Common Mistakes When Starting a Consulting Business
The time has finally come. You’ve quit your job or reduced your hours, remodeled a spare bedroom into a home office, and possibly secured your very first consulting client. It’s the beginning of the consulting business you’ve always dreamed of starting.
Before you get too far along your path, you may want to be wary of the following five common mistakes that many new consultants make. Take the time to learn from others’ errors and save yourself time, money, and stress in the long run.
Mistake #1: Setting an Incorrect Price Point
Pricing your consulting services may be one of the most important things that you do. If you charge too little, it will be difficult for you to make ends meet, and clients may not take you seriously. If you charge too much, you won’t be able to secure enough clients to be sustainable.
Remember that as a consultant, you’ll be responsible for overhead expenses, such as space, utilities, and office equipment. In addition, the time that you spend on accounting and bookkeeping, seeking new clients, and other administrative tasks will not be paid for directly. As a result, you want to be sure to take those factors into account when setting your price.
It’s important to consider the project scope, what the competition is charging, and what your opportunity costs are. For example, it may be more important to have a few successful projects under your belt early in your consulting business than a large paycheck. You may decide to offer lower rates to initial clients that will give you an opportunity to establish your business and hopefully provide a positive review or referral.
As your business matures, you may at some point find that you have too much work. In this situation, you may be able to price your time at a higher rate in order to take advantage of the most lucrative opportunities.
Mistake #2: Failing to Set Boundaries
As a new consultant, you may expect to put in significantly more than 40 hours a week to get your business off the ground. You may also go above and beyond to please your initial client base. As long as these decisions are made deliberately for a certain length of time, they may be necessary investments.
However, as time goes on, it’s important to set specific boundaries for your consulting business. It won’t take long for you to burn out if you are constantly working and ignoring the natural human need for rest and recreation. A balanced life will help you be more focused and energized when it is time to work.
Boundaries with Clients
In addition, it’s important to set boundaries around the scope of work for each client. In some cases, clients may have additional needs arise as projects progress–and may expect you to provide more services within the current budget. Be sure to have a signed scope of work agreement before you get started to eliminate or minimize conflicts during the relationship. It’s a good idea to discuss how additional needs will be addressed before a contract is signed.
Mistake #3: Ignoring Tax Implications
One of the best investments that you can make in a consulting business is hiring a good accountant. Even if you have completed your own personal taxes over the years, taxes related to a consulting business can be incredibly complex and challenging.
Talk with your accountant about when and how much to put aside for things like quarterly taxes and what documentation must be kept to make annual filing easier. Depending on how you structure your business, you may have additional tax implications for unemployment, profit sharing, or revenue distributions.
Failing to start a solid accounting practice early on in your consulting business can lead to an incredibly complex and difficult situation, as well as tax penalties, down the road.
Mistake #4: Traveling Without a Map
If you’re taking a journey, you almost certainly know where you’re going. This rule is just as important for starting a new consulting business. Although many individuals simply try to secure new projects and clients without any particular business plan, this is not a good long-term idea.
As a consultant, it’s important to understand what your goals are for your business. Take a long-term look and consider what you like your business to look like in five or ten years. Write those priorities and goals down to give yourself something concrete to focus on.
Remember that the goal of your business doesn’t necessarily have to be establishing a large, complex consultancy company. Your goal simply may be to quit your part-time or full-time job or earn enough money to send your kids to college. Whatever your particular objective is in starting a consulting business, having that goal in front of you will help to lead the way.
Mistake #5: Bypassing Liability Insurance
Any consulting business that provides advice or services to clients would benefit from professional liability insurance. You can secure a business consultant insurance package that will help protect you if a client sues you for an error or mistake.
Whether you are consulting in business and management, career coaching, marketing or research, human resources, or any other service, mistakes will inevitably happen. In order to protect your new or growing business, be sure to invest in liability insurance early on.
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We offer professional liability insurance that will protect you against a lawsuit filed by an unhappy client claiming you have been negligent while performing your consulting services as well as coverage for bodily injury and damage to property of others. Get a free quote today in under 3 minutes.