimesit can be pretty lonely trying to do everything yourself. Havingsomeone around the office during the day who can offer anotherperspective can be worthwhile.

The contents of this Start-Up Kit are excerpted from Howto Start a Consulting Service, an Entrepreneur Start-Up Guide.Visit SmallBizBooks.com for moreinformation.

Income & Billing

Now that you have made the decision to open your consultingbusiness, you need to get serious about how much money you willcharge your clients. If you charge too little, you won'tsucceed in business. If you charge too much, you won't get anyclients. So how do you find that middle ground that seems fair toeveryone involved? One way to help you decide how much to charge isto find out what the competition's rates are. A simpletelephone call, asking for their brochure and rates, should do thetrick. Then set your rates so that you are competitive witheveryone else in the community.

Before setting your fees, make sure you have listed all of yourexpenses. There is nothing worse than setting your rates, havingyour client pay you on time and then finding out you failed toinclude several expenses that materialized. This brings up animportant point to remember in every job you take from aclient: Include a "miscellaneous" line item in your feeproposal. But don't pad the miscellaneous figure to makeadditional income.

Most clients will understand that in every project, there willno doubt be additional expenses. Just be sure everyone knowsupfront an approximate figure for those expenses.

Before you set your rates, find out what other consultants inyour community are charging for their services. Sometimes a simpletelephone call to another consultant's office asking what theirfees are will give you the answers you need. Or you may have tohave a friend call and ask for their brochure, or any additionalinformation they can collect regarding fees and pricing. If youlive in a small town and there are no other consultants in yourfield, then rejoice and be glad, but set your fees at a reasonablelevel!

When setting your rates, you have several options, includinghourly rates, project fees and working on a retainer basis.Let's examine each one closely.

Hourly Fees

You need to tread carefully when setting hourly fees, becausetwo things could happen: A) Your hourly rate is so high that no onecould ever afford you (therefore no client will ever knock on yourdoor). B) Your hourly rate is so low that no one will take youseriously.

Keep one important rule in mind when establishing your fee, nomatter which structure you decide on: The more money people pay fora product or service, the more they expect to get for their money.In other words, if a client agrees to your hourly rate of $400,then you had better give $400 worth of service to that client everyhour you work for them.

Some clients prefer to be billed on an hourly basis, whileothers hate the idea of paying someone what they perceive to be toomuch per hour. Those clients usually prefer to pay per project.

Project Rates

When working on a project rate basis, a consultant normally getsa fixed amount of money for a predetermined period of time. A fewof my fund-raising clients actually preferred to be charged thisway, so it wasn't unusual for me to charge $36,000 for aone-year project in which I consulted them on how they could raisemoney. Because of the amount of money involved, most agenciespreferred to be billed on a monthly basis. This worked out fineuntil I realized that many agencies were late paying their monthlybills.

Because of this, I decided that all future clients who wished tobe billed on a monthly basis would pay the first-month fee and thelast-month fee at the signing of the contract, which meant that ifthe agreed-upon amount of the project was $36,000, to be paid on amonthly basis, I received a check in the amount of $6,000 before Ibegan any work ($3,000 for the first month's fee and $3,000 forthe last month's fee).

Retainer Basis

Working on a retainer basis gives you a set monthly fee in whichyou agree to be available for work for an agreed-upon number ofhours for your client. While in the ideal world you would have adozen or so clients who hire you and pay you a hefty sum each month(and never actually call you except for a few hours here andthere), don't get your hopes up. Most companies that hire aconsultant on a retainer basis have a clause in their contract thatprohibits you from working for their competitors.

Working and getting paid in this method certainly has itsadvantages. You are guaranteed income each month, and when you arestarting out in your consulting business, cash flow can be aproblem. Some consultants actually offer a percentage reduction intheir fees if a client will agree to pay a monthly retainer fee.The average income when a consultant is paid on a retainer basis is$3,500 per month.


The contents of this Start-Up Kit are excerpted from Howto Start a Consulting Service, an Entrepreneur Start-Up Guide.Visit SmallBizBooks.com for moreinformation.

Marketing

If your consulting business has no clients, then you have noconsulting business. But you must remember that selling yourconsulting services is not the same as selling a car or a house. Inthe case of the car or the house, the customer is probably alreadyin the market for one or both of those products. Your job, then,becomes harder, because you are marketing your services to peoplewho may not even be aware that they need those services.

There are a variety of methods you need to become both familiarand comfortable with in order to begin attracting and keepingclients. Let's look at some of the more conventional ones thatare being used by many consultants today.

Brochure Basics

There are five issues your brochure should address. Theyare:
1. It should clearly convey what your services are.
2. It should tell customers why you are the best.
3. It should give a few reasons why you should be hired.
4. It should include some brief biographical information.
5. It should include some information about who your other clientsare.

That's it. Keep it simple, but do it right. Remember, yourbrochure represents you in the marketplace, so make sure you polishit before you send it into action. Your entire consulting careerdepends on it!

Cold Calling

You must do whatever it takes to make cold-calling work and makeit easier for yourself. There are a few tricks you can use to makecold-calling a little easier for you:

  • Prepare a script ahead of time. Spell out word for word whatyou expect to say when you get someone on the telephone. Remember,though, that your goal is to get a face-to-face interview and,eventually, a new client. So before you end up stumbling over yoursales presentation (either in person or over the telephone), writeyour script and practice it again and again.
  • Be creative in your efforts to reach the decision maker. Mosttimes you will encounter a secretary or administrative assistantwho has years of experience turning away cold callers likeyourself. But don't give up! Don't let any obstacle standin your way! To avoid being screened by the secretary, try callingbefore she is on the job. Yes, you may have to call before 8 a.m.or after 5 p.m., but at these times, chances are the decision makeryou are trying to reach will answer their own telephone.
  • Limit your cold calls to just several days each month. And lookforward to those days, making sure you put your best effort intothe process. That way, not only will it become easier to make thosecold calls, but you will find yourself actually looking forward tomaking them!

Advertising

The limits you place on advertising your consulting serviceswill be directly tied to your advertising budget. If you are luckyenough to have a very healthy advertising budget, remember that youdon't have to spend the money on ads just because you have itto spend. Advertising can be very expensive. Jeffery B., aHarrisburg, Pennsylvania, consultant, advertises in hisassociation's publication. "They publish what is calledthe Green Book, which is a directory of research and marketingconsulting businesses around the country. It has helped me generatenew business," he says.

Other consultants, such as Merrily S. in Newark, Delaware,depend on word-of-mouth. "The best form of advertising [for mybusiness] has been word-of-mouth and recommendations from otherpeople," she says.

Depending upon the type of services you offer, it may benecessary to advertise in specialized trade journals or magazines.For example, as a fund-raising consultant, I have placed ads insuch publications as The Chronicle of Philanthropy, Non-ProfitTimes and Fund Raising Weekly.

Before you spend any money, start looking through professionaljournals and newspapers relative to the fields you specialize in.Take some time and examine ads that have been placed by otherconsultants, and then carefully determine how effective you thinktheir ads may be. Then design one that suits you best.

Newsletters

Whatever your consulting field is you should have more thanenough information to produce a newsletter as a means of attractingpotential clients. If you don't have the time, or don'tfeel comfortable self-publishing your own newsletter, hire a localfreelance writer and graphic designer to do the job for you. Again,you don't have to make it an expensive, four-color, glossypublication. The simpler you keep it, the better. A good newsletterwill sell itself based on the content rather than the splashydesign.

Start collecting newsletters that are being published in yourconsulting field. If you think there are none being published, orif you think there are only a few in your field, guess again. Aquick visit to the library will reveal several newsletterdirectories--Oxbridge Directory of Newsletters (OxbridgeCommunications) and Hudson's Newsletter Directory (TheNewsletter ClearingHouse)--which list, by subject, newsletters thatare published not only in the United States, but in othercountries. Take some time and write for sample copies before youdesign and write the first issue of your own newsletter. You'llbe surprised at the quality of the newsletters that are beingproduced today.

Newsletters are an effective means of communication and, in myopinion, represent the best advertising media for a consultant tosell his or her services. Think about it the next time you receivea newsletter in the mail. Did you put it aside to read it later?And why did you do that? Probably because you wanted to make sureyou weren't missing any important news or information.

But what about that brochure you received in the mail the sameday? Did you put it aside to read later? Or did it go directly intothe trashcan? Think about this before you spend big bucks on aglitzy brochure that may not even be read.

Public Speaking

Public speaking is another excellent way to recruit new clientsand to earn a reputation for excellence in your community. Unlessyou live in a town so small it doesn't have a chamber ofcommerce or a Lion's Club, Rotary Club or other similar serviceorganization, you can begin offering your services as a speaker forluncheons, dinners or any other special occasion.

In addition to using the telephone directory, see if anyone haspublished a directory of service organizations in your community.You can visit the library and ask at the reference desk. Go throughand make a list of organizations that hold monthly meetings andtherefore may use guest speakers. Contact each group and offer yourpublic speaking services.

Ask for Referrals

This often-overlooked method of finding new clients is such aneasy marketing tool (which is why it's usually not thought of),you'll kick yourself for not thinking of it yourself. When youhave finished your consulting assignment and your client is inseventh heaven (and is no doubt singing your praises), that is anexcellent time to ask for a referral! Simply send a note ora short letter asking for the names of any colleagues, friends orbusiness associates they feel might be good prospects for yourconsulting services. Ask their permission to mention their namewhen you write to the people whose names they pass on to you.Sometimes all it takes is having a mutual friend or respectedbusiness associate to get the potential client's attention.


The contents of this Start-Up Kit are excerpted from Howto Start a Consulting Service, an Entrepreneur Start-Up Guide.Visit SmallBizBooks.com for moreinformation.

Resources

Associations

Books

  • 101 Ways to Succeed as an Independent Consultant byTimothy R.V. Foster
  • 138 Quick Ideas to Get More Clients by Howard L.Shenson
  • The Business Plan Guide for Independent Consultants byHerman Holtz
  • The Complete Guide to Consulting Contracts by HermanHoltz
  • The Consultant's Guide to Getting Business on theInternet by Herman Holtz

Publications

  • Consultants News
  • Business Consultants Directory, American BusinessDirectories Inc., 5711 S. 86th Cir., Omaha, NE 68127
  • The Professional Consultant Newsletter, 123 NW Second,#405, Portland, OR 97209, (803) 224-2656
    The contents of this Start-Up Kit are excerpted from How toStart a Consulting Service, an Entrepreneur Start-Up Guide.Visit SmallBizBooks.com for moreinformation.

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