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Key Questions to Ask Before Starting a Consulting Business (Guide)

By MBO Partners • October 18, 2022

10 MIN

If you’re considering going solo and becoming an independent consultant, you are not alone. Independence resonates across generations and those who have made the transition have built and maintained satisfying careers.

MBO Partners’ research suggests there has never been a better time to be an independent, so it’s a good decision to develop a strategy if you are considering joining the bandwagon. We predict that by the end of the decade, over half of the private U.S. workforce will be career independents. This begs the question: Is it right for you? This guide will help you determine if you are ready to start a consulting business.

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How to Determine If You Are Emotionally Ready

Every job change has an emotional aspect. After all, you are leaving familiar policies, procedures and people. Transitioning from employee to independent is a significant career and life shift. Unlike a company or position change, in addition to new people and policies you also must acclimate to a new structure of how work gets done.

Making the move to becoming a solo professional requires the right mindset. You must be prepared for the added responsibility and risks. As an employee, your employer typically covers your benefits, offers retirement plans, and may even provide other financial perks such as stock options. Most importantly, you are being paid on a fixed schedule.

Working independently requires the emotional strength to navigate the responsibility (and inevitable moments of anxiety) of running both the business and its entire infrastructure. When you are considering becoming an independent, you need to prepare yourself to work harder and smarter. Become comfortable multitasking and wearing multiple hats such as accounting, marketing, and client service.

Will I Enjoy Working Independently?

As an independent, you will be the boss and the entire team. That means you’re responsible for the vision and direction of your company in addition to bearing the sole responsibility for client projects. The independent worker both understands and enjoys the fact that they are in full control of their own career.

Do I Have Good Time Management Skills?

Time is money for the independent professional. You’ll need to manage your time effectively to maximize your billable hours and deliver client work according to agreed-upon schedules. If you struggle prioritizing and balancing multiple responsibilities, a solo career might not be right for you.

Is My Family Supportive of This Move?

Becoming an independent is not only a major life shift for you but for your family as well. It’s important for everyone to be on the same page. Discuss your plans and the impact with the entire family. If you’re not all in agreement, it can put tremendous stress on both you and them.

Are There Dependents Who Rely on Me?

One of the attractions of being an independent contractor is the ability to set a flexible schedule and work from home. However, as an independent you are also responsible for providing your own job security. You must consider both the financial and emotional considerations of supporting your own income.

Is This a Planned Decision?

As an independent, you will have greater freedom, flexibility, and control over your work-life balance, but you are also taking on the responsibility of marketing your services, identifying and attracting clients, paying for benefits, and other duties related to running your own business. A career as an independent contractor should be a planned choice, one that fits your lifestyle and goals.

How to Determine If You Are Professionally Ready

Have you developed your unique skill set? Coming from an employee background, you’re likely used to handling a variety of tasks, but can you package your skills to market yourself as an independent? You need a specialized skillset that not only can be sold but also positions you as the go-to expert in your field. Here are some questions to ask yourself before you embark upon the next stage of your career.

Do I Have a Unique, Marketable Skill Set?

You need to possess the talent and expertise that produces results. To sell your skillset, you must be able to quantify what you do and demonstrate how it translates into measurable returns for your clients. Aim to differentiate yourself with specific services within your area of expertise for the best results. For example, offering marketing services or tech consulting are good broad overviews, but positions yourself as a social media marketing expert who specializes in configuring and monitoring search engine optimization (SEO) for small-to-medium businesses gives you a different value proposition and will attract more clients.

Do I Have a Clear Vision and Plan?

You should have a clear vision for what you want from your business including your income goals, work location, and hours. You need to have a plan for the type of clients you’re looking for and the services you’ll offer them. Know what you want to achieve right from the start and have a plan for how you’ll evolve your solo business.

Do I Understand How to Run a Business?

You’re not just working on a contract; you are operating a business-of-one. Your micro-business requires a plan so you can understand where to cut spending, where to invest, what services you plan to sell, how to price your consulting services, and how you are going pay yourself.

Can I Get Projects from My Current Network?

Generally, your professional network will be your best source of new business. Former colleagues will likely be supportive of your entrepreneurial pursuits and more than happy to send work your way. Starting your business with an initial contract will provide you with a source of income along with results that you can leverage to secure your future contracts.

Am I “Connected”?

Along with what you know, who you know can be a defining factor in your success as an independent consultant. Networking is very important for building your business. Being an active member of professional groups or associations and having an up-to-date contact list can open many new opportunities for your new consultancy.

Have I Prepared My Online Presence?

Your stock increases greatly when clients search for you online and find your credentials. Be sure that your online profiles such as LinkedIn are up-to-date and showcase you as an expert in your skill set. Also consider creating a professional website with a few pages of information about what you do and how to contact you.

How to Determine If You Are Financially Ready

Your financial readiness can be the difference between struggle and success. One of the biggest changes is no longer receiving a bi-weekly paycheck. In fact, you may experience long periods without pay. Factors such as invoicing frequency, payment terms, and client payment turnaround will all impact on your cash flow. For example, if you bill monthly and your client has 30 days to pay, you could be working for two to three months without payment, and that’s after the time it takes you to land your first contract.

You also need to budget for the expenses of becoming independent. Your benefits and taxes are no longer subsidized by an employer but are now your full responsibility. There may be marketing, legal and subcontracting expenses as well. Meanwhile, your clients may require error and omissions or general liability insurance.

And finally, don’t overlook professionalism in your financial plan. It’s essential to maintain the same standard of professionalism as your client, which means having the right tools and technology. Consider your equipment needs such as computer, fax machine, and business phone line before you get started.

Do I Have the Resources to Go Out on My Own?

Without that steady paycheck, it’s crucial to have at least three months of cash reserve in a liquid account to cover daily expenses. Be realistic and assess whether you have the resources needed to strike out on your own. If you don’t, keep working and build up your reserves so that you can strike out on your own when you’re financially prepared.

Do I Have Another Person That Can Help Support My Lifestyle?

Having someone else to share the financial burden can help alleviate some of the stress involved with starting your new consultancy. It’s important to consider other sources of income as you plan your reserves prior to business launch. This can also determine the amount of reserve that you will need in order to comfortably transition to independence.

Do I have a Client Willing to Commit to a Contract?

It’s much easier to make the change from W-2 employee to 1099 independent contractor with a contract in hand. After all, your first contract can provide you with a much-needed source of income. You should still have reserves to cover you as you wait for the first payment.

Have I Fully Understood the Costs and Time Commitments?

Don’t underestimate the time and money required to start a solo business. It’s critical to take the time to understand and plan for the increased costs of independence. You must budget not only for those expenses but for your overall cash flow. Initially, there may be periods without income. Will you be able to comfortably manage your daily expenses, employee benefits, and other costs if cash isn’t coming in on a regular basis? It’s equally important to account for the time that will be required to launch your solo business.

Do I Understand Business Tax Implications?

The No. 1 mistake that independent workers make is failing to plan for their tax burden. Independent contractors must ensure that they account for self-employment tax in addition to the standard income tax. Estimated taxes can reduce the end-of-year tax burden, and in fact are required for certain income levels. Failure to fully fund estimated quarterly taxes and account for self-employment tax can result in an unplanned tax burden that may also include penalties and interest for underpayment.