How to Start a Management Consulting Company

Start a management consulting company by following these 10 steps:

1. Plan your Management Consulting Company
2. Form your Management Consulting Company into a Legal Entity
3. Register your Management Consulting Company for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Management Consulting Company
6. Get the Necessary Permits & Licenses for your Management Consulting Company
7. Get Management Consulting Company Insurance
8. Define your Management Consulting Company Brand
9. Create your Management Consulting Company Website
10. Set up your Business Phone System

We have put together this simple guide to starting your management consulting company. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

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 will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is very important. Read our detailed guide on how to name your business. 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.

What are the costs involved in opening a management consulting company?

One of the nice things about starting a management consulting business is that your startup costs are not very high. As long as you are doing the work yourself and not hiring someone else to help, you will only need your phone, computer, and expertise. Marketing your services might require some initial investment, but even those costs can be kept down if you take advantage of free marketing opportunities like social media and blogging.

What are the ongoing expenses for a management consulting company?

The ongoing costs for a management consulting business vary depending on the structure of the business. If you are doing everything on your own, your costs may be limited to maintaining your technology (computer, smartphone), utility bills for your home office, and travel costs when you meet with clients. If you have employees, they will make up a large portion of your ongoing expenses. But while employees can be costly, they may save you money over hiring freelancers to take care of specific tasks like data analysis.

Who is the target market?

Your target market is businesses that need help with their management. You may prefer to be more general and serve all types of businesses, or you may want to narrow down to a specific niche industry. Remember, just because a business appears successful doesn’t mean they don’t need help. Don’t be afraid to target all types of businesses that you think you could help.

How does a management consulting company make money?

Management consulting businesses tend to use four different pricing models:

• Hourly
• Project-based
• Return of investment (ROI)-based
• Monthly retainer

You might use one pricing model with one client and a different model with another client. There are positives and negatives to each model. Some clients have strong opinions about one model over another as well. For example, a client might balk at paying you an hourly rate while being happy to pay by project or based on ROI.

It is usually easier to determine which pricing model will work best after knowing what kinds of problems you will be solving.

How much can you charge customers?

There are multiple ways to choose how much you charge clients. You need to charge enough to make your business appear professional and valuable, but not so much that you drive away business. One pricing method consultants use is to take the salary from their last job and multiply it by three. So, if you made $50 an hour at your last job, you would charge $150 an hour for consulting. The significant increase from your previous salary is necessary because you have to pay more taxes as a freelancer. You also have to pay for your health insurance coverage and your marketing costs.

How much profit can a management consulting company make?

Management consulting businesses can generate significant profit if they are successful. Major consulting companies may charge $500,000 to $1,000,000 a month. Of course, these are the top players in the industry. At the low end, the rate for a single business consultant is $150 an hour. If we go off of the entry-level pricing model mentioned above, where you triple your last salary, you can expect to make a little more than you did at your last job after expenses. As you gain experience and build a team, your profit potential goes up considerably.

How can you make your business more profitable?

You can make your consulting business more profitable by building a team and a reputation. As your team grows and you can offer more comprehensive solutions for your clients, you can charge considerably more. And if you build a great reputation, clients will trust you to solve their problems and expect you to charge accordingly.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your management consulting company is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

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!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

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

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money 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.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

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 Management Consulting Company. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

If you like helping managers get better results from their teams, you would probably be a good fit for management consulting. There are so many different management types that you can pick one that you are most passionate about and help others in that area. If you are passionate about teaching, team building, communication, and results, you may excel in the management consulting industry.

What happens during a typical day at a management consulting company?

An average day at a management consulting business is a busy one. Work can include examining issues your client is having with their business to find potential solutions, analyzing data to identify issues and/or solutions, conducting surveys of management and/or employees, preparing presentations for clients, presenting your findings, negotiating with clients, and much more. Depending on the complexity of client needs and the scope of your business, you may have employees handling these tasks and therefore need to manage those employees. And if you are not currently helping a client, you will spend your day marketing your business to get more clients.  

What are some skills and experiences that will help you build a successful management consulting company?

Probably the most important qualification for becoming a management consultant is experience and expertise. Businesses come to consultants because they need insight and knowledge that they don’t have. You should be able to confidently market yourself as an expert in your field if you want businesses to pay you for your expertise. Organization is another major skill that can be helpful. If your business is successful, you will need to juggle numerous tasks to serve your clients best.

What is the growth potential for a management consulting company?

The growth potential for a management consulting business is significant. As you gain experience and build a reputation for quality, you can attract bigger businesses with more resources to pay you and your team. It may take time, but if you are persistent and deliver results for your clients consistently, you should be able to grow steadily, hire more employees, and offer more services.