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!
Introduction to Consulting
In this section we're going to cover:
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.
Now the cons.
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.
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:
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.
Keys to Getting Started
That's all for this lesson. In Start a Consulting Business we'll cover choosing your business name, logo, legal structure, and more.
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