Starting a Consulting Business

BASICS TO GETTING STARTED

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Before proceeding, reference should be made to the Business Start-up Info-Guide for your region which offers information on the steps involved in establishing a new business.

Starting a business can be a rewarding undertaking, but it comes with its challenges. Before starting a business in Canada, it is wise to do your research. You should also make sure you are suited for entrepreneurship, and understand that significant effort may be required. As such, you should thoroughly enjoy the field you are getting into, and you must believe in your product or service as it may consume much of your time, especially during the start-up phase. There are many issues to consider such as regulations, financing, taxation, managing your business, advertising, and much more.
For more information, see the Checklists for Going Into Business.

The following is additional information to consider.

INDUSTRY OVERVIEW

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What is a Consultant?
A consultant is a professional who sells his expertise in a specific area (or areas) to clients, providing them with assessments on their practices, helping them identify problems and solutions, and advising them on possible courses of action. Consultants act most commonly as advisers, but they may also be employed to address any other type of situation where their specific experience and knowledge is required. For instance, a consultant could be asked to implement his or her recommendations, provide training sessions on his or her area of expertise, take part in the planning of a corporation's strategy, design promotional material, evaluate bookkeeping methods, etc.

As a matter of fact, there is no sphere of activity that is exclusive to consultants or any sphere of activity from which they are expressly excluded. From branding and marketing programs and services to designing new packages, they are a cost-effective alternative for operations that have not yet reached a point where they need to hire a full-time employee but do need periodic expert assistance.

Consultants can work:

• for large consulting firms;
• for boutique firms (i.e. small specialized firms);
• as independent contractors;
• as contractors working within an organization where some form of employer/employee relationship already exists (this depends on the statutes and regulations of the organization, as well as its needs).

Consultants are normally employed on a contractual basis; however, within some firms, consultants may be hired on a permanent basis until their engagement is over. Afterwards, they are made available to hiring firms. Within small consulting firms, it is more likely consultants will be hired as contractors, and their employment will be terminated when the project ends. The same applies to independent contractors.

Your consultancy is a business
If you want to establish yourself as an independent contractor or a contractor working within an organization where some form of employer/employee relationship already exists, it is important to remember that owning your own consulting business is precisely that, owning a business. This means you will need to go through the same start-up processes that any other entrepreneur must go through: business registration, acquiring a business number, dealing with business taxes, etc.

Do you have what it takes?
When you become a consultant, you take the leap from employee to entrepreneur. You are starting a real business which requires a complex blend of:

• expertise -- your unique skills are your business's products;
• knowledge in business and management practises including accounting, selling, organizational and time-management skills;
• self-awareness, inner drive, perseverance, confidence, and the ability and willingness to work independently for long hours, often sacrificing personal time;
• people skills, in order to establish, expand, and sustain client relationships. You must be able to gain a thorough understanding of a client's needs by being sensitive, perceptive, and an attentive listener to what is said and not said during discussions. You must then establish trust by following through on all commitments with exceptional, quality work, in an atmosphere of confidentiality.

Who hires consultants?
Business, government, and non-profit organizations hire consultants for their expertise, and to help them identify, analyze, and solve problems. Consultants offer an 'outsiders' unbiased perspective, and allow other employees to carry on with daily business. In general, consultants are hired to:

• conduct research, analyze and summarize data, predict trends;
• create or improve designs and processes; recommend changes;
• evaluate designs and processes, communicate ideas, or motivate employees;
• identify ways to save money, or to obtain funding or financing.
  

REGULATIONS

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Knowing the rules and the regulations that apply to your area of expertise is necessary. The amount of regulations that you need to know depends, as might be expected, on your field of activity. Also, keep in mind that some projects may require you to learn about rules and regulations you do not already know something about. You will need to keep up to date on amendments to legislations that affect your business.

Municipal Regulations
When starting your consulting business, keep in mind that specific municipal requirements may apply, depending on the city where your business will be located. Each municipal government has the authority to issue its own business licenses within its jurisdiction. Since there is no uniformity throughout the country regarding municipal licenses for businesses, you should consult with the appropriate local officials to determine whether your business will be affected by local regulations and licensing requirements. Businesses (including home-based businesses) must also meet the zoning by-laws that control property uses in their municipalities.

Examples of licenses, permits and regulations that could apply to you when starting your consulting business may include, but are not limited to:

Licenses

• municipal business license
• music licence

Permits

• building permit

Regulations

• fire safety standards or regulations
• Personal Information Protection and Electronic Documents Act (see the document  Protection of Personal Information - Your Responsibilities)
• zoning by-laws
• Lobbyists Registration  

You can get permit, license and regulation information by contacting your province/territory, local city hall, town or village office or rural municipal office. Contacts for local, provincial/territorial and federal governments can be found in the government listings of your telephone directory or on the Provincial/Territorial  Web site.

BizPaL

BizPaL provides Canadian businesses with one-stop access to permit and licence information from all levels of government. This online service is offered by Industry Canada in partnership with provincial, territorial, and municipal governments.

MANAGING YOUR OPERATION

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Insurance
Insurance needs for businesses vary greatly. It is best to choose an insurance agent or broker familiar with your size of business and, in particular, an agent familiar with your type of operation. As a consultant, liability coverage will be vital. If you don't have an insurance agent, consider asking other business owners in your area to recommend one.

The following list is to remind you of the complex areas of business insurance. It is best, however, to discuss your specific requirements with your insurance agent.

Basic insurance:

• fire insurance (extended coverage on buildings and contents);
• liability insurance;
• burglary protection (theft coverage);
• dishonesty insurance (covers thefts by employees).

Note: Your professional association may have information about insurance packages specifically tailored for your needs. It is best, however, to discuss your specific requirements with your insurance agent.

Marketing/Advertising
Marketing can be the key to a consultant's success. The right kind of marketing and the right amount, can develop into a stream of new clients and contracts. The following are several marketing methods:

• scan consultancy opportunities advertised in newspapers and government award publications;
• register with business directories and government resource lists;
• contact agencies, contract officers, human resources personnel, and large consulting firms who are known to receive consulting contracts;
• network with others and develop a wide range of contacts who are willing to refer clients to you. Keep in touch personally;
• join professional and trade associations to meet others in your particular area of expertise and to exchange information about your business;
• develop newsletters, brochures, or flyers to keep your business in view with former and prospective clients. Attach them to proposals, mail them after receiving requests for information, distribute them at seminars or presentations;
• develop your own Web site; 
• send specialized mailings to executives who have recently moved into new positions, either within their present organizations or in new companies;
• write and send news releases or articles of interest to prospective clients.

Once you have identified prospective clients and potential opportunities, you must then 'sell' your skills to these clients. This in itself is a critical and complex part of a consultancy business. If necessary, seek training in the selling process.

Keeping Informed        
To be successful and to keep a competitive edge, it is critical to stay on top of current developments within your area of specialization, business, and industry:

• subscribe to newspapers, magazines, newsletters, and periodicals;
• access the Internet, bulletin boards, and databases;
• join associations, seek leadership positions, offer to make presentations;
• Attend conferences, tradeshows, seminars, and courses.

For more information regarding advertising and marketing, see the following documents:

• Guidelines for Developing a Company Brochure
• Signs and Your Business
• Plan Your Advertising Budget
• Advertising Do's and Don'ts
• Ways to Promote Your Product or Service
• Marketing Plan Outline
• E-Business Info-Guide
• Preparing a Marketing Plan  

The Online Small Business Workshop - The Marketing Basics section covers the basics from developing your customer profile to promoting your business.

The federal Competition Act governs misleading advertising and deceptive marketing practices for all businesses in Canada. The Act defines which marketing practices are illegal and the process of complaint investigation.

For more information, consult the Competition Act - Misleading Advertising and Deceptive Marketing Practices, administered by Industry Canada or visit the Competition Bureau Web site.

Guide to Market Research and Analysis
Successful businesses have extensive knowledge about their customers and their competitors. Acquiring accurate and specific information about your customers and competitors is a critical first step in market investigation and development of a marketing plan.

In developing a marketing plan, your primary functions are to understand the needs and desires of your customer, select or develop a product or service that will meet customer needs, develop promotional material, and ensure that the product or service can be provided effectively at a profit.

Contracts and Proposals
Consulting contracts may vary widely in their format and their length, depending on the nature and the complexity of the project. There are standard articles to include in written contracts: the name and the location of the parties involved, the date the contract is signed, an offer, an acceptance of the offer, consideration (i.e. the benefit accruing to the parties), signatures of the parties, etc. A written contract helps to avoid misunderstandings, to outline the terms of payment and to protect you in case of disagreements with your client on the nature of the assignment. If you do not possess the legal expertise to draft legal contracts that include all mandatory provisions, you should seek advice from a lawyer.

For more information see the document Selecting Professional Services

Clients and Proposals
Virtually all sectors of business call upon the expertise of consultants, so don't be too restrictive. Your clientele may consist of organizations from both the public, the private and the non-profit sectors. To identify consulting opportunities, look for advertisements on Web sites, in newspapers, magazines and trade journals.

Public Sector
Governments are important clients for consultants. Most contracts are from solicited proposals, but you can submit an unsolicited proposal and try to get the contract directly, or you can sub-contract with other companies who have been awarded the contract. When seeking consultancy opportunities with governments, make sure you look through electronic tendering services. The Federal Government uses MERX, Contracts Canada and SourceCAN.

MERX: Electronic Tendering Service
MERX is an Internet-based electronic tendering system that advertises government contracting opportunities to potential bidders across Canada. 

Business Access Canada
Contracts Canada is an inter-departmental initiative to improve supplier and buyer awareness and simplify access to federal government purchasing information.

SourceCAN
A comprehensive portal Web site matches Canadian products and services with thousands of business opportunities posted daily by both domestic and foreign corporations and governments.

MARCAN
A window to tender notices for procurement opportunities within the Canadian public sector.

Proposals
Whether you are responding to a call for proposals from the public, the private or the non-profit sector, there will be selection procedures to follow. These procedures will vary from one organization to the next, so gather all the required information before submitting your proposal. There are a number of areas you should be aware of when pursuing a contract for service. The appropriate professional services, such as legal counsel should also be sought out and utilized.

For an example, see the document Basic Proposal for Tender.

Selecting Professional Services
The use of professional services is essential to the success of a small business. Professionals can provide knowledge and expertise in the areas where you may have little. They can round out your management team to ensure your business is operating efficiently.

Professional services often used by entrepreneurs may include those of a:

• lawyer;
• insurance broker;
• accountant;
• banker (for tips on dealing with your bank, see the document Dealing With Your Banker & Other Lenders).

Furnishings and Equipment
When setting up your home office or an outside office some of the following items may be needed: a desk, chairs, file cabinet, telephone, computer, fax, printer, office supplies etc. List that equipment and its cost to you. An important factor to consider when choosing equipment is the after-sales service and repair and their affordability.

Used Equipment - Consider buying used equipment as a cost-saving measure. The drawback to this approach is that, often, there are no guarantees with the purchase.

Leasing Equipment - Another alternative is to lease equipment to help keep start-up costs down. To obtain financing for capital leasing for new or used equipment for the creation of your business, see the document Capital Leasing Pilot Project.

For more information on parts and materials, overhead, stock control and pricing, see the document Business Plan for Small Service Firms.

Basic Bookkeeping
A good record keeping system should be simple to use, easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis.

Note: All staff working with cash should be trained to recognize counterfeit currency (see the document Security Features for Canadian Bank Notes).

Setting Up a Pay System
Pay administration is a management tool that enables you to control personnel cost, increase employee morale, and reduce workforce turnover.

Setting the Right Price
Setting the right price can influence what consumers will buy, which in turn affects total revenue and profit. In the end, the right price for the product/service is the price that the consumer is willing to pay for it. Hence, correct pricing decisions are a key to successful management.

Checklist for Profit Watching
Making a profit is the most important -- some might say the only objective of a business. Profit measures success. It can be defined simply: revenues - expenses = profit. So, to increase profits, you must raise revenues, lower expenses, or both. To make improvements, you must know what's really going on financially at all times.

You can find additional information on managing your operations, by viewing the Canada Business index of Popular Business Topics

Fees
Consultants work for a fee. Pricing of their services will influence consumers and consequently the total revenue of their consulting business. In the end, the right price for the services of a consultant is the price that the consumer is willing to pay. For this reason, correct pricing decisions are a key to success.

For more information see the document Profit Pricing for the Costing of a Service

As a consultant, there are many ways to set your fees: by the hour, by the day or by assignment. When you are quoting, make sure you include in your fee not only the cost of your labor, but also your daily overhead for the duration of the project, the indirect and direct expenses you will incur, as well as a profit margin. You want to build in your fee enough money to cover the operating costs of your business and the time you spend on marketing your services, maintaining your skills and administration. Do not bill clients exclusively on the basis of the time spent delivering your services. From your clients' perspective, you are an authority on a subject matter that is important to their operation; set your fees accordingly. However, when setting your fees, make sure you find the right balance between overcharging and undercharging: your business must be profitable, but your fees should not be scaring clients away. Research what your competition is charging to see if you are asking for too much or not enough.

Many factors influence the worth of your services. When setting your fees, take into consideration the following:

• rarity - knowing how rare knowledge is drives the value higher. Keep in mind though, that once your knowledge has been shared or sold to someone else, the value begins to dilute.
• accuracy and dependability - if the information/solutions that you are selling have consistently been accurate and measured to be of substantial value, you can charge more because the risk is less for buyers.
• market rate - in some cases the buying markets have already defined the going rate through supply and demand. For example, seasonable high demand may cause you to increase your rates; during low demand periods you may reduce rates to keep cash flow coming.
• initial rates - having already determined what your competition is charging, you may alter your rates to reflect your newness in the market. You are in essence trading rate for reputation. You need completed projects to gain credibility and presence in the marketplace. Being cost competitive may give you an edge in gaining those first few contacts.
• predetermined price - a defined project may have a fee or regular payment (stipend) already outlined.
• cost plus - determine what your costs are, including external expenses and overhead; multiply that amount by the percentage of profit you wish to make. That percentage may be used on the industry average.

ASSOCIATIONS

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There are many associations that may be of use to a consulting business. Although it is not necessary to join an association, there can be advantages in becoming a member because they:

• promote and exchange marketing and promotional ideas among members;
• establish and encourage high standards of quality and professionalism;
• represent and advocate on behalf of members.

Examples of associations include, but are not limited to:

• Association of Consulting Engineers of Canada
• Association of Independent Consultants
• Association of International Consultants
• Canadian Association of Management Consultants
• Canadian Consulting Agrologists Association
• Canadian Federation of Independent Business
• Canadian Telecommunications Consultants Association
  

RESOURCES

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Additional resources which may help a consulting business owner include, but are not limited to:

Publications
You may find books, magazines and other relevant print material at any Canada Business service centre and/or business service organizations in your community that provide Canada Business information. Contact the Canada Business in your region for the location nearest you.

Statistics

Statistics Canada
Annual Survey of Service Industries: Management, Scientific and Technical Consulting Services  - This survey collects the financial and operating data needed to produce statistics on the Management, Scientific and Technical Consulting Services Industry in Canada.

Consulting Engineering Services Price Indexes - The annual survey of consulting engineers in Canada, collects financial and wage information that is used to produce price indexes measuring changes in prices for consulting engineer services.

Related Web Sites

Strategis Business and Consumer Site

• Management Consulting
• Consulting Engineering

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DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

Links Policy
Some of the hypertext links lead to non-federal government sites which are not subject to the Official Languages Act and the material is available in one language only.