Course Introduction

Jul. 14, 2020 by

Welcome to the Consulting Crash Course.

This course teaches how consulting works from a practical and legal standpoint. It covers topics like choosing your legal structure, accounting & bookkeeping, setting your rates, finding clients, and signing contracts. 

If you run a consulting / freelance business, or want to run one, this course is for you!

Course Modules

Introduction to Consulting
Start a Consulting Business
Consulting Pricing Strategies
Accounting for Consultants
Contracts for Consultants
How to Find Consulting Clients
Managing Consulting Projects

Introduction to Consulting

In this section we're going to cover: 

  • What is a consultant
  • The pros and cons of consulting 
  • What are independent contractors 
  • What's the difference between a contractor and an employee 
  • Some keys to getting started

First off, just a disclaimer. I'm not an accountant, attorney, or business advisor. I run a software consulting business in California. 

This is general consulting advice I wish someone told me when I started out. It lays out how consulting works from a legal and practical standpoint. 

Do your own research and understand which laws affect you at a local level. If you have specific questions about your business, you should seek out a professional that can help you.

What is a Consultant?

Google's definition is a person who provides expert advice professionally. 

My definition is a person who sells their skills and time for money

The important part here is you must already have a valuable skill that you can charge for. It should be easy to convince clients to pay you for your skill. For example, no one is shocked that I charge money for software development. 

Pros and Cons of Consulting

Let's start with the pros. 

  • You can make more money and quickly advance your career. 
  • You get more time and flexibility over your schedule.
  • You get to choose who you work with. 
  • You can work from home or client offices. 
  • You get to control the marketing and branding.

Now the cons. 

  • Work and pay is "less stable". That's in quotes because that's not actually true if you're running a successful business. 
  • You have to pay your own health care and benefits. 
  • You will work hours that aren't billable to your clients. 
  • There's a pressure to perform and always be productive. 
  • Work is always changing.

Independent Contractor

If you're in consulting, you're going to hear the term independent contractor. 

An independent contractor is a person that provides services under a contract. Unlike employees, independent contractors don't work regularly for an employer but work as required. They are usually paid on a freelance basis and work through a limited company that they own themselves. Contractors do not have income taxes withheld like regular employees. 

You can read more about this on Wikipedia.

For this course, we are going to assume you're starting or running your own consulting business and will be reffered to as an independent contractor by your clients. 

However, a consultant doesn’t necessarily have to be an independent contractor. For example, you could be an employee of a larger consulting firm and still act as a consultant for the company’s clients. Likewise, an independent contractor does not necessarily have to be consultant. Independent contractor is just a legal term that means you’re providing services but are not an employee of the company.

Going forward, “contractor” will refer to “independent contractor”.

Contractor vs Employee

Let's look at the differences between a contrator and an employee. 

Contractors and employees are treated differently from a legal standpoint. 

For employees: 

  • You agree to a salary and a pay period
  • The company has full control of your time
  • You typically get benefits through your company which includes health care, vision, dental etc. 
  • You are covered by a number of employment and labor laws. 
  • Your employer withholds money for taxes (includes your income, social security and medicare taxes). 
  • You fill out an I-9 tax form for your employer and then you receive a W-2 tax form from them to file your taxes.

For contractor: 

  • You get to set your own rates and sign contracts with your clients. 
  • You have ultimate control over your time. 
  • You pay for your own benefits. 
  • You're not covered by employment labor laws. 
  • You have to set aside money for your taxes. 
  • You provide your own tools and eqiupment. 
  • You fill out a W-9 tax form for clients and recieve a 1099 from them to file your taxes.

If you’re going to be a consultant, it's very important to make sure you’re classified as a independent contractor by the IRS and your state. If you only have one client all year, work for them for 40+ hrs a week and they control when you work. You are not a independent contractor. You're an employee, which creates all kinds of problems and legal implications.

Now if you’re just starting off and only have one client, that’s fine. The point is you should eventually serve more than one client and act like an independent contractor or you’re in danger of being a misclassified employee.

Here are some things that help prove you’re operating as an independent contractor:

  • You work with multiple clients.
  • You have control over your time and when you work for your client.
  • You sign contracts stating you’re a contractor.
  • You have an LLC or other business structure setup.
  • You own and provide your own tools and equipment (laptop, power tools)

The laws on independent contractors can vary from state to state. Search “independent contractors [your state]” to find the rules that pertain to your local area.

The IRS is one of the best resources to read up on the differences and tax obligations of independent contractors and employees. Here are a couple links where you can read more.

Contractor or Employee
Contractor Tax Forms

Keys to Getting Started

  • Making money is the most important goal when starting. If you don't have clients and you don't have a path towards how you're going to make money, you're not going to be a business for very long.
  • Set up the business right from the beginning, meaning legally and keeping track of the bookkeeping.
  • You're success depends on your ability to create trust and sell yourself. The best consultants are not the best at their craft but are the best at selling their skills.
  • Be a problem solver always take notes and be prepared. 
  • Ideally have 3 to 6 months worth of monthly expenses in savings or available credit. Preferably savings.
  • It may be smart to start your consulting business before leaving your main source of income. This gives you a head start before needing to replace your income. It also allows you to see if you enjoy it before completely taking the leap.

That's all for this lesson. In Start a Consulting Business we'll cover choosing your business name, logo, legal structure, and more.

If you found this useful, please share it and try HoursLogger if you need time tracking and invoicing for your business. 

Spend time consulting, not tracking time.


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