Business consultants are experts with extensive knowledge in a specific subject. They work closely with clients to solve problems and help them overcome obstacles to achieve their goals.
The steps for starting your own consulting business will vary based on your area of expertise, but there are some general steps that apply to all types of consulting businesses.
Below are ten steps to starting a consulting business.
Step 1: Know your unique value proposition
To understand your value proposition, ask yourself a few questions:
- Why would a client choose to work with you versus a competitor?
- What sets you apart and makes you the best fit to assist your clients in overcoming their challenges?
- Are you communicating your differentiators clearly, concisely, and compellingly?
Develop a value statement that highlights the benefits of your service, explains how your business can address client problems, and emphasizes what sets you apart from others.
Step 2: Research your target market
Build a picture of your target market based on demographics such as age, industry, location, and profession, as well as interests, needs, and goals. Use market research tools to help refine your target market, such as industry and analyst reports, surveys, and other data that explore market needs and trends.
Look at the competitive landscape. Who are your competitors’ clients? Is there a market they are currently not fulfilling?
Step 3: Enhance credibility with certifications
Certifications are not necessary to be a consultant. However, they can boost your reputation and appeal to potential clients. For example, IT consultants typically need a degree and industry certifications such as a Google, Oracle, Cisco, AWS or Microsoft certification.
Step 4: Create a business plan for your consulting business
A business plan is a roadmap for your consulting business. As you craft your plan, first establish whether you intend to use it to attract investment or if it’s primarily to help you start, build, and grow your business. Investors will expect a detailed outline of your objectives, how you will achieve them using funds, and how you anticipate repaying any loan or investment.
The basic elements of your plan should contain:
- Company description
- Business objectives
- Organization and management
- Service offering
- Marketing and sales
- Startup and ongoing expenses
- Financial projections
Ask for feedback from friends, your network, and even potential customers. And remember to update your plan regularly.
Step 5: Choose a business structure
Your choice of business structure will affect your daily operations, taxes, and the level of risk you are willing to take with your personal assets. When selecting a business structure, it's important to balance legal protections with potential benefits.
The four most common business structures for a consulting business are:
- Sole proprietorship: This type of business is owned and operated by one person, with no legal separation between the owner and the business. As a result, the owner is personally responsible for all debts and obligations of the business. A sole proprietorship does not require any state filing.
- General partnership: A general partnership is the simplest type of partnership and is created by default when two or more persons form a for-profit business. In a general partnership, owners have unlimited personal liability for the business's debts, including, but not limited to, the acts of employees. No state filing is required.
- Limited liability company (LLC): An LLC offers limited liability protection (by separating the business assets of the company from the personal assets of the owners) as well as pass-through taxation.
- Corporation: A corporation is a separate legal entity owned by its shareholders, thereby protecting owners from personal liability for corporate debts and obligations.
Note: If you sign a contract with a client as a sole proprietor and later choose to form an LLC, you are still individually liable on that contract.
For more information on business entity structures, read Comparing company types and Compare S corporation vs LLC.
Step 6: Determine legal compliance requirements for your consulting business
It's important to be aware of the legal requirements that may apply to your consulting business. These requirements can vary based on factors such as your business structure, location, and the nature of your consulting services.
- Business licenses and permits: Regardless of your business entity type, most businesses need to obtain licenses and registrations. For a consulting business, this often means securing a general business license at the local or state level. In some areas, even if you operate from home, you may still need a home occupation permit
- Sales tax: While most consulting businesses aren’t subject to sales tax, rules vary by state and can change over time. You may also need to register your business with the Department of Revenue in your state and any other state where you have a nexus.
- DBA filing: If you do business under an assumed name or trade name, you must make a DBA filing with your state or local jurisdiction.
- Hiring employees: If you plan on hiring employees, you must meet several requirements, including obtaining an EIN and registering with your state's Department of Labor. Additionally, an EIN is necessary if you form an LLC or corporation.
- BOI filing: A new requirement, if not exempt, is to file a Beneficial Ownership Information Report with FinCEN.
- Separate finances: Legally, corporations and LLCs must maintain separate business finances from personal. However, even with a different business structure, keeping your business and personal finances separate is beneficial for maintaining accurate records
For more information, see What are the legal requirements for starting a small business?
Step 7: Determine your pricing
When creating a pricing strategy, strive for a balance that allows you to build a successful practice while providing fair compensation for your services. Some clients may prefer to pay consultants on an hourly basis, while others might opt for a per-project or retainer payment structure.
The scope of a project can also be a determining factor for consulting fees. Generally, larger or more complex projects will command higher fees due to the increased workload. However, your fee structure can also be influenced by the level of expertise and specialized skills required for the job.
Be sure to regularly review your pricing structure, especially as you build your skills and expand your consultancy. Your rates should ideally increase every year as you gain experience, build your portfolio, and demonstrate your value.
Step 8: Create contracts and other necessary documents
Don’t enter into an agreement to provide services without a signed contract. Your contract should outline your terms and conditions, scope of work, and pricing. It can also include clauses that cover intellectual property, confidentiality, liability, and project termination.
It’s a good idea to have a legal professional review contracts. They may also suggest a contract template that you can easily modify based on your client engagements.
Step 9: Develop your brand
Your brand is like the face of your business, so it's important to make it stand out. Start by coming up with a unique company name, logo, website, and other visuals to show off your brand. Also, make sure to keep your message consistent so people get who you are and what you're about. Then, put together a solid marketing plan that covers both traditional and digital strategies like email campaigns, social media, SEO, and content marketing.
Don’t ignore your personal brand. Review your social media presence and online accounts. Perform a search of your name on Google or Bing. Are you ok with what you find?
Ensure your LinkedIn profile is current and optimized for your business. Expand your profile, add a professional headshot, and make your page a compelling representation of your business.
Step 10: Find your first clients
Most consultants typically acquire their first clients from their existing network, such as previous employers or colleagues. These individuals are also useful contacts for potential referrals to their wider network.
Clients can also find you online. Make sure your website is optimized with keywords and content that reflects your expertise such as blogs, videos, and other resources. Reach out to others in your industry and look for opportunities to build your online profile with guest blogs or articles.
When a prospect reaches out to you, have an elevator pitch ready so you can quickly pitch your value proposition and how you can help them.
Frequently asked questions for starting a consulting business
How much does it cost to start a consulting business?
You can start a consulting business with little or no money. At the very least, you may need to consider the following costs: business formation costs (including initial filing with the state, hiring a registered agent, and other fees), permits and licenses, business insurance, website design and hosting, technology hardware and software, marketing, advertising, and business utilities and rent.
Do I need a consulting license?
Most businesses are subject to some form of business license, permit, and registration requirements. Even home-based businesses may require a home occupation permit.
Certain professional services have special licensing requirements. For example, if you engage in a service or profession such as architecture, engineering, real estate, or insurance, you may need a special permit or occupational or professional license.
How do I start as a consultant?
The first thing you need to do to become an independent consultant is to figure out what you're good at. Look at your current industry and see if you've got the skills, training, and education to offer top-notch advice and guidance on the issues within your field.
Once you've determined your specialty, check if there are any classes, workshops, or certifications that can help fill in any knowledge gaps or take your expertise to the next level.
It's also important to gain diverse experience in your area of expertise, especially in leadership roles, as this will boost your confidence in your abilities to consult with clients.
