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Do you have a brilliant idea for a consulting business but aren’t sure how to get started?
I’ve stumbled through this process too, and I know it can be intimidating.
There are usually two different orders to getting into consulting.
- You have a client first and you need to get the structure in place so that you can bill them and start working. You might not have even considered consulting, but now you need to play catch-up.
- You want to be a consultant for the freedom it offers, but you don’t have a client yet. You’re “hanging out a shingle” as they say, and getting started.
This post is about the nuts and bolts of actually setting up a consulting practice.
But DO test your market before you drop a bunch of money to set up a consulting business.
- Reach out to your network and see if they would be interested in hiring you for something.
- Clarify what your value proposition is.
- Ask them what they actually hire consultants for, don’t just assume they’ll pay for your services.
- See if you can get a commitment to hiring you or even a written offer.
Yes, you can do all of this before you legally have a consulting business.
A lot of people talk about opening a consulting practice, and spend the money to do it, but never actually get around to business development. Remember, having a successful consulting business requires CLIENTS!
If you can get clients, you will have no problem putting in the corporate structure as quickly as possible.
How to launch your consulting business
Step 1: Figure Out Your Business Structure
Step 2: Decide on a Name & Check Web Domain
Step 3: Have a Conversation with a Lawyer
Step 4: Meet with Your Accountant
Step 5: Register Your Tax Number
Step 6: Open a Bank Account
Step 7: Pick a Bookkeeping System
Step 8: Invoice Your First Client
Note – Business requirements vary from place to place, and this post is written across Canada and the U.S. This advice is not a substitute for getting proper advice from professionals.
1. Figure out your business structure
Time needed – 3 hours
If you have never done it, you will need to get a sense of what basic business structures look like and decide which one you want.
That sounds really intimidating, but really it likely requires a couple hours of reading and/or a conversation with your local small business support organization. Most towns have these in one form or another. Some schools do as well.
If you have a client, or funding of some type already committed, make sure you are aware of the structure you need to actually get paid. Does your client only do business with corporations? Do you have to be a non-profit to collect funding?
You need to figure this out from the start.
You can read about business structures here:
It’s difficult for me in this post to tell you what’s the right corporate structure for you. A conversation with your lawyer and your accountant can be a good step here too, and that’s where we’re going next.
You can choose to operate as a sole proprietor in many cases.
When I founded my consulting business, I had a contract lined up that was worth tens of thousands of dollars, so I reinvested some of that back into my business and incorporated. But I always envisioned being much more than just a consultant, and imagined making money from Roostervane by selling products and advertising. I wanted the limited liability that a corporation offers. (P.S. If you’re a total dork like me, you can listen to Yale Professor, Robert Schiller talk about the history of Corporations. It’s really interesting!)
Between legal fees and accounting fees, incorporation cost me about $2,000 Canadian.
2. Decide on a name and check a web domain if needed
Time needed – 2 hours
“Really,” you are asking me. The second thing I need to do is check a domain name?
Unless you are using your name for your Consulting business, which is totally fine to do, by the way, the reality of modern business is that you want to try to find a business name that has an open web domain or social handles.
This seems funny, but it was true for me and also for many of the successful founders I’ve listened to on How I Built This.
Even if you are using your name as a business name, make sure you know what version of your name you could register as a domain.
Now you are asking me, “Chris, why the heck do I want to have a website?”
Well, you may not want to at all. But if your business grows you’re going to feel pretty dumb if you can’t have the digital assets that are associated with your business name. Also, you will feel equally dumb if customers try to find you and can’t.
Even if you don’t build your website right now, it costs like $20 a year to hold a domain name. It’s well worth it.
P.S. Bluehost is the best place to start. I’ve used it to build all of my sites, and you can check domain name availability there too!
Pro Tip: Pick a couple of possibilities. Find your domain name, but don’t register it yet! Wait until your business is registered and you know 100% that that’s your business name. Part of the process will be a name availability search.
3. Set up a conversation with your lawyer
Time needed- 1 hour
If you are incorporating, you will need a lawyer at this point.
I know that there are people who talk about doing your own incorporation. Under no circumstances would I recommend this. Focus on what you do well; for most of us that is not lawyering.
Even if you are operating as a sole proprietor, it’s still worth having a conversation with the lawyer. There may be legal documents that you will need. Things like:
- Consulting Agreements
- Vendor Agreements
- Non-Disclosure Agreements (NDAs)
- Patent or Copyright Filings
If this sounds a little intimidating, let me reassure you. The only one of these things I use is a consulting agreement.
Also, a lawyer will often take care of corporate requirements like a minute book.
Usually the first conversation will be free if you are paying for incorporation or forms. Once you give them the go-ahead to incorporate, usually after they have done a name search, they will take care of the rest.
Once they’re done, Congratulations! You just became a president of a company!
That wasn’t so hard, was it?
4. Meet with your accountant
Time needed – 1 hour
The other person you will need to have in your life as an accountant. They will help you to track the finances. Generally speaking, at this point the accountant will likely just ask a few questions about your incorporation and year-end.
I lucked out with a great accountant who also talked me through some things to think about when setting up my books. I really do recommend an accountant who feels like a teacher, who is patient in explaining things to you, and who doesn’t talk down to you.
They’re going to know more than you. That’s inevitable. But they should help you understand what you need to know.
Pro Tip: Accountants or not to be confused with bookkeepers. Usually an accountant looks at your books once a year if you are small. A bookkeeper will look at your books on a regular basis, track your profit and loss and income statements, etc. When I started, I didn’t have a bookkeeper. I read up on bookkeeping a lot and did the work myself. I totally recommend Bookkeeping for Dummies.
Eventually, I hired a bookkeeper because of the complexities of my books. But I am dealing with multiple product streams and multiple currencies, and I do business in every Canadian province, each of which has its own taxation rules.
If your consulting business is, say, doing research projects for clients one at a time, you can probably handle your books yourself and let your accountant clean it up at the end of the year
4. Register your tax number
Time needed – 1 hour
The accountant will tell you what you need to do for taxation. In the U.S., you will need an EIN tax number from the IRS. In Canada, you need to register your business with the CRA.
5. Open a bank account
Time needed – 1 hour
If you’re operating as a sole proprietor, bring the appropriate business registration documents to your bank to register an account. If an incorporation, you will need your paperwork from the incorporation.
Check your bank for specific requirements.
Tell them you want to open a new business account. You will likely need a checking account, and you may choose to have a business credit card as well.
My bank has a special line for business banking, and there’s never anybody in it. Sort of like the express line at the airport. Welcome to the good life 😉
5. Decide on a bookkeeping system.
If you are keeping your own books, you will need to pretty quickly decide how you are going to do this.
I’d like to talk about two programs. I’ve used both.
Freshbooks is amazing for small businesses of any kind. It really is extremely simple to use, once you put in your details it will give you high-quality invoices right away. If you’re just starting out, use it. You can even try it out for free for two months.
I use QuickBooks Online right now, mainly because my accountant was a bit old school and hadn’t used FreshBooks. QBO, as the cool kids call it, is obviously a good program too. It’s built for bigger and more complex businesses, especially with employees and products to sell, which is why I think FreshBooks is perfect for most consultants.
Either of these, or another one that you choose, are going to let you do some essential business things.
- Register sales and invoice your clients.
- Track your business expenses and keep receipts.
- Track your outstanding liabilities like debt, taxes, etc.
- Get a glimpse of your business’s overall health through reporting features like a profit and loss statement. (Less vital at first)
6. Invoice your first client!
Congratulations! Your business is now up and running.
Why not celebrate it by making your first sale? Hopefully you had your first client already, but if not it’s time to get hustling. Once you make the sale, you will set agreed-upon payment terms with your client. I usually require some form of payment upfront, and then another payment later on in the process. You can decide with your client or their operations or accounting team on what the payment schedule will look like.
Create an invoice in Freshbooks or QBO, whichever one you decided to use. Don’t forget to include any necessary taxes, and send it off!