How to start a consultancy business: 5 steps to setting up as a management consultant
A consultant is an expert in their field who is employed by businesses to advise and share specialist knowledge. A management consultant is usually brought in by a company to identify and solve problems or to look for a way the company can operate more efficiently.
When setting up a consulting business, there are many different ways your services can be used, including:
- Working with the senior management team to improve how a business operates
- Reviewing accounting and tax processes to ensure everything is as it should be
- Learning how the business runs and identifying growth opportunities
- Developing and implementing improvements to current business practices
A successful management consultant can be invaluable to a company, helping businesses to face challenges they aren’t set up to deal with on their own. However, while becoming a management consultant can be an excellent career choice, it isn’t always an easy route to take. That said, if you’re willing to put in the time and effort, it could be very rewarding, both professionally and financially. Follow the steps below to find out how to become a management consultant within your own consulting business.
Five steps to starting a consulting business
Step 1: Identify your specialism and skillset
Consultants perform varied services, so thinking about the way you position your offering might be one of the first steps towards setting up. Your background will usually determine which path you take.
Some of the most common types of business consultants are:
- Management or financial consultants
- Strategic consultants
- Human resources consultants
- IT consultants
- Marketing consultants
To become a business consultant, you likely won’t need specific qualifications, but you will need knowledge other companies can put to use. A degree or a strong commercial background – or both – may put you at an advantage.
Some management consultants will advertise their industry qualifications or a postgraduate business degree, while others focus on their track record of delivering commercial success.
For example, if you want to become a management consultant, experience setting up your own successful business will give your clients the reassurance that you can offer them valuable advice.
You might also draw upon more specialist knowledge, such as supply chain insights, accounting experience or scientific credentials if they’re relevant within your field.
Starting a consulting business isn’t right for everyone. You’ll usually need to have solid industry experience and the skills to effectively communicate your knowledge. You’ll also need to be organised and able to work autonomously to service clients effectively.
Step 2: Create your consultancy business plan
Your business plan is an important step when setting up a consultancy – this will help you visualise what you hope to achieve from your business and how you will get there.
Things to think about include:
What are your goals?
Setting goals can help to focus your energies and might even make the success of your consulting business more likely. In a 1979 Harvard MBA Business School Study on Goal Setting, just 3% of graduates were found to have clear, written goals and plans to achieve them. Ten years later, a follow-up study found this minority made ten times as much money (external link) as the other 97% combined.
The way you visualise success for your consultancy start-up will be personal, but you might consider goals relating to:
- Client contracts – you may aim to secure five retainers in the first year for security and stability
- Revenue generation – noting down when you’d like to hit your first £25,000 or £100,000 could help you to gauge success
- Case studies – these help new business consultants to advertise their abilities, so you could build out one or two great examples in the first three months
- Setting SMART – specific, measurable, attainable, relevant and time-based – business targets may help you to become a successful management consultant. Learn more about how to set the right targets for your business with our article.
How much money do you need to start?
To become a business consultant, you’ll need to secure funds for start-up costs – how much you might require depends on the size of your initial overheads.
In 2016, the average UK business spent £22,756 in its first year (external link), according to a study commissioned by digital business service firm Geniac. Naturally, the figure you’ll need to aim for may be significantly lower or higher depending on your work.
Consultancy work can be independent, so you might not need to think about staffing costs beyond your own salary to begin with. However, you may still need to fund initial administration, accountancy and legal costs – plus business insurance.
Once you’ve estimated the cost of launching your consultancy, funding options might include:
- Savings – if you have cash to spare, this is the simplest method
- A business loan
- Government start-up loans (external link) – these can be worth up to £25,000, but there are strict eligibility criteria
- Venture capital from an investor or financial institution
- Angel investment from a private investor, in exchange for equity
Read more about funding a business.
What is your fee structure?
Setting targets for your consultancy is one side of the coin, but you also need a plan to generate revenue. When you sell services, the way you bill clients can shape your financial security, so market analysis could help you to understand what’s common in your field.
Weigh up industry standards alongside your experience level and any costs you need to meet to stay in profit or break even.
This billing method is the simplest – you charge a set hourly rate for the number of hours you work. Clients may feel this method offers flexibility, and it leaves you free to react if a project’s scope changes. However, charging by the hour may not give you a dependable income – especially if hours are not contracted.
Charging a fixed rate for each project helps both you and your client project fees for months to come. If tasks take longer than expected, however, you could be left worse off.
The ultimate safety net, a retainer pricing model charges clients in advance. It’s often favoured by established consultants who want to spend less time looking for projects, but might mean you need to lower your hourly rate slightly.
How will you find clients?
Knowing who to sell your services to can be an initial hurdle for consultants to clear. As you’re starting up you might use market analysis to pinpoint your target audience. This might be large energy firms, mid-size companies with plans to restructure or other small businesses with specific knowledge gaps.
An effective marketing strategy targets these groups, drawing on various channels to capture leads. You might nurture email contacts to direct prospective clients towards your blog or newsletter, advertise with industry publications and even rely on word-of-mouth recommendations once you’re established.
The best marketing channels for your consultancy firm depend on your niche – you might find entrepreneurs and HR directors on LinkedIn, but speaking at events could be better for finding marketing directors.
Why will clients choose you?
In consultancy, setting yourself apart will be key. Look at competitors working within your field of consultancy to note how they position themselves and highlight how your service differs.
Strong relationships and recommendations may also go a long way, especially in high-end management consultancy – delivering for your client’s bottom line is a selling point that’ll keep you thriving.
Your business plan will be your instruction manual for running your consulting business, so it’s imperative that you put in the time and effort to ensure its sound and workable. This is the stage of starting your own consulting business that you need to consider carefully and plan thoroughly.
If you’re wondering where to begin, this one page business plan guide will help point you in the right direction.
Step three: Register your business
Next, you’ll need to work out the best approach for setting up as a consulting business. This is most likely to be a choice between becoming a management consultant as a sole trader or a limited company. This decision will influence how you manage your company’s finances and how much tax you’ll owe.
Registering as a sole trader
Registering as a sole trader means you will be solely responsible for the liabilities that come with your business. Should you make a loss then you personally will be liable, but should your business be profitable then so are you. There are advantages to setting up as a sole trader (external link).
Before you make moves to become a sole trader management consultant, consider the potential disadvantages of working as a sole trader (external link), such as personal responsibility for financial losses and risk to your assets.
It may be easier to become a sole trader, but you will still need to fulfil your legal obligations to HMRC. You’ll need to register as self-employed, calculate turnover, submit tax returns and pay taxes owed on time. You also need to ensure you are up to date with your National Insurance contributions.
Registering as a limited company
Registering as a limited company (external link) means your consultancy business is a separate legal entity owned by shareholders and managed by terms laid out in the memorandum and articles of association (external link).
If you decide to become a business consultant under a limited company structure, this will affect how liability lands. Financial losses and debts fall to the company, instead of falling on you as an individual – as is the case with sole traders.
Keeping your accounts in order isn’t always as easy for a limited company, so you may need to hire an accountant for support. It can be easier to raise money as a limited company and sell your business, but calculating the optimal way to navigate pay as a limited company director (external link) can be complex – there are several options.
Possible disadvantages to registering your consultancy as a limited company include the need to annually file accounts with Companies House (external link). This is a legal requirement and there are financial penalties (external link) if you miss these deadlines.
Step four: Insure your business
No matter how professional you are, there’s always the possibility something might go wrong as your consulting business takes shape. If a problem arises when you’re just starting up or a year down the line, it’s helpful to have the right business insurance policy.
Having the correct cover from the outset means your business is in the best place possible to recover financially and practically if something goes wrong.
At Hiscox, we offer specially tailored cover for management consultants. The policy you choose is shaped to your business for a personalised level of cover.
Professional indemnity insurance helps to cover you in the unfortunate event you make a mistake that ends up losing your client money. Perhaps you made a mistake with your figures, and this resulted in you giving some bad advice – there’s a chance your client might sue for damages.
It can also be smart to consider public liability insurance. This is designed to cover you if you regularly attend meetings at clients’ business premises, or have clients visiting you at yours, and helps to cover you for any damages relating to third-party property damage. It can also cover you if a member of the public or a client brings a claim against you for an injury that occurs due to your business activities.
If you’re a sole trader, you’ll be able to take advantage of Hiscox tailored insurance policies. Several insurance products are brought together for the common needs of sole traders and the self-employed for robust protection from the liabilities associated with this independence.
Step five: Get organised and land your first consulting client
Launching a consulting business is as much about the day-to-day as the end goal, so think about what your ideal working day might look like.
To ensure a smooth-running start, make sure you’ve got all the right equipment in place – you might need to invest in a business computer and other kit to help you process client information effectively.
Home working can reduce the costs and upheaval when you start up, though you may need additional cyber security infrastructure or hardware to run a consultancy reliably from home.
Staying primed for your first clients means completing the underlying administrative work well ahead of their onboarding. If templates and questionnaires will help you to understand your client’s expectations, prepare these ahead of time – and if there’s a welcome video, plan the final edit as soon as you can.
Once you have your consulting business set up, you need to think about your first clients. Usually, you will find them from your existing professional network – referrals are valuable.
Think about people you have worked with in the past and still maintain a working professional relationship with. You can use these contacts to help you to become a management consultant. It can be as simple as an email letting them know you’re offering your services on a consulting basis, or you might choose to explore networking events and arrange to connect with prospects over lunch.
Don’t be afraid of the waiting game. It might be that contacts don’t require your support just now, but they know someone who does. Word of mouth is important when setting up your management consultancy business.
Combine in-person efforts with a stellar marketing strategy and great performance for your clients and watch as your consulting business, with any luck, goes from strength to strength.
At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.