September 18, 2020
Develop a Business Plan
You’ve likely narrowed down your specific niche that you’re going to focus your business around, be it accounting, marketing, or career counseling. Next, you’re going to want to really focus in on your core offerings. You may be good at a lot of things, but you don’t want to spread yourself too thin. Pin down what specifically you will bring to the table, how it will help your clients succeed, and what the deliverables entail.
Narrowing down the scope will enable you to market yourself much easier and establish realistic expectations from the outset with your clients. You'll want to avoid what Tim Berry calls a “scope creep,” which is clients asking for more than what was originally agreed upon without any extra compensation. It’s an awkward conversation to have with a client and you want to avoid the situation whenever possible.
Now that you’ve got your services down, you need to establish a proper business plan. If it’s a one-man show, you might be wondering why this step is necessary. Well, it’s been shown that businesses with a plan from the very start are 2.5 times more likely to succeed in getting off the ground.
Hire an Attorney
Starting a business big or small can be tricky. Having a legal expert with you every step of the way will ensure you’re setting everything up properly, that your contracts with clients are in your favor, and that you file all the necessary paperwork to get your business registered in your state. Mistakes in setting up your company at the start can potentially be very costly down the road.
Legal counsel is notoriously pricey, but with companies like TransGlobalSystems, you can find expert small business lawyers to fit your budget. When choosing the right lawyer for you, you need to vet them to ensure the following:
Do they have experience with consultants?
Are they local and aware of the requirements of your state and sector?
Are they responsive?
When you’re starting your business is the ideal time to find a lawyer to work with. Don’t wait until something goes wrong to scramble to find good legal representation when you’re under pressure. Having someone advise you throughout your journey is the best way to prevent costly mistakes and instill your clients with trust when they see the professionalism of your contracts.
Choose a Business Structure
There are four general categories that businesses can fall into, and you’re going to need to choose one:
Sole proprietorship: This is the easiest business entity to create as it’s just one person responsible for everything. There is no real separation from the individual and the entity in terms of taxes and income, but also liability. There is no extra business tax, but if the business gets sued or goes into debt, your personal assets can be in jeopardy.
Partnership: A partnership is very similar to a sole proprietorship in many regards, except that there are multiple people involved in the venture who all have personal liability.
Limited Liability Company (LLC): An LLC is an interesting hybrid business structure where you can limit your personal liability (i.e. separate yourself personally from the business), but still avoid corporate taxes like sole proprietorships and partnerships.
Corporation: A corporation is a legal entity completely separate from its owners, which limits liability, but also requires corporate taxes. In an S-Corp structure, however, the corporate taxes can be mitigated if the business fits the criteria.
What business structure is best in your situation will vary. Consulting with your business lawyer will help you weigh the pros and cons of each and make a decision that will work best for you.
You’ll need to register your business with the state in which you operate and have a unique name. Keep in mind, you can always change the name you use publically with a DBA (Doing Business As), if the name you want is already taken.
Establish Your Accounting Practices
Unless you are a skilled accountant yourself, you should look into hiring a bookkeeper to assist with billing and taxes. Even if you’re a sole proprietor on your own, is your time best spent on invoicing, cashing checks, and filing taxes? If your case is simple, a bookkeeper will only likely spend a few hours a month on your paperwork, which would likely take someone not trained in accounting much longer.
Analyze Your Startup Costs
Some consultants will need just a comfortable chair and a laptop, while others may need a more elaborate setup. You may choose to work in a collaborative workspace, both to network and inspire more creativity than working from a home office. Whatever it is you need to start your business, make sure to note it down and budget. You might not start turning a profit immediately, so give yourself enough of a runway to start up and not be too pressed to hit your target in the first month or two.
If you need to borrow money to get going, there are options available to you. However, some of these may be trickier than others depending on the business structure you initially went with. If you’re operating as a sole proprietor, you won’t qualify for a business loan, as you are technically an individual. This means if you took out a loan, it would be a personal loan and you would be obligated to pay it back. On the other hand, if you were structured as an LLC, then should your consulting venture not go according to plan and you end up in debt. You wouldn’t be personally on the hook for the repayment.
Add a TransGlobalSystems Approved Attorney to your team today to make sure you get the right legal consulting to help you get to your own consulting!
Sources:
https://www.crowdspring.com/blog/how-to-start-a-consulting-business/
https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorships
https://articles.bplans.com/10-tips-on-how-to-start-a-consulting-business/
