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START YOUR BUSINESS

How to Start a Consulting Business: Your Ultimate Guide

20-minute read

Learning how to start a consulting business may require getting some help, like this entrepreneur working with her mentor.
Allison Grinberg-Funes

Allison Grinberg-Funes

20 April 2021

Consultants are defined as an advisor with a particular area of expertise who works with a company or an individual.

Companies tend to ask for consultants when they need to change the way their business operates, or when they need a fresh flow of ideas. In 2020, the global consulting market was forecasted to cost companies $132 billion.

That's no small sum! Because companies spend so much money on consultants, many people want to try their hand at consulting. You may be one of those people.

But how do you know if there is a market for your services? Keep reading to see what kind of work consultants do, who hires them, and how to take the steps towards becoming a consultant

Here's how this guide is broken down, so you can easily move around to answer questions you may have about starting your consulting business:

Why Do Businesses Hire Consultants?

Consultants are hired for a variety of reasons, but here are a few common examples:

  • A consultant might be hired for their expertise in a certain area that the company just doesn’t have.

    For example, a company is concerned about maintaining their online security. Within their organization, they don't have a role dedicated specifically to security IT. In this case, they may decide to hire an IT consultant to audit their current situation and suggest solutions.

  • Consultants are hired to provide an outside, fresh perspective on internal problems. For example, they may be brought onto a project to help pinpoint an issue with communication among employees.

    Or maybe a consultant is brought in as a change agent to help lessen the distance between polarized opinions on a team.

  • In some cases, a company needs to fill a position's void and decides to hire a consultant to perform the duties. This can sometimes be more cost effective for the company than hiring a new full-time employee.

  • Consultants have been hired to fire employees, lay off a group of employees, or help make determinations about which employees should keep their jobs and who should be laid off.

    In an era of change, downsizing, and workplace violence, no company employee wants to be responsible for firings or layoffs, so they hire an outsider to do it and minimize their risk.

  • Consultants may be hired if a company is expanding its services to a new city or region. In this case, the consultant can help the company make a smooth transition into the new space, without displacing employees working and living in other locations.

  • If a company is looking to expand its services but acknowledges its employees may not have all the necessary skills, they could hire a consultant to teach employees a new skill or about a new area of their field. It's common for consultants to be hired for short periods of time and run workshops and seminars.

What Types of Consultants Are There?

If a business hires a consultant, it is likely that they are in search of someone with a particular area of expertise. In general, there are many areas of specialization for consultants. When thinking of how to start a consulting business, you'll want to consider what area of expertise you'll specialize in. Here are some examples of types of consultants a company may hire:

  • Accounting consultants can be hired to help companies with accounting issues or during a new business’ first tax season, for example. Specialized accountants may also be consulted to detect misuse of funds or fraud.

In the case a company gets audited by the IRS, it is likely they may hire a consultant to provide an unbiased evaluation of their finances. An auditing consultant may find hundreds of thousands of dollars in billing errors for companies, and therefore are well worth their fee.

  • Media and advertising consultants are used to develop a new advertising campaign or media strategy for a company. For example, perhaps a company's media team doesn't have bandwidth for an important upcoming campaign. In this case, the company may hire a consultant to help improve the team's capacity. Or perhaps a team needs guidance on a type of project they have no experience with.

This type of consultant may also be hired to help with public relations needs, in the case a company doesn't have a full-time person on staff.

  • Career consultants work with individuals who have lost their jobs or who are looking for a second career to move into. They use their experience working with individuals at different stages of their career to help further their clients' progress.

  • Communications consultants who work with companies to improve their efficiency through improving their communication skills. This can be done on a short term basis through workshops and seminars or on a longer term basis, with coaching.

  • Computer consultants, whether for software programs or new technology, are always in demand to keep companies up to date. They may be hired to help a team onboard new technological systems or to help with a temporary project with which the team needs additional support.

  • Editing, Writing, Publishing, or Transcription Consultants help businesses with all forms of written communication. This could mean helping to streamline a company's brand voice, tone, and style across mediums, or it could mean helping with a specific campaign.

  • Human resource consultants are always in demand, so that corporations can head off personnel issues before they become a lawsuit. Consultants may be hired to audit organization charts, job description drafts, a company's employee guidebook, or more.

  • An education consultant can help students strategize a plan for achieving a specific academic goal, whether that be to earn a certain grade on a standardized exam, receive acceptance to a University of their choice, or more.

  • A nutritionist consultant can help clients better understand their nutritional health and form plans based on short-term and long-term health and fitness goals.

  • An interior design consultant can help their clients understand how to better utilize a space with accessories, paint, furniture, and more.

  • A life coach consultant helps by advising their clients on choices to make in their everyday lives that lead to the desired short-term and long-term outcomes.

Why Do People Start a Consulting Business?

When you’re just starting out, there are several things you need to consider,including where you're going to conduct your consulting work.

You may have the opportunity to go into a client's workspace to advise them, but if not, you may want to think about operating your business out of a home office. The home office allows you to begin your consulting business with low overhead, because you likely won't pay additional rent or utilities for a new space.

Best of all, most home offices can be tax-deductible, but as always, we recommend working with a tax expert or accountant to learn more about what you may be able to deduct as a business owner. We'll get to that later on, but here are some other benefits of being your own boss in your consulting business

Flexibility

Operating out of your home gives you more flexibility and gives you the ability to create your best schedule to fit the needs of your lifestyle. Most people state that being your own boss gives you flexibility you never had when you were working a 9-to-5 job.

Your hours that you choose to keep might be better for you physically and mentally as well. Some consultants are up and working by 4 a.m., work till noon, and then take off to go to work out, pick up kids from school, and volunteer.

But remember, this not only works out in your favor, but is one way to attract potential clients, too, as it works in their favor. If a client were to hire a consulting firm, they may be at the mercy of that firm's scheduling system.

If they hire you as a consultant, you're able to work around their schedule within a time frame that works best for them to serve the project you're helping with. It's a win-win situation.

Less time spent commuting

When consulting from a home-based business, you'll likely have no daily long commutes and or the need to deal with rush hour, which will cut back significantly on gas expenses or public transportation costs!

Money saved on added expenses

Beyond the expenses you'll save commuting, you can consider the saved costs of added expenses. While running your consulting business out of your home, you'll be able to save on the costs of parking, expensive lunches out, and more.

Here's How to Start a Consulting Business

If you want to become a consultant, you must have a game plan. Like anyone who is beginning a business, when you think of how to start a consulting business, you'll need to begin with a roadmap of where you want your business to go.

Define your mission statement

Because a consulting business is often specialized in a particular area, you'll want to set yourself apart from the competition. One of the ways to do this is to lead with your mission statement--what you stand for as a business and what value you can offer your clients.

Defining a mission statement is a task you should devote time and effort to, since it's something you can use to lay the foundation for your business's goals and help you establish the framework for your business, which we'll discuss in the next section.

Determine your business's goals

As a consultant, you'll be tasked with helping your clients reach their goals, but when you're starting out, it's important you create your own for your business, too.

You may decide to separate your goals by the time in which you hope to achieve them (e.g. short term and long term goals) or maybe you have other goal posts you plan to use to measure your progress. Either way, doing work to assess your market and understand what you want to achieve with your clients.

Often, this is where your mission statement comes in, because goals may align with themes in your mission statement. For example, if you're a computer consultant, your mission statement may involve helping clients keep their technical systems running seamlessly so they can easily do their jobs.

One of your goals may be to help three clients onboard new programming systems in the near future.

Get a business license and register your business

Getting your business license

Each state has different requirements when it comes to getting your business license. Regardless of whether or not it's required by your state, it could greatly benefit your business by helping to:

  • Build trust with potential customers
  • Fulfill requirements by landlords or vendors
  • Get loans or other financial assistance
  • And more

The process for getting a business license in each state is different, and in many cases, local governments will have additional requirements. You can get started by heading to our business license hub here.

Not only is the process for getting a business license different in each state, but it may also differ depending on the type of consulting you do. For example, political consultants and lobbyists must be registered with states if they lobby inside a state or they help political campaigns in a state. Federal lobbyists must be registered with the federal government.

Depending on your specific area of expertise and state regulations, you may be required to take a licensing exam. Because of this, we recommend planning ahead of time to fit time for studying into your schedule.

To learn more about your state's specific requirements, you can get started at our business license hub (linked above) or on your state's .gov website.

Registering your business

Once you get your business license, you may be required by your state or local government to register your business. Whether or not it's required, you will need to register anyway for when it comes to file your business's taxes.

Registering your business is an important step in starting your consulting business because it will determine how you pay your taxes. You may choose to register as a sole proprietor, LLC, or another type of entity based on your needs.

The Small Business Administration (SBA) can help you get started registering. If you have specific tax questions, though, we suggest reaching out to a tax expert or accountant for guidance.

Define your target market

Now that you've registered your business, it's time to think about who you envision your customers to be.

Earlier on we discussed how when you start a consulting business, the possibilities are many, because there are so many fields to consult in! But no matter which area you decide to focus on, you'll still need to narrow down who your specific customer-type is.

Your target market is a group of clients who would be willing to pay you for your expertise in a particular field. Before you begin, you need to think about who your possible clients might be.

For example, if you plan to do financial consulting, do you plan to work with larger companies or smaller companies? Will you perform a broad range of services or are you willing to work with companies who are looking for something more specialized?

Or, if you are thinking about how to start a consulting business as an accounting consultant, let’s say one who specializes in forensic accounting, then you will need to market your skills to corporations and government agencies who might be in need of an accountant who can track and detect fraud in ledgers.

One great first step for a possible consulting business is to search the number of consultants in your field in the area. Also, you may want to ask businesses you have a working relationship with if they ever hire consultants to do work for them, and if so, what kind.

You may also be in a position to be hired by the company you work for if they have a particular problem that you have expertise in. If you work from within your company first, they may be willing to recommend you to other companies as well, which can help you get your feet off the ground.

Do some research by thinking of the type of work you want to do and the types of people you want to work with. Remember, consulting is a very heavily interactive field, so you want to enjoy who you're working with!

Get consulting business insurance

If you're just starting out, you may question whether or not you should take the time to consider getting consulting business insurance now. We'll tell you--now is actually the perfect time to consider looking into professional liability coverage for your business.

On average, 43% of business owners are threatened with or involved in a civil lawsuit. Remember, you don't have to be found at fault to suffer the consequences of being involved in a suit. Even if you're found not at fault, you still may need to cover legal costs to defend yourself, and those fees can add up quickly!

Let's look at a few examples of how this may play out for a consulting business:

  • An interior design consultant works with a real estate firm to stage a house they're hoping to sell. The real estate firm is happy with the consultant's work. Later though, when the house doesn't sell and the buyer lashes out at them, the real estate firm sues the interior design consultant, claiming they're to blame for the house not selling.

  • An accounting consultant works with a client to file their end-of-year tax returns. The client gets the return they expect and moves on. Months later, the client sues the accounting consultant for negligence. The IRS contacted them and is performing an audit--the client claims that the consultant must've missed something and is suing them for fees requested from the IRS.

  • A marketing consultant is hired by an agency to assess their quarterly goals. The consultant helps deliver them a roadmap for the quarter, with a goal of earning a certain amount of revenue. When the agency doesn't make their goal number, they blame the consultant, arguing that they did everything they advised, and still came up short of their goal.

Each of these consultants has to deal with unhappy clients. That may mean working with lawyers with costly fees and depending on if they're found at fault, they could also end up spending valuable savings paying their clients the requested money.

With professional liability coverage, their policy would exist to help to cover these costs, meaning that when everything is over, they are able to continue running their business without experiencing a financial loss.

Some business owners starting their consulting business may think they don't have enough business to warrant getting insurance yet.

What if we were to ask you: does your business have a big enough savings account to protect you if a customer sued you?

It's a chance you likely don't want to take.

The cost of liability coverage is small compared to the amount of money you could owe if a customer sues you. At Simply Business, we can offer professional liability policies starting as low as $30/month*.

That means that for the price of filling up your car's gas tank, you could protect your business from hundreds, if not thousands of dollars in fees.

We mentioned running a consulting business out of your home earlier. Remember: home-based business insurance is separate coverage from the homeowner's insurance policy you may have for your home.

While you may have a homeowner's insurance policy, it's likely it won't protect your home-based business in the event of an occurrence like theft or storm damage.You can learn more about home-based business insurance here.

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Set up invoice and billing

When you do get your first customer and move forward with your first project, you'll need to have a way to bill your clients.

It may seem a bit early to be thinking about this now, but it's something that can take some time to set up. Later on, it can help keep your business operations if you don't have to stop to take care of this then.

First you'll need to decide what kind of invoice software you want to use. There are many available and each has different benefits for their users. Luckily, many also offer free trials to their customers, so you can try before you commit.

When you're setting up your invoice system, beyond connecting your account to your desired bank accounts, you can use this time to set up billing reminders that the software can send out automatically if your client doesn't pay you within a certain period of time.

This too, may seem a bit premature. But when you're busy with your daily tasks, you won't want to stop to craft a message about making sure you're paid for your work.

By the way--following up with clients on subjects like this isn't pleasant, but unfortunately, it's part of a business owner's job at times, and so being prepared never hurts. You can take a look at our article on how to write a late payment letter (and the free templates) to get an idea of what sort of messages may be effective.

Remember that as a business owner who's self-employed, once you take care of your billing, you'll have to remember to pay taxes on your income. Because of this, some business owners decide to take out a certain percentage of their earnings and put it away for taxes immediately in case they later owe fees to the IRS.

Price your services

Speaking of money--how will you decide what it costs to work with you?

This is arguably one of the more difficult tasks when it comes to starting a consulting business. You may be tempted to begin working on a sliding scale basis in order to get some clients initially, but don't undersell yourself! Remember, clients are hiring you to be an expert and advisor on a field they don't have as much experience or confidence in.

There are a few options when it comes to pricing your consulting services and we'll review them below. Your options for pricing your services are: hourly, by project, or via retainer.

Hourly pricing

Hourly pricing is self explanatory in that you charge your clients for the amount of time you spend with them. Remember that since you are paying taxes and benefits for yourself, that those costs should be built into your hourly rates.

An hourly rate may work well for you if you know your work can be done within a specific time period. It may also be good when you're new to working with a client and need to assess how long certain tasks will take you.

If a client wants your consulting services for a couple meetings a week for example, hourly may be a good option to consider.

By project pricing

Some clients will ask you to consult on work that isn't as cut-and-dry as 60-minute time slots--meaning, some work could take you a couple hours one week, but several more the next.

In this case, you may want to consider pricing your services with a project rate and focuses on deliverables that you will hand-off to the client at project's end. For example, a software consultant may offer to deliver a full-systems audit to their client by end of a project.

On retainer pricing

While some consultants work with clients on an ad hoc basis, there is definitely an advantage to getting to know clients and working with them on a longer term basis. If you foresee this option with a client, you may consider retainer pricing.

For example, say you're a marketing consultant and your client has a number of projects they'd like your help with. You may suggest coming up with a contract detailing putting your services on retainer for the quarter, with a certain amount of hours in mind a week.

Knowing how to price yourself will likely be a process when you're starting your consulting business. The above three pricing models are just a few ways you can consider pricing your services.

So how can you go about understanding where to start? First, learn a little more about the average rates within your specific industry. In accounting, the average rate may be $96-$106/hour, but in IT consulting, the rate may range from $68-$115/hour.

Learning more about the average rates within your industry can help give you a starting point. But of course, thinking back to the work you did about defining your target market and customer, you know that not everyone in your industry is competing for the same clients.

So after learning about the average rates, do a little research to learn more about which other consulting businesses are attempting to gain the attention and business of similar clients.

For example, if you're an interior design consultant for wellness companies, you may not find an interior designer who focuses on helping individuals redecorate their homes to be your competition. But if you find an interior design consultant who helps healthcare professionals with their practice spaces, then you may consider that consultant a competitor.

Make a list of competitors and see if you can find their pricing. If you can---notice: are there any trends? If you see patterns in pricing, it could be a good way to point yourself in the right direction to competitive pricing.

Pricing isn't something you can decide in a day (or within an article) and as your business grows and evolves, your pricing structure may, too. Go slow, do your research, and remember that it's okay if you don't define your structure perfectly from the get-go.

Write a business plan

Once you've thought about important parts like your mission, your goals, and your target audience, it's time to put all of these elements together to create a cohesive plan for your consulting business.

Because you're just starting to grow your consulting business, you may think that it may not be the time to write a business plan. But similar to the case with business insurance, it's smart to create a business plan early on, to give you a roadmap forward.

We have a FREE business plan template here. Before you sit down to write, you may want to collect the following information:

  • Your mission statement
  • Your target market or audience
  • How much money you need to make to get by each month
  • How much money you want to make each month
  • Where you want your business to be in 3, months, 6 months, and 1 year

Beyond helping you to build a roadmap for your consulting business, having a business plan can also help you:

  • Get insurance coverage
  • Get loans or financial assistance
  • Get buy-in from potential investors
  • Keep yourself accountable

The business plan you write for your consulting business in the beginning doesn't have to be perfect. In fact, we'd recommend not waiting until it is to move forward, because if you do that, you may never take the first step.

Being a business owner is a continual learning process so know that you can come back to your business plan and adjust goals when you see fit.

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Think about hiring help

You're being hired for your expertise, but you're only human and can only be an expert in so many areas. Consider this: what if a client wants to hire you for a specific project, but there's one aspect of it that you're unsure how to approach, because it isn't your expertise?

For example, say you are a marketing consultant and are hired to help launch a campaign for a client announcing a new product. Within the campaign, they'd love some custom graphics and infographics designed, but you're not a designer.

In this case, it'd help to consider hiring a designer within your network to help with the project. There is the option of suggesting the client hire them, or you could hire them as a contractor for your consulting business. The latter would make the process a bit easier for your client.

This is why it's important to network with other professionals who not only are within your field of expertise, but also adjacent to it. If you can think of a trade or profession that you could easily collaborate with as part of your overall consulting services, consider beginning to network within those fields to meet others you can collaborate with.

If you do decide to go the route of hiring a subcontractor for a project, make sure to look up your state's laws on workers compensation insurance.

Many states require business owners to have workers compensation insurance for even one part-time worker--and for good reason. Workers compensation insurance helps to protect you and your employees in case someone becomes sick or injured while on the job.

Since you're starting your consulting business, you may not be in a headspace where you're ready to bring others into your work. That's okay! But know that the option is there for you. Keeping an open mind to hiring subcontractors to help with projects could help you win clients and provide a more holistic end-result for them.

If you're starting your consulting business, then you're an expert in your field and you're ready to help your clients.

But how do you get clients in the first place?

While it may not be 100% within your comfort zone, getting familiar with advertising your services is one way to help grow your business.

There are a variety of ways you can do this. A popular way to spread the news that you're starting your own consulting business is through word-of-mouth marketing in your community or established networks.

But as a consultant, it's likely you'll want to have a digital presence so potential clients can find you. And a good way to do this is to by creating profiles on social media accounts.

While some consultants may choose to have a profile on Facebook, LinkedIn, Twitter, Instagram or more social media channels--don't worry. It's easy to get overwhelmed by the possibilities available to you on social media. But you don't have to do it all at once!

Start with building your community on one platform and getting to know your community there. Different occupations may find different success with engagement on different platforms. Consultants may have success growing their presence on LinkedIn, but this depends on your specific industry and area of expertise.

Keep in mind that once you get going with your social media presence and start to see some engagement, you may decide to use paid ads. To learn more about how to capture potential clients' attention with paid ads, read this Simply U blog.

Start building your network

There are so many reasons to put yourself out there within your community. As we mentioned earlier, you may decide to hire a subcontractor with expertise you don't have, to help you better serve your clients on a project.

But beyond supercharging your services, getting to know other consultants and business owners in your area can help to strengthen your network. As a business owner, you will face challenges throughout the process of starting, growing, and protecting your business.

Having a network of other consulting business owners, or even business owners in adjacent occupations to you, can give you an outlet to discuss the challenges you're facing, as well as a group to discuss possible solutions with.

You can build your network by finding groups on social media channels like LinkedIn or Facebook, and you can also check with local organizations to see what types of events or meetups are upcoming which you can attend, either virtually or in-person.

Starting Your Consulting Business is Worth the Effort

Phew! To say that was a lot of information would be an understatement. Take a breath. While it was a lot of information, keep in mind that all steps we covered are ways you can work to set yourself up to start a successful consulting business. From getting consulting business insurance to writing a business plan and deciding on your pricing structure, each step holds value. You may have made goals for 3 months, 6 months, and the next year--but imagine where you could be 3, 5, or even 10 years down the road. You'll likely be glad you took your time to get started on the right foot. Starting your own consulting business isn’t easy -- there will be a lot of trial and error, but if you’re super passionate and love what you do, it just may be the most rewarding decision you make. Good luck!

Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business. Averages based on January - December 2020 data of 10% of our total policies sold.

Allison Grinberg-Funes

Written by

Allison Grinberg-Funes

I’ve told stories since I learned to talk and written since I could hold a pen. As a small business owner myself - I'm a freelance writer and yoga teacher - I love contributing to the entrepreneurship community in different ways (including writing for Simply Business!). When I’m not drafting articles for SB, I can be found on my yoga mat, perusing an indie bookstore, and writing (with my cat nearby of course).

This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer

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