Start a business consulting firm by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your business consulting firm. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a business consulting firm?
Costs for starting a consulting firm are minimal. This is a business that can be started out of your home or a small office. Office rent and utilities in your local area would be the major costs. Aside from those costs, a computer and scheduling software, as well as collaboration software may be necessary.
Total startup costs should not exceed $5,000. In many cases, you can start with just a few hundred dollars.
What are the ongoing expenses for a business consulting firm?
Ongoing expenses for the firm include rent, client management software, scheduling software, office supplies, utilities, travel expenses, advertising, insurance, contract labor fees, and ongoing legal services for client contracts.
Who is the target market?
A business consultant firm makes money by charging a fee for advice or for business plan construction. This fee can be either a flat fee, hourly fee, or a revenue-share fee.
How does a business consulting firm make money?
Preferred customers and clients are large corporate clients who can serve as “anchor clients.” These clients have deep pockets and a need for ongoing consulting. The hardest type of clients to keep are those that have little to no resources.
How much can you charge customers?
What you charge clients depends on who you have working for your firm and your experience in the industries you serve. In general, you can charge between $800 and $1,200 per hour for partner-level access. Managers in the firm typically charge clients between $600 and $900 per hour. Post-MBA consultants charge $400 to $600 per hour. Pre-MBA consultants charge $250 to $400.
Some business consulting firms charge clients a percentage of revenue or sales. For example, an anchor client might pay 10% to 20% or more of revenue for a consultant.
Clients usually pay for any additional expenses out of pocket (they are not included in the consulting fees).
How much profit can a business consulting firm make?
Some types of consulting pay more than others. A baseline profit margin should be no less than 10% to 12%.
Beyond that, it depends on the type of consulting your firm does.
For strategy work, aim for between 35% and 60% margins. Systems integration and process work should yield between 25% and 35% profits, up to 40%. Staff augmentation and outsourcing may only bring 10% to 30% profit margins to the firm.
How can you make your business more profitable?
Making your business more profitable is a simple matter of specialization and differentiation. Make your firm stand out. Never charge the lowest fees. In this industry, the higher the fee, the more competent you appear to be to prospects. At the same time, your advice and work must be worth the price.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your business consulting firm is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a business consulting firm. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a business consulting firm
Marketing your consulting firm is best done through direct mail, online direct marketing, and referral marketing. Buy a mailing list of companies that have already used consulting services within the last 30 to 90 days. These companies are most likely to want to hire another consultant. Ask your list broker for average dollar amount spent on services and filter the list to include only buyers (called a “buyer’s list”).
Print up flyers and business cards and hand them out to local businesses. You may not get much work this way, but it gets your name out there.
Finally, go to networking events and trade shows to meet local businesses.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
The best way to differentiate yourself from other competitors is to specialize. Consultant firms that work with all types of businesses rarely command the highest fees. Instead of being a general consulting firm, focus your efforts on one or two industries. It’s much harder to go this route, but the competition will be less and you’ll be able to charge clients more for your specialized knowledge.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Business Consulting Firm In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
This business is perfect for seasoned business owners or upper level managers who are looking for a career change. A business consulting firm must be experienced in business management, marketing, and team building and management. They must also understand how to generate revenue from a wide range of businesses and expand existing streams of income.
What happens during a typical day at a business consulting firm?
Day-to-day activities of a business consultant include meeting with clients in person, via video conferencing application or services, and making recommendations to their clients. Most business consultants spend a majority of their day building business plans for clients and giving advice.
Scheduling and project management is a major part of the job also. Companies that provide business consulting need to be able to coordinate multiple schedules, since even small businesses can have several officers who need to be present for all meetings.
What are some skills and experiences that will help you build a successful business consulting firm?
A business consultant should have prior experience owning a business. It takes a lot of trust for a business owner to take guidance on how to run and manage their business. While not necessary, a Bachelor's degree is standard in the industry. Some companies will not hire consultants who do not have at least a Bachelor’s or Master’s in business administration.
Aside from degrees, various certifications help prove your legitimacy. For example, the Certified Healthcare Business Consultant helps establish a firm as specialists in the healthcare industry.
What is the growth potential for a business consulting firm?
Consulting firms are usually small, due to the nature of the business. This is not an industry that scales very well since the business owner is usually the one with the expertise required to make the business run. With that said, some consulting firms expand by hiring additional talent — managers or business owners who want to join the firm and take on clients.
The business owner may move into a managerial position or continue meeting with clients under this scenario.
Typically, a larger firm employs several consultants. If only one consultant exists (the founder), then the business expands by hiring support staff, including bookkeeping and accounting, HR, managers to oversee business operations, a CFO to manage the finances, and assistants to coordinate schedules.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a business consulting firm?
Get an “anchor client.” Anchor clients are loyal clients with significant financial standing that are committed to utilizing your services on a regular basis.They are also capable of providing a consulting business with up to 25% of its revenue.
It helps tremendously to first gain a lot of professional experience in the specific area in which you want to specialize as a business consultant. This will not only allow you to develop the necessary skills to offer a quality service, but it will also increase your legitimacy as a sought-after authority. For example, if you want to work as a financial consultant, you should have plenty of experience in the finance industry before reaching out to potential clients.
How and when to build a team
Building a team in this business is optional. Many consultants set up shop as one-owner firms and never grow beyond that. If you want to grow, consider hiring on additional management or experienced consultants when you exceed your maximum client load. Hire support staff at the same time to handle the additional paperwork and regulatory issues that will come with taking on employees.