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electric

Suggestions for starting your own consulting firm

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I am electrical PE working for MEP consulting firm with more than 7 years experience. I would like to know the lessons learned, suggestions, pitfalls from people who quit their job to start their own consulting firm based upon their past experience.

Sometimes I think I want to jump into it but it is a scary thought not having a regular paycheck.

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I started my own Civil firm with a fellow worker last year. My advice would be to really examine your capabilities. If you know that you can do everything technically, study the business side and get familiar with Quick-books. Set up an LLC using legal-zoom or other service; its not that hard.

I also would not do it alone. There are not enough hours in a week to: get the work, do the work, and bill the work on a consistent basis. A business partner of the same mindset can greatly help reduce the stress and keep you both headed in the right direction.

Estimate 25-30% of your income will be taxes. Find a good accountant. Buy only what you need. If you need CAD, Bricscad is a very good AutoCad clone for less than $500.

Don't bill less than the value of your work. If you do it once as a favor, that's your new price - forever. Be competitive, but don't cut your throat (and your peers) just so you can later find out why the billing rate was 3x your pay.

Figure on 2-3 months of interrupted cash flow IF you have something to work on from Day 1. In this environment, I would not start up something with a "hope" of getting the work (unless you can do without a paycheck for 3-6 months). Don't take existing work away from your current employer, keep it ethical.

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rktman - How many years experience (after graduation) did you have before you ventured out on your own?

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Dont jump until you have a client, if you cant get clients before you jump, you cant get clients after you jump. I worked for the MAN for 12 years before I made the jump, and I took my clients with me. I know many firms think they own the client but that is not the case, or if they do, they won't jump.

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EnvEngr is correct. It is business, not marriage. My previous response was not clear. If they come to you, that's one thing. If you go them while getting paid for your current job, that's another. Almost all start-ups have had to deal with this issue. I would guess that most end up taking a client or two with them if they've developed the solid relationship.

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I started my own Civil firm with a fellow worker last year. My advice would be to really examine your capabilities. If you know that you can do everything technically, study the business side and get familiar with Quick-books. Set up an LLC using legal-zoom or other service; its not that hard.

I also would not do it alone. There are not enough hours in a week to: get the work, do the work, and bill the work on a consistent basis. A business partner of the same mindset can greatly help reduce the stress and keep you both headed in the right direction.

Estimate 25-30% of your income will be taxes. Find a good accountant. Buy only what you need. If you need CAD, Bricscad is a very good AutoCad clone for less than $500.

Don't bill less than the value of your work. If you do it once as a favor, that's your new price - forever. Be competitive, but don't cut your throat (and your peers) just so you can later find out why the billing rate was 3x your pay.

Figure on 2-3 months of interrupted cash flow IF you have something to work on from Day 1. In this environment, I would not start up something with a "hope" of getting the work (unless you can do without a paycheck for 3-6 months). Don't take existing work away from your current employer, keep it ethical.

RKT - This is a fairly spot on assessment when I compare it to my situation when I started my own firm in late 2009. Although it hasn't been always the easiest road, it's been well worth it.

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We work with small and medium sized businesses every day. That is what we do. I would STRONGLY SUGGEST taking some business training, like Next Level or Fast Track BEFORE you decide to jump. Your Small Business Development Center or community college will know what these classes are and when they are offered. Basically, they are business 101 and 201 combined, 13 weeks, 3 hours per week. If you do the homework and really pay attention, you will be golden. My experience having taught these courses for several years is that the ones who really do well are the ones that "buy into the philosophy" and do the homework.



You will end up with a rich business plan if you do this right. You really need a business plan before you start. Otherwise you will flounder and possibly look at the window most days, wondering why the phone is not ringing.



Depending upon what you are going to do, you can find a lot of used equipment that is perfectly serviceable. Of course, I would not buy any computer/software/printer products pre owned. I would buy office furniture, etc preowned.



There are some great books on how to start a legal practice on the web. Read those. The domain, engineering v law is different, however, the paradigm is exactly the same.



If you take a partner, make damn sure that you have a partnership agreement drawn up by a lawyer. Somebody has to be the 51% partner-- ideally, you will find a partner that has complimentary skills, one guy likes going out and getting the work, the other guy likes doing the work. If both guys like doing the work and nobody is out selling, the days can get mighty long and you will go hungry.


NOT use legal zoom or some other web based service. Why? Well, depending upon your situation, the business structure may be different.



We always recommend a good attorney, accountant and consultant (like us!!) before you start. Yeah, you are going to spend some $$ up front, however, rest assured that they will be nothing like you will spend if you get yourself in a bind and have to get out.



I have enough stories to curl your hair and if you have curly hair, it will look like a fuzz ball!!!!!!



Go slow and think this through very carefully. Employees and supervision are another challenge. Remember, the troops have to eat first before you eat--- ie, you have to pay them first, then you. This can be a real challenge.



Think about this real hard. It is worth doing, but worth doing well.


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When y'all went out on your own, what did you do about cad blocks, specs, notes and all that stuff? Did you use the same stuff that you used at your old employer?

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When y'all went out on your own, what did you do about cad blocks, specs, notes and all that stuff? Did you use the same stuff that you used at your old employer?

No firsthand experience here, but I'd sure as heck draw everything back up from scratch.

My non-legal opinion: they can't claim ownership of your experience and ideas you've seen implemented well or poorly (minus certain proprietary information and non-competes), but I wouldn't use anything they can trace back to a file developed on company time. Even if you end up doing things the same, starting from scratch should give enough differences for it to be clearly arguable as your own set of blocks/specs/notes.

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What is the best strategy to get clients? I think this is the most difficult part in starting your own business. For example, I am working in a company that deals with Huge companies only and I do not think any of them would be interested to work with small companies. I do not know how to get clients if I started my own business.


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I recently found that California law does not allow you to form an LLC to offer professional services. What is the structure typically used for start ups in CA? Sole proprietorship?


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There are several excellent resources on this topic (i.e. forming a new engineering business), including information that can be found through the Small Business Administration (SBA) and the American Consulting Engineers Council (ACEC).



If you're also looking to take Business and Management classes, I would recommend Coursera. It's an education technology company founded by two Stanford professors that offers free online classes. I recently took "Foundations of Business Strategy" which provided an excellent explanation on how to perform a strategic analysis.


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Also, if you are minority, you can offer DBE/MBE Engineering services. Work long enough to built relationship with bigger engineering firms that need to meet the MBE requirement. This is where you come in and offer reliability services to them.



From my experience, I see a lot incompetence MBE/DBE firms. They do not offer real engineering work. Most of the MBE firms offer procurement, scheduling, paper work crap. When they are given some real work, a good percentage of them can't perform.


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What is the best strategy to get clients? I think this is the most difficult part in starting your own business. For example, I am working in a company that deals with Huge companies only and I do not think any of them would be interested to work with small companies. I do not know how to get clients if I started my own business.

Most clients are based on relationship you built overtime when you are working with the firms..

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1. Where do you shop for professional liability insurance (E&O)? Do you just google that? I was looking at CNA. Any other suggested one's based upon your experience?



2. For registering your company, can you have PO box number as your address in that state if you plan to work from home and it happens to be in other state where you are not licensed? I looked at the SBA website and could not find any information. I was not able to find any mentor either from SCORE.



I think, I am ready. I have figured out many things and I realize that I can't wait to figure out everything. I have a client who is willing to offer me project and I am doing it in ethical way.



Well if it doesn't work, I will always have my license and work experience to find a job.

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1. Where do you shop for professional liability insurance (E&O)? Do you just google that? I was looking at CNA. Any other suggested one's based upon your experience?

2. For registering your company, can you have PO box number as your address in that state if you plan to work from home and it happens to be in other state where you are not licensed? I looked at the SBA website and could not find any information. I was not able to find any mentor either from SCORE.

I think, I am ready. I have figured out many things and I realize that I can't wait to figure out everything. I have a client who is willing to offer me project and I am doing it in ethical way.

Well if it doesn't work, I will always have my license and work experience to find a job.

1. I just asked my insurance broker that provides my home/auto insurance and he found me someone in the same state.

2. I'm slow so ... you are going to work from home in State A that you are also licensed in. You want to register and have a PO box in State B that you aren't licensed in? Contact the state board.

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I'm electrical engineer PE. I have 6 years of experience in power system and controls....currently I'm not working and thinking about starting a consulting business. I'm gonna start with some power system work that I'm good at technically

what should be the first step to start? I live in minnesota...

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43 minutes ago, MM2 said:

I'm electrical engineer PE. I have 6 years of experience in power system and controls....currently I'm not working and thinking about starting a consulting business. I'm gonna start with some power system work that I'm good at technically

what should be the first step to start? I live in minnesota...

Go door to door/cold call/cold mail potential clients to see if they would be interested in whatever you have to sell them

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6 hours ago, willsee said:

Go door to door/cold call/cold mail potential clients to see if they would be interested in whatever you have to sell them

should i create website and logo and etc first?

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Getting a GOOD website and logo can be very expensive, and I would discourage you from spending your precious money on that upfront. Also, be very cautious when dealing with people selling advertisement, they will promise you the Moon but will rarely deliver. Word-of-mouth referrals are the single-most important source of business (from personal experience and the experience of other small consulting firm owners I know). So it is critical to make your clients happy!

Focus on getting the legal and financial aspects in order first. Which is not nearly as much fun as goofing around with graphics and types...  Lawsuits and/or trouble with the IRS, etc. can destroy you financially. 

A way to avoid burning bridges with your current employer is to offer services that are tangential to what they do. And honestly discuss your intent with them. That way, they can become a great source of referrals (just remember to return the favor). Make sure that you do not continue to use copies of AutoCAD, etc. that they installed on your personal laptop so that you could work from home, or any other shady practices.

Prepare yourself for a lot of work that is totally unrelated to what you love (engineering). Unless you pay others to do these things for you, you will be spending most of your time drumming up business, writing proposals/agreements/change orders, dealing with accounts receivable/payable and collections (bugging people...), and dealing with local/state/federal taxes and reporting requirements. Also, if you are planning on doing residential stuff, prepare yourself for clients who want to talk with you when they are off work, i.e., evenings/nights and weekends. 

Be realistic about multipliers. Charging $200/hour does not mean that you will make $200/hour. In our industry, the multiplier is typically around 3, so a billing rate of $200 would correspond to an hourly rate of $67. But do not assume that you will be making anything near that in the beginning. Starting a new business, you will most likely be working a lot of non-billable hours for each billable hour. So prepare yourself for a rather depressing hourly rate. Unless you are able to crank up your billing rate accordingly ;-) 

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6 hours ago, willsee said: Go door to door/cold call/cold mail potential clients to see if they would be interested in whatever you have to sell them

should i create website and logo and etc first?

Previous response said it best.

Legal, accounting, insurance should be priorities. I've been there with the incorporation, website, logo etc... not worth the money now. Get some nice and clean business cards, build up your LinkedIn profile with work samples and past projects, and do a lot of networking to get jobs. Cities, municipalities, freelance websites, non-profits etc...

The only reason you need a website is to send someone to look at your work. Some people don't have LinkedIn so if you have the time and skills, build one. Paying someone will cost you and it's not something that will come up in common search. Marketers and Google will say they can make it happen. Don't take the bait.

Sent from my SURTAB-722-3G-HD-1S using Tapatalk

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5 hours ago, MM2 said:

should i create website and logo and etc first?

I wouldn't bother.  You don't know if anyone wants what you have to sell and they won't be buying based off of a logo or a website.  If you want a business cards go on fiverr and have someone make you one.  My sister in law did all my stuff.

3 hours ago, MostlyCivil said:

Getting a GOOD website and logo can be very expensive, and I would discourage you from spending your precious money on that upfront. Also, be very cautious when dealing with people selling advertisement, they will promise you the Moon but will rarely deliver. Word-of-mouth referrals are the single-most important source of business (from personal experience and the experience of other small consulting firm owners I know). So it is critical to make your clients happy!

Focus on getting the legal and financial aspects in order first. Which is not nearly as much fun as goofing around with graphics and types...  Lawsuits and/or trouble with the IRS, etc. can destroy you financially. 

A way to avoid burning bridges with your current employer is to offer services that are tangential to what they do. And honestly discuss your intent with them. That way, they can become a great source of referrals (just remember to return the favor). Make sure that you do not continue to use copies of AutoCAD, etc. that they installed on your personal laptop so that you could work from home, or any other shady practices.

Prepare yourself for a lot of work that is totally unrelated to what you love (engineering). Unless you pay others to do these things for you, you will be spending most of your time drumming up business, writing proposals/agreements/change orders, dealing with accounts receivable/payable and collections (bugging people...), and dealing with local/state/federal taxes and reporting requirements. Also, if you are planning on doing residential stuff, prepare yourself for clients who want to talk with you when they are off work, i.e., evenings/nights and weekends. 

Be realistic about multipliers. Charging $200/hour does not mean that you will make $200/hour. In our industry, the multiplier is typically around 3, so a billing rate of $200 would correspond to an hourly rate of $67. But do not assume that you will be making anything near that in the beginning. Starting a new business, you will most likely be working a lot of non-billable hours for each billable hour. So prepare yourself for a rather depressing hourly rate. Unless you are able to crank up your billing rate accordingly ;-) 

I wouldn't bother with legal, financial, etc.  until you know you can sell and get a client.   If no one cares about you and you can't get a client you will have wasted time and money worrying about stuff that didn't matter.  Use that money to take bagels/coffees/lunches/booze to potential clients or networking opportunities. 

It works for me.  I don't really care for engineering and I enjoy working with clients, networking, etc.  I don't charge an hourly rate 95% of the time, just a flat fee.  I'm not a commodity and I don't track my hours. 

If you do controls work and are a minority hit up electrical contractors going after utility work.  Typically ALL controls companies are DBE. 

The key is to get out there and go door to door, see if you have it in your stomach to pick up the phone and cold call and be rejected and still pick it up to make the next call/meeting/whatever.

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2 hours ago, willsee said:

I don't charge an hourly rate 95% of the time, just a flat fee.  I'm not a commodity and I don't track my hours.  I'm not a commodity and I don't track my hours. 

But even when you charge on a fixed-fee basis, I would think that you need to use some kind of metric to determine what your service is worth. One such metric is to estimate how long it will take you, then decide what that time is worth, and then base the fee on that. 

Just curious: if you do not track your hours, how do you evaluate what types of projects it is worth your while to pursue (or if you are underselling yourself)? I have certain types of projects that I can bang out quickly, and therefore I know that I will make a killing when charging the market rate. Other jobs, I would not touch with a 10-pole because I know it will take me too long, and I am not willing to work for minimum wages.

And I would argue that the services we provide (regardless of how specialized they are) are a commodity. There is a market, and you can only charge as much as the market will bear.

Also, if the scope is unclear or complex, it may be wise to charge on a time & materials basis rather than being stuck with an underestimated fixed fee.

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5 hours ago, MostlyCivil said:

But even when you charge on a fixed-fee basis, I would think that you need to use some kind of metric to determine what your service is worth. One such metric is to estimate how long it will take you, then decide what that time is worth, and then base the fee on that. 

Just curious: if you do not track your hours, how do you evaluate what types of projects it is worth your while to pursue (or if you are underselling yourself)? I have certain types of projects that I can bang out quickly, and therefore I know that I will make a killing when charging the market rate. Other jobs, I would not touch with a 10-pole because I know it will take me too long, and I am not willing to work for minimum wages.

And I would argue that the services we provide (regardless of how specialized they are) are a commodity. There is a market, and you can only charge as much as the market will bear.

Also, if the scope is unclear or complex, it may be wise to charge on a time & materials basis rather than being stuck with an underestimated fixed fee.

Yes I use a metric but it isn't based off of time.  If I have ways of doing things (through things created, processes, etc) that lowers the time it takes me to do something if I charge on an hourly basis I would end up making less money. 

I'd argue that engineers are not a commodity and we shouldn't be looking at ourselves as one. and driving our wages down.  There are engineering firms here that charge $100/hr and others that charge $250/hr and obvious differences between them. 

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