Moving Into Independent Consulting

[gtg732w]

Gents,

I've been consulting for the last three years and have a potential opportunity to start consulting independently. Right now I'm looking at setting up an LLC with myself as the sole employee, and I am setting up some time with our tax attorney to take a look at some of the tax implications of going down this road.

What I'm not sure about is how transitioning into this arena should play out or what sort of 'gotchas' there are to watch out for, and I thought this would be the perfect opportunity to get some insight from those who have done this before.

Any help is appreciated.

Cheers!

 

[GreenFrog]

Are you hiring?

 

[gtg732w]

Haha, I've seen the woes and I feel for you, but if this goes through I would be contracted through a colleague's firm, so staffing is not something that would initially be in my arena.

I've got an engagement lined up though my fear is that I'll overlook something in the legalese and end up either screwed or out of work somehow, and that's the piece I'm trying to avoid.

I've seen some folks commenting on consulting for various firms large and small and was hoping they could help.

 

[AChekhovGun]

At a very high level, a lot of the "gotchas"/pitfalls have to do with everything that your current firm does for you that you don't think about (as you mentioned, statement of work/contract, plus the accounting, HR, etc, etc, etc).

 

[willpower]

It's a hell of a lot of work, really tough if you're a one man outfit. You dream of being your own boss and you quickly find out everyone is your boss. The biggest problem becomes this - you have to run your company and perform your consulting function for the client. This is very time consuming, even for a single proprietor. An LLC creates a lot more paperwork and expense just by the additional accounting you'll have to have done. Most people think by branching out on their own that they'll be able to do more of what they're experts in or love to do. This isn't the case at all. You'll be dealing with a variety of business operational tasks (which you're not experienced in) that have nothing to do with your chosen field of expertise. If you get behind on any them, you're sunk. And this doesn't even include having to find additional clients, keeping up your technical knowledge up to date, networking with other professionals for business, etc. You have to learn to manage uncertainty. There will be times that your A/R will be delayed 30 days or more, even if your client is a huge corporation (or some companies wait 90 days to pay). It's nothing like the comfort of being an employee and knowing that your paycheck is coming on Friday regardless. It gets hard to plan big purchases like buying a house or leasing a new car because you can't be certain that you'll have the steady flow of money coming in, even if you're constantly working. Or you'll be at your client site one day and hear a rumor that they're going to cut all of the consultants. Very easy for them to do because you're not an employee. These kinds of things can shake you, even if it doesn't happen. Some clients will try to scare you with this stuff in hopes you'll become their employee so they won't have to pay you as much. If you're married or have a steady GF, these psychological strains and the time you'll spend running your business will put enormous pressure on the relationship. Forget it if you have kids. Lots of consultants are divorced. But hey, you'll be able to put the word "President" on your business cards (looks for the BFD smilie). Some bits of advice (it will benefit you so much if you follow them): 1) Read "The E Myth" books before taking on the venture. They will give you the most realistic view of what's in store and offer really useful and applicable advice to succeed. There are millions of business books out there - the E Myth books contain some of the most practical information. There's even one for contractors. Please do this. 2) In addition to an accountant, hire the services of bookkeeper on a weekly basis. You must stay on top of this area of your business. Don't think that you alone can handle the paperwork, you'll be too busy with clients or dealing with some crisis. This is the easiest thing to get behind on because it's the least fun. 3) Invoice your clients immediately after completing the service. Don't wait a day extra. More: Create an agreement with your client in the form of a checklist of what constitutes a completed project. Define in detail of what each finished task/milestone is so you can take the checklist to the client and have him initialize it every time you've completed a mutually agreed upon step. Otherwise, when the job is done you'll end up spending time on your own dime tying up loose ends for the client, who psychically expected additional tasks to be completed. Most consulting projects are never really completed, there are maintenance tasks and contingencies that pop up afterwards and the client is going to try to get you to do that work for free. And you'll have to do them if they put a hold on your payment, which they'll do. But if you have the initialized checklist you'll be able to charge for the additional work.