I often talk with prospective consultants about how to go about setting themselves up as a consultant. The somewhat unbounded question I try to answer for them is ‘what are all the things I should think about to set up and run a consultancy?’ Although I have titled this section ‘tools, processes and materials’ the list is broader than that. I catalogue a variety of things to consider, without defining them in detail. This should not been seen as an exhaustive list, but it does contain most of the essentials.
The level of formality with which a business is run will vary from a one-person, self-owned business through to a major consultancy with thousands of staff and many partners. In principle the mechanics of running a consultancy and consulting engagements are the same, irrespective of scale. However, anyone joining or working for a large or well-established consultancy will have all the processes and tools they may want, and so the list is aimed at someone setting up their own new consulting business. I have assumed you will work based in the UK, although most items will be relevant to someone working in any location.
The items in bold are essential or at least highly desirable in my mind, from day one. The others are suggestions for you to consider or to develop over time.
Legal structure/company registration
When I started as an independent consultant there was an ongoing debate as to whether it was better to work self-employed/sole trader or via your own company. Increasingly there is no choice, and generally you must have a recognised legal structure such as a limited liability company (Ltd) or limited liability partnership (LLP). This is one area where it is worth seeking specialist advice.
Company name
Cash float
You will not get paid immediately and will need some money to keep the business running. When you first start it may be some months before the first client payment is made. It is easy to keep the costs of a consultancy business low, but they will not be zero and therefore a modest cash float is required.
I separate this from a personal cash float you may also need, depending on how you will pay yourself during the initial stages of your consultancy. Most consultants, who run their own business, receive a combination of a relatively small salary and dividends from profit. The focus on dividends is due to the inability to forecast the company revenues accurately and hence the need to keep the cost base and salaries comparatively low.
Company credit card
Accountant
Legal support
Whereas you must have an accountant to run a limited liability company, you are not obliged to have any formal legal support and it may be expensive. Obviously larger firms may employ full-time lawyers. This is easy to justify as the risk in some types of consulting is high and it is essential, for example, to ensure that contractual terms are right. For a small firm or a one-person consultancy company your need for legal advice will probably be very limited. Try and develop a relationship with a local business solicitor you can call on if required.
Tax setup
For example: corporation tax, VAT, National Insurance (employer and employee), employee tax.
Benefits to staff
For example: salary, pensions, dividends (for shareholders).
Business management processes
For example: engagement process, engagement/client risk assessment template, risk management process, pipeline management.
Accounting system
There are many excellent and inexpensive accounting software packages. However, you do not have to buy a proprietary software package, but to run a company you need some form of accounting system, even if it is simply a spreadsheet for a one-person consultancy.
Expenses tracking
At a minimum you need somewhere to store receipts and a spreadsheet for logging which expenses are allocated to which client or to business development.
Engagement costs tracking/invoicing
If you are going to charge a day rate you need a reliable mechanism to track the days spent on a specific engagement and any other costs to be recharged to the client. Larger firms use time sheets, but this is usually unnecessary for a very small consultancy.
Standard letter/email templates
For example: invoice templates, letters, envelopes, etc.
Availability tracking
You should have some idea of when you are free and when you are already committed so you know how you can respond to new opportunities. For an individual consultant this can be as simple as keeping a diary. Once a consultancy has several consultants or more, some form of forward utilisation estimates is essential. These should be regularly updated and available to all staff involved in selling.
Business cards
In this era of electronic communications business cards seem a very dated phenomenon. Yet clients still expect them. If you are going to have them, get them decently made and ideally professionally designed. It makes a significant difference to client perception. You can however wait to invest in them until you have generated some fees.
Marketing materials
For example: company logo, website, leaflets.
Sales and other business development materials
For example: CV, case studies, service line descriptions, terms sheets.
Professional society membership
This is generally useful, but not mandatory. However, providing some types of professional advice requires you to be a member of the relevant professional society. Some societies have many fringe benefits, for example meeting or working spaces you can use for short periods at zero or low cost. There are specific societies which support consultants, such as the UK’s excellent Institute of Business Consultants.
Professional indemnity insurance
Arguably this is not mandatory, but many clients insist on it as part of their contract with consultants and it is strongly recommended.
Facilities and office space
For example: company address, PC, printer, scanner, desk, stationery, storage space/filing for papers, projector, etc.
If you plan to work from home ensure you are compliant with property, and health and safety regulations. This is generally not an issue for solo consultants.
This depends on the specific type of consulting you perform.
Service line definitions, processes and tools
This tends to be the domain of the larger firms. One-person consultancies tend not to bother, as details are all in the head of the consultant. Once there are more than a few people in the organisation then it can be worth documenting formal methods. Also, irrespective of the value to the consultant directly, clients like to see methods and tools and they can increase credibility.
Standard contractual terms
This tends to be restricted to larger consultancies. If you are a one-person consultancy usually you end up taking the contract offered by clients rather than offering your clients a contract.
Relationship management system
As a consultant you will develop a lot of relationships and need to manage them to keep your pipeline of work flowing. At the very least you need a well-maintained contacts list. It is better still to have some form of tracking system logging contacts with key clients/potential clients, and what you should do next. Remember, many of your relationships will be with other consultants.
Agencies/other routes to market
Many consultants gain all their work through their personal network. However, there are a range of agencies who deal with placing interim managers and consultants and these can be a valuable route to market.
Driving licence/car/insured for business use
You can work without a car but it does constrain you, as not all clients are conveniently close to public transport. Note that some domestic car insurance will not cover you for business use, and as a consultant much of your travel is not to your usual place of work, and therefore counts as business use.
Additional items for foreign work
For example: passport, work visa (if appropriate), travel arrangements, proof of company’s tax status in own country (otherwise you may find yourself liable for local corporation or withholding taxes), letter of invitation (required in some countries).