Are you dreaming of becoming an entrepreneur? Could your skill set or experience help other small businesses? Do you thrive in a fast-paced, ever-changing environment? Are you known for your collaboration and networking skills? If that describes you, read on to learn how to start your own consulting business. You can go all-in as a full-time endeavor or ease into it as a side hustle or a freelance opportunity. How Lucrative Is Consulting? The million-dollar question—how much do business consultants charge? In other words, will you make a profit as a small business consultant? Or, as your potential client may ask—are business consultants worth the money? The short answer is yes. Business consulting can be lucrative for anyone consulting in a growth industry or who has specialized skills. And the right consultant can provide significant benefits to the companies that hire them. How much business consultants charge varies widely based on a variety of factors. Specialized services and experts in an in-demand field (e.g., business resilience or digital-first operations post-COVID) can command a higher rate. A consultant’s rate also depends on what customers are willing to pay. Our guide to small business pricing can help you set your consulting rate. Charge too much, and you could price yourself out of the market. Charge too little, and potential clients will think you provide lower quality services. We’ll cover pricing strategy in more detail later in this guide. Why Do Businesses Hire Consultants? A small business consultant provides a service or fills a void for their clients. That could include: Leading a specialized project (e.g., a software implementation) Training management or employees (e.g., a diversity workshop series) Augmenting staff (e.g., backfilling an employee on parental leave) Initiating change (e.g., you don’t know what you don’t know) Scaling a business process (e.g., helping another business expand) Those aren’t the only services business consultants offer. Small business owners frequently need expert help, and your skills may be just what they need. Type of Business Consultants Business consultants work in a variety of industries. Some skill sets (e.g., computer skills) are valuable across multiple sectors. In contrast, a specialized skill set (e.g., healthcare) may narrow your target market to a single industry. Some consultants intentionally focus on a specific niche (e.g., fundraising for nonprofits). While there is no complete list of consultant types, you could be a consultant in these industries: Construction Cybersecurity E-learning Healthcare Information Technology Longevity Marketing Nonprofits Retail Steps to Start a Consulting Business How do you become a small business consultant? High-level steps to start a consulting business include: Figure out why Identify your target market Create a pricing strategy Develop your brand Establish a financial plan Write a business plan Form your business entity Open business accounts Secure licenses Pursue certifications Buy business insurance Create a client contract Set up backend processes Market your business Pitch Review your progress Figure Out Why Before you even step into the “what,” identify your “why.” What motivates you? What are your strengths and weaknesses? Why do you want to be a consultant? Consulting can be a rewarding and profitable venture, but it requires you to run your own business while providing services to your clients. That means, at a minimum, to become a consultant, you should: Be a self-starter Be detail-oriented Have exceptional follow-through skills Excel at multitasking Project confidence Adapt quickly If you despise project planning or creating project scopes, then consulting may not be the right fit. However, suppose you lack knowledge in 1 area (e.g., how to organize a day based on multiple projects). In that case, you could take a project management training class to offset that weakness. Identify Your Target Market You should identify your target market to: Determine what services to offer Create your pricing strategy Develop your customer personas for marketing The consulting services you provide are based on your skills—a registered nurse isn’t apt to set up a cybersecurity consulting business and vice versa. But the services you offer also depend on your target market. Aim for a target market large enough to let you grab a share of the pie without being so big that you don’t know who your ideal customer is. Start at a high level and then dive deeper to identify the specific markets you could target. For example, a cybersecurity consultant may identify a target market of “government organizations” and then narrow that to “government organizations in cities with a population of 25,000–50,000.” Use these questions to help identify your target market: What industries could use your services? What size companies do you want to target? Are you targeting a specific geographic location, or can you travel or work remotely? Does the industry have any regulations you’ll have to meet (e.g., some states regulate fundraising consultants for nonprofits) Who are your competitors, and what are their weaknesses? What is the current and the future potential size of the market? Are there gaps in the market (e.g., is there something needed that isn’t being offered)? You don’t have to do all the research yourself. Use industry associations and local SCORE chapters or small business development centers to help. Librarians are also excellent at researching this type of information. Create a Pricing Strategy How much do small business consultants charge? Or, better said, what should your pricing strategy be? Start by reviewing our guide to small business pricing. It’ll walk you through how to approach the question of what to charge. It’s not as simple as saying, “what are my competitor’s rates” or “what should I charge to survive this year.” Your competitors may not provide the same level of service you will. You also have to determine a pricing strategy that gives you the net profit margin to support your 3–5 year vision. Typically, a consultant’s billing rate is: Per hour: You bill for every hour you work. There may be an agreed-upon number of hours per scope of work. Per project: Flat fee based on a scope of work. Typically, the contract will specify when invoicing will occur (e.g., every week or as milestones are completed). Retainer: The client pays a specific amount whether you work or not. Essentially you agree to be available if they need you. This option can give you a consistent income, but it may require that you sign a non-compete. It’s unlikely you’ll have a one-size-fits-all rate. Pricing packages or bundling services together (e.g., project completion with continued support for 6 months) may be a good fit for your business model. You may even find that a tiered pricing model works for your customer base. Following the good-better-best theory, some customers may only want support during regular business hours (“good” tier). Others may want on-demand support even on weekends and holidays (“best” tier). It’s even possible that offering a “free” tier could lead to paying customers. You may have to run lean for a while as you reinvest your profits into growing your business. But eventually, you’ll want to take a look at how much you should pay yourself and possibly adjust your pricing strategy. Develop Your Brand You might read “brand” and immediately think “business name and logo.” But so much more goes into a brand, including your colors, typography, and tagline. Refer to our beginner’s guide to branding and take steps to ensure the brand you are creating isn’t already trademarked. You don’t have to have your brand wholly ironed out before starting your marketing efforts. But the more consistent your brand is across all communication channels, the sooner you’ll achieve brand awareness with potential leads. Establish a Financial Plan To remain in business long-term, money coming in needs to be greater than money going out. Sounds simple, right? But anyone who has experienced a cash flow crunch in their personal life knows how important a financial plan is. Our guide to getting started with business finances will get you started on the right foot. A financial plan includes: Setting financial goals Figuring out how to fund your business Managing business finances on an ongoing basis Financial forecasting can help you avoid cash flow problems and build your cash reserves. Write a Business Plan Create a framework for making business decisions by writing a business plan. Outlining goals in a reference document eliminates the guesswork for future decisions. A business plan also helps boost your credibility if you seek financial funding. A business plan includes: Executive Summary Business Overview Market Analysis/Industry Analysis Competitive Analysis Sales and Marketing Plan Operations and Management Plan Financial Plan Form Your Business Entity Incorporate your business. It may offer a level of protection for your personal assets. It also signals to the IRS and potential clients that you have a business, not a fly-by-night operation. There are various business structures to choose from, including sole proprietor, LLC, and S corporation. Our guide to understanding business structures walks you through the pros and cons of each option. Most likely, you’ll need to apply for an Employer Identification Number (EIN). It’s necessary for some industries (e.g., working with nonprofits) and some business structures (e.g., LLC). Even if you don’t need it, it’s a good idea as you’ll avoid sharing your Social Security number with clients. Open Business Accounts One key to successful business finances is to separate your personal and business accounts. This eliminates bookkeeping confusion (e.g., was that ink for my home or the office?), reduces the risk of an IRS audit, and increases your professional appearance to clients. Don’t delay on this task—open business bank accounts and a business credit card as soon as you can. Secure Licenses You may have to secure business license(s) and permits. Unfortunately, there is no one-size-fits-all answer to what business licenses or permits you may need. It’ll depend on zoning regulations in your area and your industry. Check the SBA website for industry-specific guidance, but plan on researching your state and local requirements as well. Ask your attorney for advice—some cities require even a sole proprietor to have a business license. Pursue Certifications Certification programs “prove” you know your stuff and may give you an edge over your competition. But certifications cost money and time to complete and usually need to be updated regularly (especially in the technology field). If your reputation could use a boost, then by all means, pursue certification. 2 general business consultant certification programs to consider are: Association of Accredited Small Business Consultants (AASBC) Institute of Certified Business Consultants (ICBC) If your industry smiles upon those who are certified, get certified. IT professionals tend to be certified in specific applications or development tools. Project managers may want to consider the certification program offered by Project Management Institute (PMI). HR consultants could pursue Talent Optimization’s program. If you aren’t sure what certifications may be helpful, ask industry-specific associations for advice. You could also boost your expertise by taking online courses for entrepreneurs. These may not result in a certificate, but they can increase your knowledge base (and your contacts). Buy Business Insurance Your business structure didn’t provide you with blanket immunity, so use business insurance to protect you and your business. Your needs will vary based on your specific consulting business. Your insurance agent can suggest which of these elective business insurance types (or others) you may need: General liability Business interruption Cyber liability Professional liability (Errors & Omissions) Commercial auto Create a Client Contract As a consultant, you might provide boiler-plate services. But most likely, you’ll cater your services to each customer’s unique needs. Thus, contracts are the key to keeping everyone on the same page for expectations and helping provide legal protection for disputes. A standard client agreement template (vetted by your lawyer, of course) that you fill in for each client might be sufficient. As your client base grows, contract management software can help automate and track who has signed contracts, when deliverables are due, and when contracts expire. Set Up Backend Processes A consulting business isn’t just about billable hours. It also includes non-billable hours that are key to staying on top of your business’s finances. Non-billable hours involve pitching to new clients, managing contracts and projects, invoicing for completed work, and tracking expenses. Those non-billable hours need a process to keep them from consuming your workweek. A general rule of thumb is to hire out whatever costs less than your billable rate. If you can work a billable hour at $100/hour, and it’ll only cost you $50/hour to hire someone else to post to your social media channels, then the math looks obvious, doesn’t it? An even better option is to automate your small business processes. For example, using email marketing tools allows you to send pre-canned responses to frequently asked questions. The same goes for bookkeeping. For example, Sunrise can help automate expense tracking and invoicing tasks. The free or budget packs of digital tools may be all you need initially. You can always upgrade once you hit the limits of the lower-cost options. Market Your Consulting Business You’ll use marketing techniques to generate sales leads and create brand awareness. When another company asks: “How do I find a small business consultant?” your goal is to be the first business that comes to mind (or to rank on the first page of search results). Market your consulting business by: Developing your business brand Building a following on LinkedIn Networking with small business associations Joining professional organizations specifically for business consultants, including Institute of Management Consultants (IMC USA) and Professional and Technical Consultants Association (PATCA) But don’t stop there. There are many other ways to find new customers. You could become a thought leader, collaborate with other businesses, and sponsor other organizations (e.g., a local charity race). Pitch Spend time to create and rehearse the perfect pitch to help secure clients. Don’t confuse pitching with marketing. Marketing creates brand awareness and generates leads. Your pitch is what convinces those leads that you are the right person to solve their problem. As your reputation becomes better-known and your satisfied customer list grows, you may be lucky enough to have clients seeking you out. Review In business, nothing is ever set in stone. Review your progress and profits regularly (this is where accurate bookkeeping helps). The challenges businesses may encounter (e.g., hiring employees, paying taxes strategically) can be met head-on with a bit of planning. Embrace the Challenge Starting your consulting business will take effort—remember to have fun with the process and take care of yourself. You don’t have to reinvent the wheel. Lean on the expertise of others who have started and grown their business. Take that first step, and you’ll have a successful consulting business sooner than you expected. If you need help, Lendio is ready to help fund your dream.