Suggestions for starting your own consulting firm

[MostlyCivil]

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 ;-) 

 

[jijir83]

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.

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[willsee]

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.

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.

 

[MostlyCivil]

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.

 

[willsee]

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. 

 

[MM2]

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.

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what do you mean by legal? accounting won't be needed since I won't have much work at first...from my understanding i think all I need is business cards..is that correct?

 

[willsee]

You don't need business cards either.  I wouldn't worry about legal or accounting until you make a sale.

 

[jijir83]

Legal: Get council. It might sound like an expense you don't need now but when you get sued, and you will get sued, (I'm not being pessimistic), then you'll be happy you did. A lawyer who deals with and understands contract laws and your type of work is an asset. Most of them are sole proprietors as well so they know what you need to setup to be in compliance with your state, fed, clients etc...

Accounting: Get a proper accountant. Filing turbo tax on your own will save you money until you get audited. A good accountant will help you with paying as little as legally possible but be in compliance with the state and fed.

Insurance: The lawyer can help you with this as well. They have liability insurance for themselves. And yes, we all think we won't get sued until we do.

Basically you want to cover your ***-ets and your personnel assets. And those 3 people help you with that even before you start dealing with clients. They might have a way for you to ramp up to these coverages as your business grows so you don't spend all that overhead without yet having any work. For example, it might be ok to be a contractor, you might be able to give people a waiver with specific language that covers you and they can't come after you once that risk is shifted to them. I'm speaking from personal experience. I did a project once and wrote the contract myself in English and French because those are the languages my clients spoke even though they are in the U.S. I had it looked over by a lawyer and when people wanted to contract with us, I explained the terms to them and the contingencies then had them sign the contract with the lawyer in person after it was explained again. Sure enough 2 a-holes threatened to sue when things didn't turn out the way they wanted and claimed they didn't understand the terms. I said go ahead. That was 4 years ago. Had I listened to my partners on this project and went at it like a 'trial' or hobby, life would be quite different right now.

Maybe you don't want to pay the 100+ hourly rate that a lawyer will charge to tell you this, but there are resources. A lot of cities have business councils, chamber of commerce.... I don't remember the names exactly. In MA we had 'SCORE Mentoring'. I met with one retired businessman on there and he's the one who warned me about this stuff. You can find people who have done what you want to do and willing to advise/mentor you on how to go about it.

The point is, you need some business cards, somewhere cheap people can go to ponder on your experience and services, and those 3 things listed above. Because, as soon as someone calls with a job offer, you better be prepared to say yes and not stall.

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[knight1fox3]

Legal: Get council. It might sound like an expense you don't need now but when you get sued, and you will get sued, (I'm not being pessimistic), then you'll be happy you did. A lawyer who deals with and understands contract laws and your type of work is an asset. Most of them are sole proprietors as well so they know what you need to setup to be in compliance with your state, fed, clients etc...

I'm curious about @willsee's take on this.  Isn't the primary goal to establish a well-known client base where clients are somewhat familiar with your quality of work?

I will say business cards are super cheap these days. I see offers for free bulk quantities.  It can't hurt to have something with your name, number, and email/website on it. If even very basic.

 

[willsee]

My take is I wouldn't spend money on it until you get a client.  You can spend 3-6 months pounding the pavement looking for a client to say yes before you need ANY of that.  What if you spend $5,000 setting all of this up, then hit the streets and realize no one likes you or wants to do business with you, or you realize that going door to door and dealing face to face with clients isn't your cup of tea.  I would spend that money on coffee, bagels, donuts, lunch, dinner, beers, whatever

Half the engineers in my city don't have a website or business cards, I doubt anyone has even looked at my website (it was under construction most of the time)

 

[jijir83]

Notice the civil engineers going "legal" in their responses. And the other disciplines "I wouldn't bother". The nature of our work is liability heavy. We've learned from others and our own experience. Most of us also had to take a least 2 law courses in college. So yeah... as an EE and the type of work he's plan on doing, then maybe he's fine.

Also, where you are makes a difference. I don't do anything on the East Coast or West Coast without understanding the legal implications. I also wouldn't work for a client in those places without doing the same. The things people pull is ridiculous. Ignorance of the law is not an excuse. So maybe anywhere in between you're a bit more comfortable giving it a try. People might be more understand and look at it more like a rapport and long term collaboration.

1) I would not build a website if I didn't have the skills to do it myself or have a friend do it. I have done it for myself and others. Simple place to park your info because not everyone you deal with has LinkedIn. Mailings and face-to-face networking works too. There are a bunch of "resume" style cheap websites out there as well. Ok... so that's maybe 100 bucks for some cards, some paper with your info and resume style site.

2) I wouldn't start an LLC. Even when you create it through Harvard Business in Delaware, you still have to pay taxes to your state as an out-of-state corporation or whatever. I don't remember the details exactly but I remember still owing yearly taxes to the state and registration fees blah blah blah. But I'd talk to an accountant and a lawyer about what I plan on doing and how to approach my taxes the next year. They're happy to talk when they think you'll bring them the taxes to file. Which I would. If you're working under the table and the client is happy to not report it, that's one thing. But remember, the client probably has a business. The services that he hires you to do helps him with his deductions/losses. He will list them as his "loss" when he files his taxes for his business or company. A lot of states now are requiring that the solicitor of services gives a form to the contractor/engineer in this case to basically say "yes, I did this work for X amount". Some clients don't know that. This used to go unnoticed by the IRS and local revenue but now they're trying to cash in. So, your client says he paid you to get a deduction but you forgot to file it on your taxes, tried to go cheap or not report, then there you are. Getting some advice from an accountant and paying them around tax season to do your taxes saves headaches. Oh... and those business cards count as deductions. Sure, you can do your taxes yourself as you build up work and claim things yourself. But that's also one of the flags in IRS system to put you on their audit list.

3) I wouldn't hire a lawyer. But I'd consult with one. Even if it costs me $200 for an hour of their time, once I do some research to come up with some good questions, I'd do it so I know what I'm getting myself into. Like I said, there are other ways for free legal advice related to a business startup.

4) I wouldn't buy insurance but I'd ask the lawyer about it and the implications etc... The type of work you will dictate if you even need insurance or you can decide that the risk is low.

What I'm saying is that he has to understand his obligations, liabilities, and protection options for the kind of business he's going into. A lot of people get jobs from clients all over these days from freelance, non-profit sites, etc... You need to have a sense of what that implies within your state limits and when you cross borders.

In any event, what I'm suggesting will cost him nothing other than a few hundred dollars and a week of his time. But sure... we all have different approaches to dealing with things. Some of us are luckier than others. Risk is all relative. It's what you can handle until you realize that you can't.  I'm sure @MM2 will figure out what works best for him. It's been done before.

 

[Road Guy]

We've probably had several hundred of these themed threads the last 10 years but no one ever comes back and gives us the 411!

 

[SE_FL]

We've probably had several hundred of these themed threads the last 10 years but no one ever comes back and gives us the 411!

There are two guys in our town that started their own firm (civil & structural) about a year back. Their prices started out real low and no one could touch them, they got just about every job they bid. The last two months we won three jobs in a competitive bid against them so they must be raising their prices. Might be strategic or reality kicked in with some high overhead costs they had to cover. They do decent work but since they don't have me they are obviously inferior to our firm for structural services.

 

[willsee]

We've probably had several hundred of these themed threads the last 10 years but no one ever comes back and gives us the 411!

Everything I'm saying is based off of what I've done the last 18 months with my own company.

I've talked to numerous people in my town about starting their own thing but they get so hung up in the details (lawyers, accountants, website, business cards, blah blah) that they never go do the #1 thing...GET CLIENTS.  It's easier to mental masterbate about starting a business instead of going and doing it.  That's why I said skip all of that other stuff and see if the posters have what it takes to actually go door to door and sell themselves and get a buying client.  If no one wants want they have to sell, it's all a wasted exercise.

 

[willsee]

what do you mean by legal? accounting won't be needed since I won't have much work at first...from my understanding i think all I need is business cards..is that correct?

So have you started yet

 

[SE_FL]

I just got off the phone with my insurance agent regarding liability insurance. He said most architects/contractors will not use you unless you have million dollar policy. The price goes way up if you do work for condo associations due to their high percentage of lawsuits. He has a client that is still in litigation from the 2004 hurricanes. The attorney fees have topped $200,000 so it was a good thing he had insurance. Insurance is based off volume but here in FL it starts at $2,500 per year for civil engineers and starts at $5,000 a year for structural engineers. I'd need to do a decent amount of work to cover that. It makes moonlighting on the side pretty tough to swallow.

 

[willsee]

I just got off the phone with my insurance agent regarding liability insurance. He said most architects/contractors will not use you unless you have million dollar policy. The price goes way up if you do work for condo associations due to their high percentage of lawsuits. He has a client that is still in litigation from the 2004 hurricanes. The attorney fees have topped $200,000 so it was a good thing he had insurance. Insurance is based off volume but here in FL it starts at $2,500 per year for civil engineers and starts at $5,000 a year for structural engineers. I'd need to do a decent amount of work to cover that. It makes moonlighting on the side pretty tough to swallow.

Is what he said true?  He is an insurance salesman....

I have a $1MM / $2MM policy, I am electrical so my policy is about $2,000 a year and based off of fees (including my subs).  I've had a couple of clients ask me for my insurance policy but not all of them.  But if you could do $50,000 a year on the side at $150/hr is around 300-350 hours a year.