Starting a small consulting business is a great way to share your skills and expertise with clients. A consulting business lets you advise clients on key matters related to operations, efficiency, strategy and execution. Consulting firms operate across business sectors, including accounting, advertising, commercial operations, sales and marketing, human resources, public relations and fundraising.

What steps should you take when launching your own consulting business? Here are a few things to consider.

Evaluate the Pros and Cons

There are many major benefits to starting a consulting business. Here are some of the advantages:

  • Flexibility. As a consultant, you can set your own hours and work on projects when it’s most convenient for you
  • Expertise. A consultant can share their knowledge and expertise with clients, imparting wisdom and helping clients succeed
  • Value. Consultants add significant value and help clients solve problems and improve their organizations. This work gives consultants extensive job satisfaction and can be a lucrative and valuable career

Every job has its drawbacks and consulting is no exception. Here are some of the cons of launching a consulting business:

  • Business Development. As a consultant with your own firm, you’re responsible for building a client base. You need to balance your time between doing the consulting work and drumming up future business
  • Client Expectations. Clients can be demanding, with expectations for problem-solving that may not be possible. Part of being a consultant is making recommendations for the work that clients need to do; clients who resist these recommendations can be frustrating
  • Competition. In certain sectors, many consultants are working in the same space. That competition can make it challenging to be competitive, especially when bidding against companies that have more resources to offer

Evaluating the pros and cons of consulting can help you create the best firm that aligns with your background, skills and values/

Determine a Business Entity Type

A business entity type is the legal structure your consulting company uses. This business structure has important ramifications for your tax obligations, operations and liability. Here is a look at four of the most common business types.

Sole Proprietorship

A sole proprietorship is the simplest business structure and requires no formal paperwork to establish.

In a sole proprietorship, you are the only owner and are responsible for all business decisions. From a tax perspective, a sole proprietorship is considered a “pass through” entity. That’s because all profits, costs and deductions are passed through to the owner’s individual tax return.

From a liability standpoint, a sole proprietorship carries some risk. In the case of a court judgment or bankruptcy, creditors can come after your personal assets, including your home, car and savings.

Partnership

Partnerships are structures often used when there are two or more partners. Each partner contributes something to the company – skills, finances, property or labour. Profits and losses are shared among the owners.

There are two types of partnerships:

  • General Partnership. In this structure, the business is split evenly among the partners
  • Limited Partnership. Here, some owners assume more of the responsibility for running the business while others have less control and liability

Partnerships are also pass-through structures when it comes to taxes. Partners also share personal liability risk.

Due to the complexities of multiple company owners, most partnerships craft partnership agreements, which spell out financial terms and other details, such as ownership percentages, asset distributions and dispute resolution protocols.

Corporations

Unlike sole proprietorships and partnerships, a corporation is a separate legal entity from its owners. In most cases, corporations pay income taxes and can be sued. Corporations can sell ownership stakes via shares in the company.

Corporations have many legal obligations. They must form a board of directors, hold annual meetings, and file paperwork annually and quarterly on financial performance.

The two most common types of corporations are:

  • C-Corporation. A C-corporation is a separate legal entity and files its own tax returns. C-corps face double taxation as corporate profits are taxed at corporate tax rates while shareholders are taxed on dividends
  • S-Corporation. This type is common among small businesses. There is no double taxation and profits, losses and deductions are recorded on owners’ individual tax returns. While S-Corps must file an informational tax return, they do not pay taxes themselves

Limited Liability Company (LLC)

An LLC is one of the most popular business types for small businesses. With an LLC structure, owners (called members) get many of the benefits of other business types.

For example, in an LLC, tax obligations are passed through to owners’ tax returns. And except in cases of gross negligence, owners are free from personal liability due to adverse court findings.

There are a few different types of LLCs. LLCs can choose how they want to be taxed and can choose to be managed by owners or hired managers.

Write a Business Plan

Having a sound, well-thought-out business plan is an important step to take before launching any company. A business plan helps you answer key questions, frame your company and what it does and research core factors for success.

It’s also essential to create a business plan if you are seeking bank financing or investors.

Here are the core components of a business plan:

  • Executive Summary. Encapsulates the mission statement, company description, leadership names and bios and description of products and services
  • Company Description. A more detailed document about what the company is, what it provides for customers and how customers benefit. Includes details about the customer base and their shared demographics
  • Market Analysis. Research about the market sectors in which you’ll operate, industry trends, competitors and what they offer and sales data
  • Products and Services. Expansive information about what your company provides
  • Sales and Marketing. How you will position your company, with the strategies used and desired outcomes
  • Funding. If you are seeking financing, this section shows how much you are asking for and for what purposes. Typically, it provides 5-year resource projection schedules and your desired terms and conditions
  • Financial Analysis. Financial projections, past performance and balance sheets if the company has already launched

Open a Business Bank Account

Having a business bank account makes sense financially. With a separate bank account from your personal finances, you will appear more professional and polished. Clients will prefer to make payments to a professional business account than your personal bank account.

You will also further protect your personal assets. With combined finances, you blur the line between professional and personal. The IRS and courts may claim your personal assets for seizure if you mix them with business assets. Known as “piercing the corporate veil,” this practice significantly reduces the risk of a tax audit. To avoid this, clearly separate your personal and business finances.

Having a business relationship with a financial institution also allows you to build business credit.

To open a business bank account, you typically will need to obtain an employer identification number (EIN), which is the business analogue to an individual’s Social Security number, a unique identifier used in tax returns and other filings.

Build Your Brand

You’ll want to create your brand identity for your consulting business. There are multiple steps to this process, including:

  • Name(s). Consider choosing a name that is unique and describes the consulting services you provide. Most states have online listings of existing names of businesses. Be sure to register your name, too. Some businesses have both a legal business name and a “doing business as (DBA)” name that’s used in marketing, signage, stationery and business cards
  • Logo. Use a graphic designer to create a great logo that catches the eye and reflects your consulting business. Conduct some research to see what competitors use for logos and what resonates in your industry
  • Promotion. Marketing your business is essential for building a customer base. Be sure to create a professional website that has information about you and other key staff, what services you provide, the industries you serve and any past clients (with their permission)
  • Social Media. Having a presence on the right social media networks is a good way to get the word out. Most businesses look first to LinkedIn to build a presence, but you can consider other apps, such as Instagram, Facebook, and TikTok depending on the type of consulting you provide

Determine Your Pricing

How much are your consulting services worth? Knowing how much you’ll charge is essential. Different services come with different price points.

You’ll also need to determine whether to charge a flat rate or on an hourly basis. The latter is common in many consulting firms to ensure you are paid for unanticipated time and work that arises during your work with clients.

Knowing what to charge takes some practice, and you’ll likely need to be flexible in how much you charge from client to client. Over time, you should analyze your rates and, when possible, determine what competitors are charging.

A consulting business is an exciting way to provide your clients with invaluable services that help them advance key initiatives, projects and priorities. You will position yourself for success if you take deliberate, strategic steps to create your business.