With a global value of around $250 billion, the consulting sector is one of the largest and most mature markets in the professional services industry. In times of flourishing economic conditions, more companies with higher revenues and budgets seek the expertise of consultants to help their businesses grow.
85% of consultants in the U.K are freelancers with the most popular specialising in financial services and technology sectors. The U.K consultancy sector was valued at £10 billion in 2016 and the average management consultant earns north of £45,000 a year.
The consulting industry is an exciting industry to be in. So if you’re considering setting up your own consulting business, here’s what you need to know first…
1. Considerations before starting a consulting business
Why are you starting a consulting business?
Before you get going, it’s important to establish exactly why you are starting in the first place. What is it about the industry that appeals to you and do you have what it takes to succeed? Do you have a high level of skills, knowledge and experience in your sector to confidently go out there and advise others?
The key to being a good consultant comes down to experience and knowledge of the industry and it’s not recommended as something to just start and treat as a new job if you’ve never worked in that industry before.
Do you have the right qualifications?
Certain professions need qualifications and licenses to consult others, such as financial advisors. Other consultants, such as digital marketing consultants don’t need any specific qualifications or licenses.
Qualities of a good consultant
In order to be a successful consultant, you need to be highly effective at managing your own time and constantly motivating yourself. It also pays to be a ‘people person’ and get out there and network well with others. The more people you know, the more business you’ll win.
Things you need to know about the industry
The industry can be quite ruthless at times – but so can the business world in general. Don’t be surprised if a meeting with a client goes really well only to find out a few days later they’ve pulled their contract and no longer need your services. Keep in mind that businesses go in different directions and people change their minds – don’t take it personally. The good thing is that there’s enough opportunity and business out there for you to go and get more.
There will be a lot of time wasters along the way and people will try and get you to do things for free. You’ll also find yourself waiting around for replies off potential leads that are weighing up their options with other consultants like yourself.
It’s common for clients to pay late so be prepared in the event that this happens to you.
Will you need employees?
Will you be running your business alone or will you be employing staff?
Do you want to stay small and manage the business yourself or do you have big dreams to expand and employ people as your business grows?
It may seem like a big decision to make when you’re only just starting up but establishing your plans early on is important to keep you on track.
The consulting industry can be a tough industry to get going in initially, but once you gain momentum and get to know people things can fall into place a lot easier. If you’ve got clients in the pipeline or you’re confident you’ll get business early on, you may want to consider taking on a member of staff to help you with the work load so that you can focus on growing the business further. However, this isn’t always as easy as it sounds and it may take a while to get your first client.
Almost all new businesses start with zero or very little money, so taking on employees is simply not an option. If this is the case for you, you’ll need to manage your time well in order to do the client work yourself. This may be easy when you only have a few clients, but as you grow you’ll start to struggle with the workload.
When this happens, some consultants decide to just keep going and do all of the work themselves in order to keep the money in the business. However, struggling everyday will not help you grow your business. Clients will get fed up with you failing to deliver on time and the quality of your work may start to suffer.
Whilst taking on employees will cost you money, the benefits of having help will far outweigh the benefits of having extra cash in the account. You’ll be less stressed and able to provide quality work for your clients, keeping them happy so that they can recommend more business for you in future.
Will you need business premises?
Whether or not you take on staff will determine if you need an office space for your consultancy business. If you’re planning on managing the business yourself, you can get away with working from home to save money. Remote working is becoming more and more popular, especially in digital consulting. Whether you’re going to work alone, take on freelance contractors or employ staff to work from home, you’ll need to make sure you can manage projects effectively without having the daily interaction with co-workers. There are many digital tools you can use for this and video messaging is a great way to have regular meetings.
If you’re looking to grow a large team, it’s best to have everyone in one place to brainstorm, communicate and work together on projects. If this is the case, where will you base the business? How much can you afford to pay for the premises? Can you get a short term contract in case the business doesn’t succeed? Is the location accessible not only for employees but for clients?
2. Registering and setting up your consultancy business
How to register for consulting business
Before you can get going and do business with clients, you need to register your business. This can either be as a limited company or as a sole trader depending on what works best for you.
If you’re setting up as a sole-trader, you keep all profits the business makes after tax. However, you are also personally responsible for the businesses accounts which means that if your business runs up debt, your personal finances will be at risk unless you have the right insurance cover in place. Essentially, you are your business.
As a limited company, your personal and business finances are kept completely separate. If the company gets into trouble, you are not liable to pay off any debt within the business and it is considered as completely separate entity to the shareholders and directors (you). As a limited company, you can keep all profits after tax has been paid.
You can find out more about sole traders and limited companies here.
When you have decided which option is best for you, you need to register your business with HMRC and if a limited company, with companies house.
To register as a sole trader you need to register for self-assessment. You must also:
- Complete an accurate tax return annually
- Keep up to date records on all business sales and expenses
- Pay income tax on any profits earned
- Pay the correct amount of national insurance
- Register for VAT if your turnover is over £85,000*
* You can also register for VAT on a voluntary basis if you do business with other VAT registered businesses and would like to re-claim the VAT at the end of the year.
Registering as a limited company requires a bit more work but can be worth it in the long run as it can keep you separate from the business should things go wrong. However, this does not count for offences such as fraud, corporate manslaughter , or in a case where a director is a joint tortfeasor.
To register as a limited company, you will need to inform companies house, also knows as an incorporation. To do this, you will need to have:
- a suitable company name
- a valid company address.
- detail of at least one of the companies shareholder and their agreement to create the company along with the written rules, known as the memorandum and articles of association.
- details of the people in control of the business and how many shares they hold.
- determine your SIC code (this is a list of codes issued by companies house to identify what the company does).
Registering a company with companies house costs between £12 and £40 and can be done online here or via post.
Managing tax and accounting
In order to run a successful business, you need to make sure your finances and tax affairs are all in order. The last thing you want when managing a business is an investigation from HMRC.
When it comes to paying tax, it’s always better to seek advice from an accountant first for the correct information on how much you should be paying. You could also hire an accountant to manage all of your important legal obligations such as filing an annual tax return.
Hiring a bookkeeper is also a good idea to manage your day-to-day accounts and keep everything in order for you whilst you focus on growing your business.
It’s vital you keep track of all business sales and expenses as well as all invoices and receipts in an orderly, easy to understand system. This will help you to keep on top of everything and manage the business successfully.
If you want to cut costs and manage your bookkeeping yourself, there are some great apps and accounting software you can use for a relatively affordable price.
Key things to consider when it comes to managing business accounts:
- keep all records of invoices, expenditures and receipts clearly filed in date order.
- keep on top of deadlines to avoid fines (up to £300) for submitting a tax return late.
- hire a bookkeeper or accountant to help you keep on top of things and submit your tax return for you.
- keep an adequate amount of money aside for tax each time you get paid to prevent a tax bill coming as a shock.
Tax differences for sole traders and limited companies
There are a few different legal requirements when paying tax and it is always best to seek advice from a qualified accountant first, however, here is a simple breakdown of the key differences between a limited company and a sole trader…
Sole Trader Tax
- You pay Class 2 & 4 National Insurance and Income Tax on the taxable profits of your business.
- The correct tax rates for your business can be viewed here.
- The correct NICs rates for your business can be viewed here.
- Your accounts are not submitted to HMRC unless you are subject to an investigation.
- Your taxable profit under Self Assessment must be prepared in accordance with Generally Accepted Accounting Practices (GAAP) for tax purposes unless you are cash accounting.
Limited Company Tax
- The company pays corporation tax on its taxable profits. Company tax rates are lower than higher rates of Income Tax.
- Employees and office holders are subject to PAYE and NICS on their earnings from employment and many benefits attract income tax too.
- Shareholders are subject to income tax on dividends and some types of distribution (e.g. a disqualifying purchase of own shares/capital reductions falling into Transactions in Securities territory)made by their companies. These come with a £5,000 tax free allowance.
- You must prepare annual accounts under the provisions of the Companies Act, these can be abbreviated for filing with Companies House.
- HMRC require full accounts for Corporation Tax which must be submitted online in iXBRL.
- Accounts must be prepared in accordance with accounting standards.
Setting up a bank account
Whilst there is no legal requirement to open up a business bank account, it makes sense to keep your business and personal finances separate. This way, you can manage the income and expenses of the business without your own personal and living costs getting in the way and messing up your numbers.
A separate account will allow you to clearly record and trace all business costs and income without your personal expenses getting in the way. Before opening up a business bank account, shop around for one with the best offers and deals, you may find that this is a different bank to one that you use for personal banking. Setting up a business bank account should be done after you register your business as a limited company or sole trader and the bank account you need will depend on how you register your business.
Getting a business insurance policy in place is important before starting any business. The right insurance will protect you from expensive legal fees and compensation claims as well a damaged reputation should a client, third party or employee make a claim against you.
Here are some of the different insurance policies you can consider:
- Professional Indemnity
Professional indemnity insurance is essential for you as a business professional or consultant as it could protect you from legal costs, expenses, and compensation paid to a claimant as a result of a service, which has been proven to be inadequate or negligent in any way, resulting in a financial loss for your client.
The concept of negligence is subjective. Without proper insurance cover, you may not have access to the advice and legal defence you need in the event of an allegation and claim.
If you work as a consultant, then your advice is a key part of your service. Whether you’re a marketing consultant or an education consultant considering professional indemnity insurance may be a wise choice.
- Employers’ Liability
Employers liability insurance is a mandatory legal requirement if you employ people within your business and is one of the only mandatory business and work-related insurances in the UK. Almost all small business owners and self-employed people must have employer’s liability insurance to operate legally.
Employers’ liability insurance is an insurance policy that protects your business against the costs of compensation claims that could arise from your employees; specifically, claims relating to an injury or illness they sustained due to their work for you. If negligence is proven, an insurance policy will cover the cost of any compensation awarded to an employee and will also cover your legal fees.
- Public Liability
Although not a legal requirement, public liability insurance could be considered as one of the most essential forms of business cover. It provides you with financial protection against the cost of personal injury compensation and also covers you against accidental property damage claims made by members of the public and other third parties. If a member of public slipped on a floor within your office building causing them an injury, if you do not have public liability insurance, you would be responsible for the costs associated with the claim.
3. Managing your consulting business
Without clients, you do not have a business. Finding clients isn’t hard and simply relies on you being consistent in your efforts. This includes making an effort to speak to new people and get your name out there, as well as always following up with leads.
As a consultant, it’s important to always be in work mode as everyone you meet is a potential customer. You may meet someone for the first time at a friends party and find out they have a company that could benefit from your expertise – so you wouldn’t want to be blind drunk and make a bad impression would you?
Always carry your business cards on you and seek opportunity everywhere you go and with anyone you speak to. Even if that person doesn’t need your services, they may take a liking to you and mention you to someone else who does.
Clients are everywhere – you just need to be actionable and reach out to them.
Here are some ways you can get your services noticed by clients:
- Networking events
This traditional way of meeting prospects is still one of the most effective. However, as a consultant, your time is precious and you need to make sure that you’re dedicating time to your clients rather than spending hours every week in networking events. Be picky and choose the event that is right for you. Don’t waste time going to events that are just full of other consultants trying to find work – find where your prospects are and go there.
- Social Media
In today’s world, social media should play a big part in the awareness of your business. You should use platforms such as Twitter, Linkedin and Facebook to promote your services and approach prospects for work.
There is a way to do this to get the best results from your effort:
- Provide valuable content: write blog posts, share videos, create info-graphics, any content that your audience will find interesting and will demonstrate your knowledge and portray you as the expert in your field.
- Engage regularly: no one wants to do business with a robot (yet), so it’s important you’re not just posting about how great you are all the time but engaging with other people and commenting on their posts too. Show an interest in other people and they’ll more than likely show an interest in you.
- Keep it high level: As much as it’s tempting to air your views online regarding Brexit and Trump, it’s important to stay impartial if you want to attract business – not push it away. Freedom of speech is one thing, but is it really worth it if it means someone decides not to do business with you as a result or your political or religious opinions?
In order to market yourself as a consultant, you’ll need the following:
- Business cards: Your business cards can either be simple and straight forward, or unique to leave a lasting impression. They should accurately reflect you as a consultant or your business.
- Website: Your website should clearly state what services you offer and how clients can get in touch with you. It’s not common for consultants to feature their price list on a website and this should be negotiated with each client individually.
- Social media accounts: Your social media accounts are your megaphone to the world. Remember to include your contact details and website clearly for people to get in touch with you.
Contracts and agreements
Gaining an interest from potential clients is one thing, but getting them to commit to you doing the work is another. When this happens, you need to strike while the iron is hot. Ask them for their email address and send them a proposal within the same day, or even better, the same hour.
Including your pricing and the terms of your agreement with your proposal will help you to get the deal done quickly. There’s no need for the client to go back and forth with you and ask a million questions, because you‘ve stated it all clearly in the proposal. Always remember to add the duration of the conract, your invoicing terms and when you expect your deposit and monthly payments to be paid.
How much should I charge?
When it comes to money, consultants charge a wide range of prices. How much you charge will depend on a number of things:
- Your experience
- The nature of the work you are doing
- The amount of time you need to invest in the work
- The deadline requested by the customer
Some consultants charge an hourly, daily or weekly rate for smaller projects, whilst others set up monthly contracts of reoccurring payments with clients. Consultants with years and years of experience can get away with charging high hourly and day rates. However, that’s not to say that new consulting businesses can’t charge high rates too. If a younger, more technologically advanced consulting business with a more modern, forward thinking approach comes along, they too can be worth the high price tag.
If you’re clueless on how much you should be charging, consider how much you would be earning if you were doing the same work as your full time job for someone else and go from there. You can also speak to other consultants and ask them how much they charge, but don’t expect them all to be completely honest with you.
The most important factor to consider when it comes to pricing is to provide value for your clients. Ripping your customers off will result in eventually losing them and earning you a bad reputation amongst future prospects. Alternatively, don’t underestimate your value – charge exactly what you think is fair and realistic for the work you are offering.
Most consultants hate dealing with invoice issues and some will wait months before taking action against a client that hasn’t paid. In order for you to keep on top of your businesses’ cashflow, find out when your client runs their monthly payments and get them to clarify which day of the month they need your invoice by so you don’t have to wait until the following month to get paid. Don’t be afraid to charge your clients a late payment fee for not paying you on time, they should understand you are running a business just as they are.
Your invoice should clearly state the following:
- Your business name and address
- The clients business name and address
- Invoice date
- Invoice number
- Description of work carried out
- Amount due
- Payment due date
- Late payment terms
- Your business bank details
4. Dealing with clients
When you eventually get clients, the real work begins. It’s important to understand that whilst some clients are a delight to work with, others can be a nightmare.
Remember the following when dealing with clients:
- Manage expectations
Whether it’s during a face-to-face meeting, over email or within your proposal, always communicate clearly on exactly what you’re going to do and what they can expect from you. Clients will often expect you to give them the moon (for free) and make you feel guilty if you can’t deliver on certain things. Be clear from the get go to avoid a disgruntled client and if you end up over-delivering, great!
- Make life easy for them
You’re not an employee of theirs so don’t contact them all the time to discuss work you’re doing unless it’s vital. Clients expect you to use your own initiative and handle things correctly without them having to get involved every step of the way. On the other hand, check in with them every once in a while and make sure they’re happy with the work you’re doing. Ask them for feedback and provide monthly reports or summaries of progress so they know that you’re worth keeping around.
- Don’t be disheartened if they cancel
When clients cancel a contract, it’s only natural to take it personally. Cancellations are the last thing any consultancy business wants, however, it’s inevitable that at some point someone will. Some clients may cancel because they’re not happy with the level of work you’re providing or because you’re lacking the results they expected. Others will cancel simply because their business is taking a different direction or because it is in financial difficulty and they simply cant afford to pay you anymore.
If you lose a client because you didn’t meet their expectations, ask yourself what you could have done differently and learn from your lessons so that they don’t happen again with another client in future. Try not to let cancellations put you in a negative mindset as this will affect how you manage the business day-to-day.
The good thing is that the world is full of opportunity and you can get back out there and win more business in no time at all.