I left a 180k a year job in 2013 to build a consulting company. It was my third attempt, and this one seems to be going well. We recently passed $1m in annual revenue. This question gets asked a lot, so I drew up some repeatable advice for building a consulting company in the style of the MMM case study spreadsheet.
Axecleaver's steps for starting your own consulting 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.
