Start & Run a Consulting Business

Consulting has become a multimillion-dollar industry in North America. Understand why people will pay you for your opinion Learn from the author of 15 bestsellers Convert your knowledge into income A bestseller through nine editions and 24 printings during the past 25 years!As society becomes more complicated, people in business, healthcare, education, government, and other fields are calling on specialists to provide answers to complex problems. This practical step-by-step success guide shows how anyone can turn knowledge and experience into a profitable consulting business. Concerns unique to the consulting industry are covered in detail, including: Assessing yourself and your skills Determining market opportunities Regulations and laws affecting the consulting business Selecting business and professional advisers Preparing your business plan Setting fees and billing clients Keeping records Minimizing taxes Avoiding professional liability and preventing losses Writing a successful proposal Maintaining healthy client relations Running your office smoothly Hiring sub-consultants

Consulting has become a multimillion-dollar industry in North America.Understand why people will pay you for your opinionLearn from the author of 15 bestsellersConvert your knowledge into incomeA bestseller through nine editions and 24 printings during the past 25 years!As society becomes more complicated, people in business, healthcare, education, government, and other fields are calling on specialists to provide answers to complex problems. This practical step-by-step success guide shows how anyone can turn knowledge and experience into a profitable consulting business. Concerns unique to the consulting industry are covered in detail, including:Assessing yourself and your skillsDetermining market opportunitiesRegulations and laws affecting the consulting businessSelecting business and professional advisersPreparing your business planSetting fees and billing clientsKeeping recordsMinimizing taxesAvoiding professional liability and preventing lossesWriting a successful proposalMaintaining healthy client relationsRunning your office smoothlyHiring sub-consultants

INTRODUCTION xix1 UNDERSTANDING THE CONSULTING BUSINESS 11. WHAT IS A CONSULTANT? 12. WHO GOES INTO CONSULTING? 43. WHY DO ORGANIZATIONS USE CONSULTANTS? 43.1 Temporary assistance 43.2 Objective review 43.3 Third-party request for problem identification and resolution 53.4 Surviving a crisis 53.5 Initiating change 53.6 Obtaining funding 53.7 Selecting personnel 53.8 In-house education 53.9 Dealing with internal personnel difficulties 53.10 Delay tactics 5CONTENTSvi Start & run a consulting business3.11 Executive assistance 63.12 Government regulatory compliance 63.13 Socio-economic and political changes 63.14 Government excess funds 64. REGULATIONS AFFECTING CONSULTANTS 62 SELF-ASSESSMENT 71. INTRODUCTION 72. ATTRIBUTES OF SUCCESSFUL CONSULTANTS 73. ASSESSING YOURSELF AND YOUR MARKETABLE SKILLS 84. RESOURCES FOR IDENTIFYING CONSULTING OPPORTUNITIES 84.1 Consulting newsletters and websites 84.2 Newspapers and magazines 84.3 Consulting and professional associations 94.4 Government agencies and publications 94.5 Public and university libraries 94.6 Continuing education courses and seminars 94.7 Competitors 103 SETTING UP YOUR BUSINESS 131. START-UP COSTS AND MONTHLY EXPENSES 131.1 Start-up costs 141.2 Monthly overhead expenses 141.3 Personal expenses 142. SELECTING A NAME 152.1 General considerations 152.2 Fictitious name 183. SELECTING AN OFFICE 183.1 Home office 183.2 Office outside of home 193.3 Equipping an office 223.4 Office supplies 243.5 Personnel 25Contents vii4. SELECTING A TELEPHONE SYSTEM 264.1 A separate phone at home 264.2 Business line terminating at answering service 264.3 Business line terminating at home and answering service 274.4 Overline 275. SPECIAL TELEPHONE FEATURES 275.1 Call waiting 275.2 Call forwarding 275.3 Three-way calling 275.4 Speed calling 275.5 Phone/fax 275.6 Call display/name display 275.7 Call return 285.8 Call again 285.9 Call answer 286. SAVING MONEY ON LONG DISTANCE PHONE CALLS 286.1 Charging long distance calls to clients 286.2 Calling cards 286.3 VoIP 287. OTHER COMMUNICATION OPTIONS 297.1 Voice mail 297.2 Generic telephone number 307.3 Pager 307.4 Cellular phone 317.5 E-mail 317.6 The Internet 318. DEVELOPING YOUR WEBSITE 328.1 Pitfalls to avoid 328.2 Keeping the website interesting 338.3 Designing an effective web page 33viii Start & run a consulting business4 LEGAL FORMS OF BUSINESS STRUCTURE 351. INTRODUCTION 352. SOLE PROPRIETORSHIP 352.1 Advantages 362.2 Disadvantages 363. PARTNERSHIP 373.1 Advantages 373.2 Disadvantages 373.3 Partnership agreement 383.4 Kinds of partners 384. CORPORATION 384.1 Advantages 384.2 Disadvantages 404.3 Corporate purposes 404.4 Shareholders’ agreement 404.5 Maintaining the corporate protection 415. S CORPORATION (SUB-CHAPTER OR SUB-S) (UNITED STATES) 436. LIMITED LIABILITY CORPORATION (LLC) (UNITED STATES) 435 SELECTING BUSINESS AND PROFESSIONAL ADVISERS 451. GENERAL CRITERIA FOR ADVISER SELECTION 451.1 Recommendations 461.2 Credentials 461.3 Clientele 461.4 Fees 461.5 Technical competence and industry knowledge 471.6 Style and personality 471.7 Confidence 471.8 Communication 471.9 Commitment 481.10 Availability 481.11 Length of time in practice 48Contents ix1.12 Ability to aid growth 481.13 Small firm versus large firm 481.14 Comparison 482. LAWYER 493. ACCOUNTANT 494. BANKER 505. INSURANCE BROKER 516. CONSULTANTS 516.1 Private consultants 516.2 Consultants subsidized by the government 516 PREPARING YOUR BUSINESS PLAN 531. WHY PREPARE A PLAN? 532. FORMAT 542.1 Introduction 542.2 Business concept 542.3 Financial plan 542.4 Appendixes 573. ESTIMATING YOUR START-UP FUNDS 573.1 Assessment of personal monthly financial needs 573.2 Estimated business start-up cash needs 574. SUMMARY 577 HOW TO OBTAIN FINANCING 711. TYPES OF FINANCING 711.1 Equity 711.2 Debt 722. SOURCES OF FINANCING 742.1 Equity 742.2 Debt 753. COMPETITION BETWEEN LENDERS 754. TIPS ON APPROACHING YOUR LENDER 765. WHY LOANS ARE TURNED DOWN 77x Start & run a consulting business6. TYPES OF SECURITY A LENDER MAY REQUIRE 786.1 Endorser 786.2 Co-maker 786.3 Guarantor 786.4 Promissory note 796.5 Demand loan 796.6 Realty mortgage 796.7 Chattel mortgage 796.8 Assignment of accounts receivable 796.9 Postponement of claim 796.10 Pledge of stocks or bonds 796.11 Assignment of life insurance 798 KEEPING RECORDS 811. ACCOUNTING AND BOOKKEEPING 811.1 Separate record-keeping 821.2 Double-entry and single-entry bookkeeping 821.3 One-write accounting system 831.4 Cash or accrual record-keeping 832. BASIC ACCOUNTING RECORDS 832.1 Sales journal 832.2 Cash receipts journal 832.3 Accounts receivable ledger and control account 842.4 Accounts payable journal 842.5 Cash disbursements journal 842.6 Payroll journal 852.7 General ledger 853. NONFINANCIAL RECORDS 853.1 Personnel records 853.2 Tax records 853.3 Service records 86Contents xi4. OFFICE SYSTEMS 864.1 Handling new clients and projects 864.2 Time records 864.3 Standard form letters of agreement or contracts 864.4 Billing, credit, and collection 874.5 Calendars 874.6 Filing systems 879 HOW TO LEGALLY MINIMIZE PAYING TAX 911. TAX AVOIDANCE AND TAX EVASION 912. CASH OR ACCRUAL METHOD 923. FISCAL YEAR-END 924. CORPORATIONS, PROPRIETORSHIPS, OR PARTNERSHIPS 925. MAXIMIZING DEDUCTIBLE EXPENSES 935.1 Home office 935.2 Automobile 945.3 Entertainment 945.4 Travel 945.5 Bad debts 955.6 Insurance 955.7 Education and professional development 955.8 Salaries 955.9 Equipment 965.10 Furnishings 9610 INSURANCE 971. OBTAINING INSURANCE 971.1 Agencies 971.2 Insurance brokers 971.3 Clubs and associations 982. PLANNING YOUR INSURANCE PROGRAM 983. TYPES OF BUSINESS AND PERSONAL INSURANCE 993.1 General liability 993.2 Products or completed operations liability 99xii Start & run a consulting business3.3 Errors and omissions liability 993.4 Malpractice liability 993.5 Automobile liability 993.6 Fire and theft liability 1003.7 Business interruption insurance 1003.8 Overhead expense insurance 1003.9 Personal disability insurance 1003.10 Key person insurance 1003.11 Shareholders’ or partners’ insurance 1003.12 Business loan insurance 1013.13 Term life insurance 1013.14 Medical insurance 1013.15 Group insurance 1013.16 Workers’ compensation insurance 10111 PROFESSIONAL LIABILITY 1031. CONTRACT AND TORT LIABILITY 1031.1 Contract liability 1031.2 Tort liability 1042. REASONS FOR CLAIMS 1052.1 Counterclaims 1052.2 Conflict of interest 1052.3 Conflicting interest of clients 1052.4 Delegation of part of contract to employee or subconsultant 1052.5 Third party damages 1052.6 Unclear expectations by client 1053. HOW TO AVOID PROFESSIONAL LIABILITY AND PREVENT LOSSES 1053.1 Client control 1063.2 Cost estimates 1063.3 Carefully drafted contracts 1063.4 Free opinions 1063.5 Law 1063.6 Subconsultants 106Contents xiii3.7 Records, systems, and procedures 1073.8 Continuing education 1073.9 Quality control 1073.10 Communication 1074. PROFESSIONAL LIABILITY INSURANCE 1074.1 Increasing deductibles 1074.2 Comparing prices 1084.3 Changing the type of coverage 1085. PRACTICING WITHOUT INSURANCE 10812 CREDIT, BILLING, AND COLLECTION 1091. DISADVANTAGES OF EXTENDING CREDIT 1092. ASSESSING THE CLIENT 1103. AVOIDING CLIENT MISUNDERSTANDINGS ON FEES 1113.1 Communication 1113.2 Written contract 1113.3 Invoice 1124. MINIMIZING RISK OF BAD DEBTS 1124.1 Advance retainer 1124.2 Prepaid disbursements 1124.3 Progress payments 1124.4 Regular billing 1124.5 Billing on time 1124.6 Accelerated billing 1134.7 Withholding vital information 1134.8 Holding up completion of important stage of project 1134.9 Personal guarantee of principals of a corporation 1134.10 Monitoring payment trends 1134.11 Follow-up of late payments 1134.12 Involving client in assignment 1135. BILLING FOR SERVICES 1136. WHY CLIENTS PAY LATE 1147. COLLECTING LATE PAYMENTS WITHOUT LEGAL ACTION 117xiv Start & run a consulting business8. LEGAL STEPS IF ACCOUNT REMAINS UNPAID 1188.1 Collection agency 1188.2 Small-claims court 1188.3 Lawyers 1189. BAD DEBTS AND TAXES 11913 SETTING FEES 1211. DAILY BILLING RATE (PER DIEM) 1211.1 Labor 1211.2 Overhead 1211.3 Profit 1222. HOURLY RATE 1233. CALCULATING A FIXED PRICE QUOTATION 1233.1 Determining a fixed price estimate 1233.2 Tips on preparing fixed price estimates 1244. FIXED PRICE PLUS EXPENSES 1265. CONTINGENCY FEE 1266. PERCENTAGE FEE 1277. PROJECT VALUE FEES 1278. RETAINER FEES 1279. EQUITY FEES 12710. UTILIZATION RATE 12811. VARYING YOUR FEES 12812. INCREASING FEES 12813. INCREASING PROFITS WITHOUT INCREASING FEES 12914 DETERMINING MARKET OPPORTUNITIES 1311. PRIVATE SECTOR 1311.1 Individuals 1321.2 Small businesses 1321.3 Medium-size businesses 1321.4 Large companies 133Contents xv2. PUBLIC SECTOR 1332.1 Making contacts and obtaining information 1332.2 Understanding the government approval system 1353. GRANT CONSULTING 13515 MARKETING YOUR CONSULTING SERVICES 1371. WHAT YOU NEED TO MARKET YOUR SERVICE 1372. MARKETING PLAN 1383. MARKETING TECHNIQUES 1383.1 Newspaper 1393.2 Trade or professional journals 1393.3 Directories 1393.4 Brochures 1393.5 Direct mail 1403.6 Contact network 1423.7 Membership in professional, trade, or business associations 1433.8 Donating your services 1433.9 Attending public and professional meetings 1433.10 Lectures 1433.11 Teaching 1443.12 Seminars and workshops 1443.13 Free media exposure 1453.14 Radio and television talk shows 1453.15 Letters to the editor 1453.16 Writing articles 1463.17 Writing a book 1473.18 Have articles written about you 1473.19 Announcement columns 1473.20 Newsletters 1473.21 Website 14816 THE CLIENT INTERVIEW AND CLIENT RELATIONS 1491. PURPOSE OF INTERVIEW 1492. BEFORE THE MEETING 149xvi Start & run a consulting business3. DURING THE INTERVIEW 1524. AFTER THE INTERVIEW 1535. WHY YOU SHOULD TURN DOWN BUSINESS 1536. HOW TO TURN DOWN UNWANTED BUSINESS 15417 CONSULTING PROPOSALS 1571. WHAT IS A PROPOSAL? 1572. PUBLIC VERSUS PRIVATE SECTOR PROPOSALS 1573. SOLICITED VERSUS UNSOLICITED PROPOSALS 1584. SIMPLE AND FORMAL PROPOSALS 1584.1 Simple proposal 1584.2 Formal proposal 1585. GUIDELINES AND FORMAT FOR A SUCCESSFUL PROPOSAL 1596. PRESENTING YOUR PROPOSAL 1597. PROPOSAL FOLLOW-UP 1628. WHAT TO DO IF YOUR PROPOSAL IS NOT ACCEPTED 1629. HOW TO AVOID GIVING AWAY FREE CONSULTING 1629.1 Potential client interview or discussion 1639.2 Analysis of client’s need 1639.3 Detailed advice in the written proposal 1649.4 Potential future benefit 1649.5 Additions to the original fixed price contract 1649.6 Follow-up consultation 1649.7 Relatives, associates, and friends 16518 CONTRACTS 1671. ESSENTIALS OF A VALID CONTRACT 1671.1 Offer 1681.2 Acceptance 1681.3 Consideration 1681.4 Competency 1681.5 Legality 1682. WHY A WRITTEN CONTRACT IS NEEDED 1683. STRUCTURE OF FORMAL CONTRACT 170Contents xvii4. TYPES OF CONTRACTS 1704.1 Letter of agreement 1704.2 Letter of agreement with general terms and conditions appended 1744.3 Formal contract 1744.4 Subconsulting agreement 1744.5 Agency agreement 1864.6 Letter of retainer agreement 1875. PREPARING YOUR OWN CONTRACT 18719 TIME MANAGEMENT 1891. KEY STRATEGIES 1891.1 Set priorities 1891.2 Be organized 1901.3 Delegate 1911.4 Be decisive 1912. AVOIDING TIME WASTERS 1912.1 Use voice mail effectively 1912.2 Avoid too many telephone calls 1922.3 Avoid overscheduling 1922.4 Avoid too much paper 1922.5 Follow meeting agendas 1932.6 Avoid perfectionism 19320 EXPANDING YOUR PRACTICE 195APPENDIX — PROPOSAL EVALUATION CHECKLIST 197BIBLIOGRAPHY 203xviii Start & run a consulting businessCHECKLISTS1 ARTICLES IN A PARTNERSHIP AGREEMENT 392 GOVERNMENT CONTRACT 184TABLE1 MAJOR CONSULTING SUBJECT AREAS 2SAMPLES1 START-UP EXPENSES 142 BUSINESS PLAN FORMAT 593 GENERAL INVOICE 1154 DETAILED INVOICE 1165 FIXED PRICE COSTING SHEET 1256 PROPOSAL FORMAT 1607 CONTRACT FORMAT 1718 LETTER OF AGREEMENT (PREPARED BY CONSULTANT) 1759 LETTER OF AGREEMENT (PREPARED BY CLIENT) 17610 STATEMENT OF GENERAL TERMS AND CONDITIONS 17811 FORMAL CONSULTING CONTRACT 180WORKSHEETS1 SELF-ASSESSMENT 112 ESTIMATING START-UP EXPENSES 153 MONTHLY EXPENSES 164 MONTHLY PERSONAL EXPENSES 175 OPENING BALANCE SHEET (NEW BUSINESS) 656 INCOME AND EXPENSE FORECAST STATEMENT (NEW BUSINESS) 667 CASH FLOW BUDGET 678 PERSONAL NET WORTH STATEMENT 689 STATEMENT OF ACCOUNTS RECEIVABLES 6910 PROSPECTIVE CLIENT SHEET 8811 NEW CONSULTING ASSIGNMENT SHEET 8912 TIME AND SERVICE RECORD 90