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Business consultants provide a necessary service to startup businesses and entrepreneurs. They help the business get off to a good start by providing the know-how and resources necessary for success. A business consultant usually retains a book of clients and may limit his or her business to just several hundred (or fewer) businesses or entrepreneurs.
Who is this business right for?
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 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.
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.
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 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 steps to start a business consulting firm?
Once you're ready to start your business consulting firm, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your business consulting firm is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your business consulting firm keeps your finances organized and makes your business appear more professional to your customers.
- 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.
- 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.
- 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.
- 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.
- Establish a 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.
Select your state below for an in-depth guide on completing each of these steps in your home state.
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 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: A website is essential for promoting your business and attracting customers. Weebly is a great tool.
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.
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.
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, check out our informative guide, 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.
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).
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.
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.