Axecleaver's Steps for Starting Your Own Services Business

[Axecleaver]

These simple steps describe how to start a consulting business, but the rules are good for any services business.

Axecleaver's Steps for Starting Your Own Services Business
WHAT
1. Cut your minimum monthly living expenses as deeply as possible.
2. Build up a transition fund to pay your expenses for 6-12 months.
3. Write a business plan: visit www.score.org for templates.
3a. Set your services and rates (1/1000th of your annual salary is a good starting point).
4. Identify customers.
5. Set meetings to sell your services. If you sell everything you pitch, then you're not pitching to enough people. Shoot for a 25% close rate.
6. Keep your day job and deliver on nights/weekends until you have at least 20-40h/week of deliverable work sold.
7. Incorporate your business.
8. Once your day job is impacting your ability to deliver, turn in your notice.
9. Purchase insurance: errors and omissions/professional liability, general liability
10. When your sales exceed your ability to deliver, add staff.
11. Hire a payroll service, HSA and 401k providers. (Caveat: explore Solo-K and SEP-IRA if you never intend to have staff.)

WHY
1. If you run out of money, you're going back to work for The Man for the rest of your life.
2. Most consultants bill monthly at the end of the month, on net 30 terms. Clients can take up to 45 days to pay. Large checks take seven days to clear. This means a job you start working on June 1 may not make funds available to you until August 22 - nearly 12 weeks.
3. A business plan template will ask you questions you haven't thought to ask yet - what are your services and what is your rate, who are your customers, how will you market to them, what does your staffing plan look like, will you offer products or just services, what margins will you use?
4. Use every resource at your disposal to find customers: your rolodex, temp agencies, headhunters, Craigslist, etc.
5. Pipeline management is a critical skill in the  consulting business. You should be selling services at least three months out, but this takes time to develop. You should always be selling.
6. Building a reliable customer list takes time. Deliver against your core services while keeping your day job. Get used to 80-100h work weeks.
7. S-corps are popular choices for consultants because it allows you to pay yourself distributions, which avoids payroll taxes on a portion of your income.
8. Ease the transition into consulting by keeping your day job while you build your experience and customer list.
9. Protect yourself and your company with liability insurance. Many customers and prime vendors require it. Look for a million per instance in coverage as a starting point.
10. Hire staff as your company grows. Always be selling.
11. Outsource the administrative tasks that make the most sense.

[Smokystache]

Thanks for posting this. I've seen your steps before (and think they're excellent), but I think this is the perfect place for them (or perhaps they should be pinned at the top of the forum?).

[KMMK]

I'm not sure if you are planning on writing more but I'm going to presume this is Axecleaver's advice thread and must follow.

I did my steps in a weird order. Now that I'm finally done all my education, licensing, compliance things (which are many) I'm at the sell sell sell stage. I'm looking forward to getting into the meat of the business.

[SeattleCPA]

6. Keep your day job and deliver on nights/weekends until you have at least 20-40h/week of deliverable work sold.
7. Incorporate your business.
11. Hire a payroll service, HSA and 401k providers. (Caveat: explore Solo-K and SEP-IRA if you never intend to have staff.)

+1 on #6

Regarding #7, I'd recommend considering an LLC instead of a traditional corporation.

Regarding #11, I like SEP-IRAs too. Especially if you pair them with an S corporation...

[ElleFiji]

Posting to bookmark. Looks like I'm supposed to incorporate, and pitch more.

Are the meetings usually more valuable than marketing efforts?

[Axecleaver]

I did an LLC too, but that taught me that LLC's don't provide all that much protection. Once your business is humming, you really need to protect it with general and professional liability insurance. In my case, they're contractually required, but at this point I'd buy them even if they weren't. You can opt to have your LLC taxed as an S-corp, but it's not exactly the same.

Looks like I'm supposed to incorporate, and pitch more.

Pitch more, yes. This addresses pipeline management, essential to services business success, which merits its own post.

Are the meetings usually more valuable than marketing efforts

Marketing and sales are two completely different things. Marketing helps you connect with people who are interested in your product. Sales is where you close the deal and position yourself to upsell.

Services business rely on strong delivery - if you deliver for your client, they will buy more of what you offer, or allow you to expand into new service lines that augment their business.

[KarefulKactus15]

I did an LLC too, but that taught me that LLC's don't provide all that much protection. Once your business is humming, you really need to protect it with general and professional liability insurance. In my case, they're contractually required, but at this point I'd buy them even if they weren't. You can opt to have your LLC taxed as an S-corp, but it's not exactly the same.

Looks like I'm supposed to incorporate, and pitch more.

Pitch more, yes. This addresses pipeline management, essential to services business success, which merits its own post.

Are the meetings usually more valuable than marketing efforts

Marketing and sales are two completely different things. Marketing helps you connect with people who are interested in your product. Sales is where you close the deal and position yourself to upsell.

Services business rely on strong delivery - if you deliver for your client, they will buy more of what you offer, or allow you to expand into new service lines that augment their business.

Just cause the last part of the post mentioned marketing, Id like to drop this here:

https://www.amazon.com/1-Page-Marketing-Plan-Customers-Money/dp/1941142990/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr=

I dont own a business, but have GREATLY enjoyed this fairly short book. 

Maybe we will eventually have a suggested business books sticky...

[topshot]

5. Set meetings to sell your services. If you sell everything you pitch, then you're not pitching to enough people. Shoot for a 25% close rate.
6. Keep your day job and deliver on nights/weekends until you have at least 20-40h/week of deliverable work sold.

#5 seems most difficult to me given #6. Did you find that many customers willing to meet outside 8-5?

[SC93]

5. Set meetings to sell your services. If you sell everything you pitch, then you're not pitching to enough people. Shoot for a 25% close rate.

I've honestly never heard this before. Normally it goes like this.... if you are selling everything you pitch, you're not charging enough. By what Axecleaner is saying you should do more work and charge the same when the reality is that you should do less work and charge MORE. (I did change this, I typed the wrong thing at first) Which in turn would make it longer (if you choose) to get to #6. Keep your day job and deliver on nights/weekends until you have at least 20-40h/week of deliverable work sold AND #10. Hire staff as your company grows. Always be selling. Now once you get staff and need to keep them busy you could, if you choose, sell more at a lower rate but you never want to do that when you are working alone. When working alone YOU have the upper hand of really picking and choosing your jobs and your pay. You're not starting a business to work for peanuts. If everyone else is charging $50 an hour, you need to believe in yourself enough to where you can sell yourself at $60 an hour. I've done it myself, many times. Also, you might look in to the 1 page business plan. It helps get you going faster instead of putting things off for a year and then 5 years and then never actually starting anything because you are still writing a business plan.....

[Axecleaver]

That works, too. Really depends on your scale out strategy. If you never plan to scale out, then yes, raise your rates to throttle your close rate.

Re: 8-5, you can find people who will meet late afternoon or evenings, happy hour, Saturday lunch, Sunday brunch, dinner meetings.  Coffee date works.

[SC93]

Yes, nowadays people have started keeping MY hours. I do most of my washer & dryer sales around midnight. People are not tied down to certain hours as much as they used to be. I've even delivered after 11pm before. 8-5 is going out of style.

[KarefulKactus15]

Could someone please relay the message to my employer that traditional working hours are going out of style?  I don't think they received the message!

[tyrannostache]

My spouse recently landed a couple of big contracts for his relatively new consulting business, enough to mostly replace his day job salary for the first 4-6 months of next year. He has been delivering on the contracts and has been getting a good feel for continued work. Since I just got a substantial raise at my steady job, it's looking a lot more realistic for him to quit his day job to focus solely on the business.

Aside from axecleaver's excellent list, what resources do you all suggest for getting set up? Since this would no longer be a side hustle but a fully-formed business, we're looking to get well-prepared in terms of tax liability, insulating our family assets from the business, etc.

As a side note, his day job and his consulting work are in closely related related fields. He's highly respected in his field and has made a lot of industry contacts delivering great work his day job. Are there any issues with using those contacts to promote his consulting business?

[RedKing]

Thank's for the list. Very helpfull