What is the process to set up a consulting business? What would be my least initial cost estimate?
My former company (Advanced Technology Group) wants to give me an opportunity to create more business for them in East County. ATG is a construction firm I used to Project Manage for. They would like to hire me as a consultant rather than put me on payroll, at least for the 1st year. I have no idea of the costs and process to start up a business. What quarterly taxes look like, hidden costs or anything along those lines. I need advice on setting up a consulting business which in the future I would like to serve as an owners consultant on construction for non profit companies
In addition to all the good ideas about legal issues, the MOST important expense you will have is ... you. Congrats on the upfront gig, but it won't last forever and it might not last long at all. Being sales-based in a greenfield territory, it may be a while before commissions come in. Your biggest expense will be saving up as much as you can to get you through the zero-income patches. Most consultants figure at least 30 percent of their time is gaps in coverage (and an equal amount of time doing BD work). Don't make this leap under-capitalized!
Well you are in a good position to start up a consulting business as it sounds like you already have a client lined up - your previous employer. The first step is to separate your business from personal. For my consultancy, I established a single-member LLC in my home state (Texas). Check with your Secretary of State to see what is required of you to form a single-member LLC. It should be relatively inexpensive to do so (typically <$500).
Check with your state regarding required taxes. If you set up as an LLC that is considered a partnership (rather than corporate), then income taxes pass through and you claim them on your personal tax return. The LLC itself won't pay any income taxes. Depending on your state, the LLC may still need to pay a franchise tax (this may be called something else in your state).
As you will be self-employed, you will be required to pay social security and medicare. You can pay these quarterly to the IRS as well as estimated income taxes.
I also recommend, at a minimum, getting a separate business email address and business phone number. Considering you already have a client set, you can set up website, establish social media profiles, and other items later and use your income from this first client contract to build your business.
Good luck with your new business.
Joann pretty well covered it so I will just build on that. When I started my consulting business ten years ago my state tax commission office provided me with a packet of information that covered all the tax issues for both state and federal. Some of the tax questions will be determined by your filing status. My CPA recommended, and requested from the Feds, an S-Corporation filing status which the Feds accepted. That step continues to save me a lot of money. Two other things to consider are contact management and marketing. If you are going to do mass email marketing then I would suggest you use a CRM (customer relationship management) program to keep everything linked and coordinated. Sometimes local Votechs will have seminars on starting a new business. You might also contact your local Small Business Administration office - some times they have retired business execs who volunteer their services free of charge to help people starting a new business.
Check with your lawyer but if you have little exposure to liabilities, I'd just be doing business under your own name for the first year. You should still be able to get bonded and purchase insurances if necessary but overall, if you structure your contracts effectively, you shouldn't have exposure.
Since "cash is king", don't spend money unless you have to, and then only on specific resources that apply to a current PAID project.
On the tax side, I'm not a lawyer or a tax advisor but unless you are selling a taxable product or you have employees, your taxes will be on your income and it is likely that liability doesn't have to be reported but once a year.
Hi Tom and congratulations on this idea! Working for yourself is *the best*. A few thoughts for you (based on 12 years as a freelance translator and writing 2 books for other freelancers).
-Talk to an accountant about whether you're better off as a sole proprietor, LLC or S-Corp. I have an S-Corp and I love the tax advantages (you can take part of your income as wages and part as corporate profit, and you do not pay self-employment tax on the corporate profit). However S-Corps have to file payroll taxes 4 times per year and a separate corporate tax return, so the accounting fees will probably run $1,000 a year even if the corporation is just you.
-You form a corporation at the state level, so check your state's Secretary of State website for info.
-I usually advise other freelancers to set up a business savings account and put 30-40% of every check into that account to cover taxes and other business expenses. Again, it depends on your tax bracket, but the point is to keep in mind that a lot of what you make as a consultant is not going to end up in your pocket.
-For your industry, check whether you need professional liability insurance. I've gotten quotes from a company called Hays; did not end up purchasing it but they seemed reliable.
Good luck with it!
You should consider general liability insurance. This is general trip and fall insurance and should be several hundred a year for an adequate policy, $500k to $1million. Make sure you are not at monetary risk for project delays. My hunch is the GC wants to pay you as PM (% of job) as monies collected and not have the week to week salary burden. The LLC advice is sound and hedge 25% for taxes. Consider health care costs also.
If you are starting a consulting business with only one client in mind (which you already have lined up), here are my suggestions:
• As JoAnna says, file for LLC to protect your personal life from your business.
o As a “sole proprietor” LLC, you can use your personal income tax filing to report your business tax obligations, and your income is treated as a salary, so you do not incur the additional taxes a “corporation” would.
o LegalZoom makes it easy but there is a fee for their service on top of the filing fee for your state. I found their process to be quite user friendly though will be brave enough to do it on my own if I file a second business. Keep in mind LegalZoom tries to do a lot of upselling of add on services. Remember to cancel 30 day trial offers they tag onto the account.
• Obtain liability insurance for at least $1 million in coverage to protect your business. Ask for clauses that cover “errors and omissions” as well as terrorism events. As a consultant, terrorism coverage can compensate you for salary lost if a terrorism event prevents you from working.
• You may not need a website or other social marketing tools, or a corporate logo, letterhead, etc. So, hang onto this money unless you plan on broadening your business to other clients.
• In addition to federal and state taxes, be sure to set aside both the individual and employer contributions to social security and Medicaid. As you are your own employer, you are responsible for the social security portion on top of your own individual contribution.
• Try to draw on only 50% of your income which hopefully you can do on the higher consulting fee rate over your previously earned hourly employee compensation. The other 50% goes to your obligations mentioned in the bullet above. From this, you should be able to set aside about 10% of this which can go toward your SEP-IRA at the end of the year. Make sure you find a qualified tax accountant that can calculate what you can contribute to a pre-tax SEP. It is important to continue contributing to retirement savings when you are self-employed.
• Track your expenses and mileage. These are deductible. If you have a simple business with one client, this can easily be done with Excel spreadsheets. If your business becomes more complex, consider using a tool such as QuickBooks or using a qualified bookkeeper. You and your tax accountant will appreciate this at years end.
• Feel free to contact me
Great advice Jo-Anna. Least cost Tom will be the cost of registering your company - Sole Proprietor is cheapest but Inc and Ltd offer better security from suers. Then it's a matter of "are you going to work from home, set up and office, hire someone to look after phones etc.
"Spend no overhead before its time!" That is my first rule. Second rule:
"Don't launch till you have a client." Sounds like you already have one.
In the U.S., this would be a very inexpensive business to launch. Sole proprietorship, work out of your house, no employees.
I wouldn't even bother getting a business license until I got my first big check from a client. At that time I would get business cards designed and printed, and look for a low-cost way to set up a website. Then you are ready to go after other clients.
Then set up a separate business checking account and merchant account, so that people can pay you via credit card or PayPal. Get a separate business phone line.
What equipment do you need? Computer? Get a refurbished one. Negotiate with your old employer/first client to pay for part of these needed things.
Your marketing will be by referrals and networking, so it's time-intensive, not money-intensive. If you're a decent writer, set up a blog as part of your website. (If you do Wordpress, blog and website are integrated.)
Before you start working for clients other than your former employer, get liability insurance. E&O insurance? Maybe, maybe not. Expensive.
Make sure you don't end up a virtual contract employee for your former outfit. Think like a company from the very beginning. Charge a high enough rate so they don't want to hire you for routine non-challenging tasks. Limit the hours you work for them. You run a consulting firm, not a employment outsourcing agency. You need time to generate other clients.
They are avoiding the HR burden and putting you into cost category
The brief is confusing how does a project manager become technically a sales and lead generator?
I would want to see a contract proposal and be very clear of expecations
Running a business is simple you have
1- flat line costs
these are all your monthly costs wetehr you work or not
2 - your costs related to doing business for the client
tax go and see a revenue office for implications they will advise you
you do not necissarily have to open a company just consult as a private person to begin with
you need to go and speak to non-profits and see if they require this advsory service and what they are prepared to pay you for the service first
The cost is high , Such as first consulting depend on Brochure , flyers, cost and Cost of hiring staff , and telecommunication, VOIp , license if you will have or working as DBA , I Can't give you estimation because this based on each country , but normally travel . telecommunication, Set up . Promotions ,Media , Ad's
What's to set up?
I started my own consultancy business 16 years ago (Mearsecroft Limited) with no customers which meant I spent 6 months just networking, sending out mail shots etc.
I also compiled a book on useful conversion factors which I gave away.
You seem to have a customer already but I would still advise you to network and sell yourself as customers are apt to move on!
I set up my own limited liability company for £10, registered for employment tax and value added tax, got an accountant and kept the paperwork up to date so in the whole time I've never had a tax problem.
I run the company from wherever I am in the world.
If you are self employed be careful of your assets because of claims against you.
Hope this helps.
Hear in Maldives setting up a consulting firm is about 30-50,000 USD
The Maldives main industries is tourism and fishing, so it may be based on specifically to these sectors or construction!
Starting a consulting company is actually quite simple. All you need to do is form a company in your state under your name and then and call it whatever you wish, DBA “TOM”S CONSULTING SERVICES” DBA stands for “doing business as” and all states recognize it as such.
In this model, the company pays your company, and you write off all your expenses and file taxes on the profits. It is simple and has lots of legal loopholes to write off expenses.
You can also form a corporation or LLC Limited Liability Corporation which gives you more legal protection and yet allows many of the advantages of a company.
You can also do work as a freelance, and have the employer pay you with a 1099. You will still need to pay all your taxes and most likely would need to file quarterly for best results. You can still write off expenses but perhaps not as in depth as you can with a company or the LLC.
You can easily set either up for under 500.00. Check out the state of Nevada for great pricing on corporations as Nevada has no corporate tax.
Hi Tom, I can talk to you from my own experience in Australia, which I think may not be that far off US, but would suggest you do due diligence particularly around tax and insurance.
Your former company is trying to offset cost by asking you to consult/contract for them rather than carry the burden of a employees' costs.
Setting up a consulting business of a solo trader is relatively inexpensive if you set up most of your business online.
Main things you need to have into consideration to discuss with ATG is your rate. Now you will get payed by the hour/day, rather than a salary. Since you will need to pay your own (business) insurance, superannuation, medical insurance, etc the expectation is that you will get payed more than as an employee.
Do due diligence around GST (VAT). For instance in Australia you don't need to be registered for GST if you don't have revenue of above a certain amount. But if you are registered for GST then you have certain tax breaks when you buy assets, etc.
Main recommendations would be:
Try to set up your business as lean as possible. Resort to online and working from home type of structure.
Look into tax situation
Look into business insurance
Lock in your hourly/daily rate in a way that you can cover expenses and make a margin.
I hope this comment helps! Good luck with your new endeavours!
Great to see that your former company is interested in hiring you back as a consultant. Of course there are mutual advantages to you and your former employer.
As for setting up a consulting business, like in everything else we need to separate the noise from the signal.
What I share here is what I did and it may or may not apply to your situation at this point in time (maybe more so at a later point based on the growth rate of your business). In chronological order:
a - Have a paying customer to get going (Use independent contractor or Sole Proprietorship for simplicity).
b - Get on LinkedIn and start putting your customer base so that you have enough projects to fill your pipeline and keep your sales versus capacity ratio higher than 1 (meaning you have more billing work than you can handle yourself so that you can sub contract or convert some of the work you would normally do in person to a web based product/service offering).
c - Optimize your LinkedIn profile as some day your current ex-employer customer may not be able to sustain the volume of billing they are able to give now. So your sales and billing well shouldn't run dry at that time. You can look up my article on LinkedIn Profile Optimization that I published a couple of years ago.
If you don't mind my constructive criticism here as an example, with the 193 first level connections you have, I didn't notice any recommendations at all. This wouldn't bode well for you as having enough recommendations on LinkedIn reduces and/or eliminates the sales-marketing efforts and put you directly into the RFQ stages with an existing client or even a new one.
I have experienced this when clients call me, they are in the dealing stage beyond the stage of qualification as the endorsements (or precisely recommendation testimonials) speak for themselves and eliminates the bias I could bring to the table.
I would say target a 10 % ratio between member count and number of recommendations received and visible on your profile. So with 193 you are looking to garner about 20 recommendations. You can even start at 5 % but not remain without any.With 20 years of professional experience even one per year would be great to start at an average.
d - Over the next 6 months start planning on what "revenue" or "cash to bring home after taxes" for 2014. Then back track and see whether changing your business status is going to yield anything significant at all.
e - Speak with likeminded professionals and find out the wisdom lessons learned and apply them based on other people's experience.
f - Unless there is a government special running now. worrying about LLC, or Corporation or Sole Proprietorship is just pure noise. Now some corporations want their service provider as a corp for other reasons. Assess that upfront and get some number crunching done with your tax accountant.
g - When you have customers you will win with them and in the meantime as another person pointed out here a website designed and optimized along with the LinkedIn profile would do a whole lot of good to get you to "Pull" customers as opposed to "Push" to enroll them in.
Good luck and if you need any services in this area, please feel free to get in touch with me.
i suggest you consult with an accountant as far as the taxes and expenses go. As a general principle any expense incurred in the generation of income is tax deductible. You might consider starting up a separate entitiy such as a private company and have yourself employed by that company. The company would be the consultant to the client and you are a director of that company and so all expenses are paid for by the company PRIOR to tax and you would receive whatever you determined is a suitable directors fee or salary. You would be up for some initial costs for setting up the company, registration, accountant fees and so on but if this is envisaqed to be long term (and perhaps you may get more clients) that would likely be fine and such expenses would, most likely, be tax deductible. As I said consult with an accountant to check your options.
Second question first: $0.
My experience stems from initiating a business on January 1st of this year, after research through the state and federal requirements. For me, it made the most sense to establish an LLC. This requires a fee to the state office that regulates corporations (in Massachusetts, it's the Secretary of the Commonwealth). Searching on the IRS web site will provide background on filing estimated quarterly taxes.
For more detail, you are welcome to contact me.
Best wishes for success,
- Roy Wallen
Directional Healthcare Advisors, LLC
Lets hope they gave you some type of budget because nothing is free. you need to prospect, join as many networking groups as you can and meet people that may be able to use your services. Hone in on that target market and market yourself to them. Their are many free marketing tools, the most popular being social networks. In a consulting business the most important thing to sell is trust. Their is a slight stigma on people who are consultants. Have to combat that with being candid, honest and knowledgeable.
After the detailed answers below, and adding my experience (doesn't matter the countries I've been) , consider sole proprietorship.
Your return will be lower, but quality of your life will be much higher.
Work at the home -office model, and all expenses-charges of trips you report and adopt reimbursements....no tributes on that for you or for ATG. Be positive ...be simple...and make an offer based on a fee for hours if you do not know how to charge. Well, remember you need to enjoy most of all !