How to Start a Consulting Business

How to Start a Consulting Business

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How to Start Your Own Consulting Business

Starting a consulting business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful consulting business.

Importantly, a critical step in starting a consulting firm is to complete your business plan. To help you out, you should download Growthink’s Ultimate Consulting Business Plan Template

16 Steps To Starting Your Own Consulting Business

  1. Choose the Name for Your Consulting Business
  2. Develop Your Consulting Company Business Plan
  3. Choose the Legal Structure for Your Consulting Business
  4. Secure Startup Funding For Your Consulting Business (If Needed)
  5. Secure a Location For Your Consulting Business
  6. Register Your Consulting Business With the IRS
  7. Open a Business Bank Account
  8. Get a Business Credit Card
  9. Get the Required Business Licenses and Permits
  10. Get the Right Insurance for Your Consulting Business
  11. Buy or Lease the Right Consulting Business Equipment
  12. Develop Your Consulting Business Marketing Materials
  13. Set Prices For Your Consulting Services
  14. Purchase and Setup the Software Needed To Run Your Consulting Business
  15. Hire Employees For Your Consulting Business
  16. Open Your Consulting Business


1. Choose the Name for Your Consulting Business

The first step to starting a successful consulting business is to choose your business’ name.

This is a very important choice since your company name is your brand and will last for the lifetime of your business.

Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your consulting business:

  1. Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check
    to see if a suitable domain name is available.
  2. Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
  3. Think about marketing. Come up with a name that reflects the desired brand and/or focus of your consulting firm.

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2. Develop Your Consulting Company Business Plan

One of the most important steps in starting a consulting business is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

Your business plan should include the following sections:

  1. Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your consulting business.
  2. Company Overview – this section tells the reader about the history of your consulting business and what type of consulting business you operate. For example, are you a management consulting, technology consulting or strategy consulting business?
  3. Industry Analysis – here you will document key information about the consulting industry. Conduct market research and document how big the industry is and what trends are affecting it.
  4. Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
  5. Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
  6. Marketing Plan – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
    • Product: Determine and document what products/services you will offer
    • Prices: Document the prices of your products/services
    • Place: Where will your business be located and how will that location help you increase sales?
    • Promotions: What promotional methods will you use to attract customers to your consulting business? For example, you might decide to use pay-per-click advertising, public
      relations, search engine optimization and/or social media marketing.
  7. Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this
    section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
  8. Management Team – this section details the background of your company’s management team.
  9. Financial Plan – finally, the financial plan answers questions including the following:
    • What startup costs will you incur?
    • What are your projected sales and expenses for the next five years?
    • Do you need to raise funding to launch your business?

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3. Choose the Legal Structure for Your Consulting Business

Next you need to choose a legal business structure for your consulting business and register it and your business name with the Secretary of State in each state where you operate your business. Below are the five most common legal structures:

1) Sole Proprietorship

A sole proprietorship is a business entity in which the owner of the consulting business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a consulting business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a consulting business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a consulting business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.

Once you register your consulting business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

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4. Secure Startup Funding For Your Consulting Business (If Needed)

In developing your consulting business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a consulting business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a consulting business that they believe has high potential for growth.

 

5. Secure a Location for Your Business

Having the right space can be important for your consulting business, particularly if you’d like to meet clients there and do not plan on running your consulting business from home. To find the right office space, consider:

  • Driving around to find the right areas while looking for “for lease” signs
  • Contacting a commercial real estate agent
  • Doing commercial real estate searches online
  • Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space

 

6. Register Your Consulting Business with the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.

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If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Consulting Business Plan Template and complete your plan and financial model in hours.

7. Open a Business Bank Account

It is important to establish a bank account in your consulting business’ name. This process is fairly simple and involves the following steps:

  1. Identify and contact the bank you want to use
  2. Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
  3. Complete the bank’s application form and provide all relevant information
  4. Meet with a banker to discuss your business needs and establish a relationship with them

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8. Get a Business Credit Card

You should get a business credit card for your consulting business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.

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9. Get the Required Business Licenses and Permits

Every state, county and city has different business license and permit requirements.
Nearly all states, counties and/or cities have license requirements including:

  • General Business License: Some states may not require you to obtain a business license if you work as an independent consultant, but you might need one if you have any employees.
  • Zoning Permit: You will need this permit if you plan on operating your business from a commercial space.
  • Sales Tax Permit: You will need this permit if you plan on selling physical products or taxable services.

Depending on the type of consulting business you launch, you will have to obtain the necessary state, county and/or city licenses.

RELATED ARTICLE: Consulting Business Plan

 

10. Get Business Insurance for Your Consulting Business

Business insurance policies that you should consider for your consulting business include:

  • General Liability Insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
  • Workers’ Compensation Insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
  • Commercial Property Insurance: This covers damage to your property caused by fire, theft, or vandalism.
  • Business Interruption Insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
  • Professional Liability Insurance: This protects your business against claims of professional negligence.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.

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11. Buy or Lease the Right Consulting Business Equipment

Most consulting companies don’t need much equipment. To start a consulting business, you probably only need a computer, phone and internet access. Make sure to invest in the right webcam if you plan on doing many virtual meetings with clients. You might also need office furniture.
 

12. Develop Your Consulting Business Marketing Materials

Marketing materials will also be required to attract prospective clients and retain relationships with existing consulting clients.
The key marketing materials you will need are as follows:

  1. Website: Likewise, a professional consulting business website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
  2. Build a professional website for your business with B12 Website Builder

  3. Social Media Accounts: Establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your consulting business.
  4. Logo: Spend some time developing a good logo for your consulting business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.

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13. Set Prices for Your Consulting Services

Your pricing strategy will depend on a variety of factors, including your level of experience and the services you offer. However, you can get an idea of what to charge by looking at the rates of other consultants in your area. You may also want to consider offering a free or discounted consultation to potential clients in order to win their business.
 

14. Purchase and Setup the Software Needed To Run Your Consulting Business

There are a few essential types of software that any consultant needs in order to run their business.
The first is accounting software such as Quickbooks for managing your finances. You will also need word processing and spreadsheet software. The most popular options are Microsoft Office and Google Workspace. It’s also helpful to have a customer relationship management (CRM) system such as Salesforce to help manage client relationships. Research the software that best suits your needs, purchase it, and set it up.

These top rated software providers make running your business a breeze:

 

15. Hire Employees for Your Consulting Business

If you are just starting out, you might be working solo or with a very small team. If you have the resources to hire additional employees, consider writing up job descriptions and posting them online with sites such as LinkedIn or in more local places. You might also chat with your existing connections to see if anyone is available or knows someone who might be interested in joining your growing team. As you interview candidates, be sure their skills are a good match for your needs and they seem like a fit with the company culture you want to build.
 

16. Open for Business

You are now ready to open your consulting business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.

 

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How To Open a Consulting Business FAQs

There is no one-size-fits-all answer to this question, as the ease or difficulty of starting a consulting business will vary depending on your skills, experience, and resources. 

However, if you follow the steps above, you should be able to start your consulting business without too much difficulty.

The best way to start your own business in the consulting industry with no experience is to start small. You can offer your services to friends and family members, or to local businesses. Once you have a few clients, you can then start marketing your business more aggressively.

The profitability of a consulting business will vary depending on the specific industry and services offered. However, some of the most profitable types of consulting firms include IT consulting, management consulting, and marketing consulting.

There is no set cost to start a consulting business. The amount of money you'll need to get most any new business will vary depending on the services you offer, the size of your business, and other factors. However, you'll likely need to invest in some basic equipment and supplies, such as a computer, printer, phone, and office supplies. You may also want to consider purchasing advertising or marketing materials, or investing in training or certification courses.

The ongoing expenses for a consulting business can vary depending on the type of services you offer. Generally, you will need to invest in marketing and advertising to attract clients, as well as office supplies and equipment. You may also need to pay for membership fees to professional organizations or networking groups. The biggest expenses are typically staffing costs and office lease fees.

A consulting business makes money by charging clients a fee for its services. The amount of the fee depends on the type of service offered, the experience and qualifications of the consultant, and the client's needs. Some consultants charge an hourly rate, while others may charge a flat fee for a specific project. The consulting business model you choose should work for how you want your business to earn money.

Yes, you can certainly own a profitable consulting business. 

The profitability of a consulting business will vary depending on the specific industry, geographical location, and other factors. However, there are a few things you can do to increase the chances of your consulting business being profitable. 

Some of the key things you can do to make your consulting business more profitable include: 

  1. Narrowing your focus to a specific niche market. This will allow you to become an expert in a specific area, and clients will be more likely to trust your advice and recommendations. 
  2. Offering add-on services that complement your main offering. For example, if you're a marketing consultant, you could offer to manage clients' social media or design campaigns in addition to your core offering.
  3. Taking time to understand the needs of your target market. Ask yourself, "What are they trying to achieve? What problems do they face? How can I help them overcome these challenges?" By understanding these key questions, you will be able to identify different client problems you can solve with your consulting service.
  4. Optimizing your website for SEO to increase online visibility. This will allow you to attract the right kind of client to your business, who are actively searching for a consultant in your niche market.
  5. Signing up for Google AdWords or Facebook Advertising if appropriate, to target potential clients on their own platforms.
  6. If appropriate, attend trade shows and networking events to connect with potential clients at these events. 
  7. Networking on social media channels so you can get in touch with potential clients or even find jobs through word-of-mouth referrals from your existing network of contacts.
  8. Creating a unique selling proposition. Be clear about what you can do that other consultants in your niche market cannot, and communicate this to potential clients.
  9. Treating each client relationship like a partnership, so they are more likely to recommend you to their connections or return for additional consulting work in future. 
  10. Keeping your costs low by using cloud-based software and outsourcing tasks to virtual assistants.
  11. Targeting a growing niche market that you can expand into in the future. 
  12. Testing out different strategies with a limited budget, so you can see which methods work best before investing heavily in these areas of your business.
  13. Building references from clients who are willing to recommend you to their friends. This is more valuable than testimonials on your website, as it builds social proof in the eyes of potential clients that you offer great value for money. 
  14. Investing in training in order to keep up with industry trends, and increase your knowledge about your niche market.
  15. Providing outstanding client service

Even a good consultant can run into problems that make their company fail. One of the main reasons that consulting businesses fail is a lack of planning. This can include not having a detailed business plan, not doing research on the industry, and not targeting the right customers.

Another reason is a lack of marketing and sales skills. This can include not creating a sales process and not have a clear and strong value proposition.

The last main reason is a lack of financial management skills. This can include not having a realistic budget, not tracking expenses, and not investing in the business.

The average salary for a consulting business operator is $107,553.

Startup cost for new consulting companies range from $10,000 to $50,000.

  1. Know Your Expertise - Identify the field where you can use your skills and knowledge and study everything that you need to know about it. Maximize your strengths and work on improving your weaknesses so you’ll be sure to provide excellent service to your clients.
  1. Secure Your Certifications - Consider taking certifications that are related to your specialization. This will build your reputation and increase your client’s trust and confidence in your business. This also gives you an advantage over non-certified consultants.
  1. Consider Hiring an Employee - Have someone reliable who can work on the administrative tasks that need to get done in your business. This will save you time and effort and keep you focused on taking care of your client’s specific and technical needs.
  1. Set Your Rates Right - Determine whether you are setting reasonable rates by looking up other consulting companies’ rates before giving your clients a quotation. Make sure to include in your computation all of the expenses that you would incur in a project especially your professional effort’s worth.
  1. Sell Yourself - Bump up your marketing efforts and let yourself be known by your potential clients. Advertise the services that you offer and your edge over competitors through word of mouth, print ads, and phone, email, and social media marketing.
  1. Value Relationships - Remember that you are not your own boss so make your client’s needs a priority. Pay attention to their demands and always be ready to offer solutions that work. Most importantly, establish personal connection with your clients by meeting with them as often as needed.
  1. Be Emotionally Ready - Starting a consulting company also means dealing with a lot of meetings with potential clients that do not end up hiring you. Be prepared on how to deal with such failures professionally. Your target clients will remember you in the way you deal with them and a positive attitude towards an unclosed deal might redeem you the next time they need a service that you offer or meet a friend that needs your expertise.

Running a profitable business requires spending some money. Here are the most common expenses in the consulting industry.

  • Wages – Over half of the consulting industry’s revenue last year is used for wages. It is expected to drop in the next five years.
  • Purchases and depreciation – Purchases make up almost 10% of the consulting companies’ revenue, while depreciation is 0.9%.
  • Rent and utilities – Last year, almost 4% of the industry’s revenue is comprised of rent and utilities.
  • Other – Marketing costs make up 1.8% of consulting industry.

The key customer segments in the consulting market are Financial services companies, Consumer products companies, Government organizations, Manufacturing companies, Technology and media companies, Individuals and non-profit organizations, Life science and healthcare companies, and Energy and utilities companies organizations.

The market leaders, in terms of market share are Accenture PLC (3.3%), McKinsey & Company (2.6%) and Deloitte Touche Tohmatsu (2.7%).

There are approximately 779,699 consulting businesses in the US, and $200.6 billion in revenue was been generated by the consulting industry last year. Over the past 5 years, its annual growth rate has reached 5.2%.

The two largest segments of the industry are Corporate strategy and Marketing and sales. Organizational design makes up the next largest segment, followed by Process and operations management, Human resources consulting, Financial advisory and IT strategy.

A number of factors affect the performance of the consulting industry. These drivers include:

  • Corporate Profit -   An increase in the corporate profit signifies that there is a high demand for consulting services among businesses. This also increases the industry revenue.
  • Aggregate Private Investment -  This refers to the value spent by business owners for equipment, properties, and software. When businesses expand their investments, they tend to need more help from consulting companies, so an increase in aggregate private investment is good for the consulting industry.
  • Number of Businesses -  An increase in the number of businesses also indicates a high demand for services and provides more prospect clients for consultants.
  • Government Consumption and Investment -  As the government expands its investments, the demand for consulting services also increases thus the industry revenue also rises. Government consumption and investment has increased over the last year.

 

Helpful Slideshows, Videos & Images

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Consulting by the Numbers

Consulting business statistics infographic

Marketing for Consultants

Marketing for Consultants infographic

 

Additional Resources in the Consulting Market

For additional information on the consulting market, consider these industry resources:

 

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