How To Become an Independent Consultant
After discovering that I’ve been an independent IT consultant for quite some time, I’ve had quite a few people ask me how they too can enter this most exciting of careers. Since I recently typed up some advice around this for the 3rd or 4th time, I figured it would be worthwhile to put it in one place to refer people to. I’m not going to cover a lot of the more detailed items – some things I will happily leave to lawyers and accountants – but rather I’m covering the high level items. These are the things that usually turn people off from the idea anyways; if you’re still interested after this, contact me and I’ll help you further.
Note: I’m sure parts of this will come across cynical. They’re really not, I’m simply trying to lay out the facts – both pretty and ugly – around becoming an independent consultant.
Further Note: I am not a lawyer. I am not an accountant. Like I state below, you should talk to both a lawyer and an accountant prior to embarking on a journey like this. If you make mistakes, the penalties are ludicrously large. Don’t blame me if you do something wrong.
Carefully Consider What You’re Doing
When people ask me how it feels to be my own boss, I can’t help but laugh. In the movie The Patriot, there is a specific line that always resonates through my head: “Why should I trade one tyrant, three thousand miles away for three thousand tyrants, one mile away?” Now, I’m in no way comparing my customers to tyrants as they’re usually very easy to work with, but I can’t stress enough that while independent consulting gives you freedoms most don’t have, you are in fact trading one boss for dozens of bosses. You report to every single one of your customers all the time.
Obviously this results in quite a bit of juggling, which requires a certain mindset that most simply don’t have: You need to possess both a willingness and ability to switch your train of thought on the fly, and you have to be able to please multiple people simultaneously while still turning out excellent work product. Luckily you don’t have to do it in 8 hours because there will be plenty of days you get to put in 12-16 hours making sure everything gets done.
Figure Out What You’re Good At
The first part of this is quite obvious; find something you’re really, really good at. It doesn’t have to be a ‘white collar’ profession either. I personally know IT consultants, sales consultants, marketing consultants, supply chain management consultants, and wholesale distribution consultants; even Cesar Millan is really a consultant in the end. The key is that it needs to be something you’re excellent at that you truly enjoy doing.
Oh, and it also needs to be something that you can demonstrate enough value in that people will happily pay you to do it for them. I’m not going to cover how much to charge here as that is a blog post in and of itself.
If You Choose A Niche Field…
Personally, I’m in a niche field. While I’m an IT consultant and advertise my expertise across a narrow(ish) spectrum of services, I spend most of my time doing systems integration for messaging and directory infrastructure in the merger/acquisition/divestiture space.
Moral of the story? If you can’t find enough customers local to you, you’re going to end up traveling. It’s not as bad as it sounds.
Get A Business License
Quite simply, business licenses are mandatory, even if you’re a Sole Proprietorship. There really isn’t any justification needed for this – it’s just the law of the land. Also some companies (mine, for example, when I subcontract work out to others) require a business license prior to putting you on a contract. LegalZoom has a good article on the subject.
You’re likely going to want insurance to cover both Errors & Omissions and General Liability, at a minimum. A good insurance broker will be your friend here as the cost of the premiums can be all over the board and they can tell you what you actually need. You know, instead of the likely completely off base suggestion I gave earlier in this paragraph.
If you end up in the IT consulting field, I can’t recommend TechInsurance enough. I signed with them a few years ago and never looked back.
Note: As I state below, you’ll probably spend a good amount of time sub-contracting through other companies. I’ve never seen a single contract that doesn’t require seven figures of insurance.
Find An Accountant
This really shouldn’t need to be said, but I’ll say it anyways. Unless you’re a CPA yourself, go find a CPA to work with. If you’re in the Seattle area, I can recommend Mark Bennett without any reservations. If you’re not in the Seattle area, ask around for a personal reference.
I’m not saying “don’t do your own books” here by the way. Rather, contact your accountant with specific accounting questions and then pay them to review your books on a monthly basis. Or something different if they recommend it.
Consider an LLC or Corporation
There are a number of benefits, both legal and financial, to running your business as an LLC or Corporation. Talk to an attorney and accountant to make the right choice for you, but at least consider it.
While I firmly believe that QuickBooks is developed by SatanSoft, Inc. it is quite simply the gold standard. Once you learn how to use it, it is quite simple and most accountants will only work with QuickBooks. Note that many don’t want to work with QuickBooks Online as it doesn’t deliver all the features needed.
Yes, I know there are many other options, but save yourself some time. The money you save isn’t worth it as an accountant fixing your books down the road will negate all the cost savings, cost you some more on top of that, and give you a huge headache.
Send Invoices to Customers
Don’t just expect your customer to pay you. Even if they’re willing or offer to do that, don’t do it. If you’re going down this path, you’re not an employee and you don’t want to risk being retroactively classified as one down the road. Personally, I don’t pay sub-contractors unless they send me an invoice for a number of reasons, most having to do with maintaining the employee vs contractor boundary.
Also, don’t expect to get paid right away. I work with a couple companies that pay on receipt, but the remainder are on Net Terms. Oh, did I forget to mention you’re also going to be a money lender now? <grin>
Expect To Be a Sub-Contractor
When you start, and likely for quite some time afterwards, you’ll be solo. This will make large companies shy away from working with you directly. However if you’re good at what you do you’ll likely find a lot of “partnering opportunities”, which will allow you to come in as part of a larger team, offering your specific expertise to help complete a broader project goal. For example, I’m currently part of a five person team working at one of the largest businesses in the US.
Build Your Network!
You’ll be surprised where some of your most lucrative work comes from. I’ve landed business from friends, family, former colleagues, even strangers on planes, a train, two hotel bars, and – once – a NYC subway car. Strike up conversations with people around you; if you can work with them exchange business cards and follow up. It will not always pan out, but if you don’t let anyone know what you do, nobody will ever hire you.