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