Launching an Independent Consulting Practice

If you've been thrown off the corporate merry-go-round -- or just want to get off before you're forced off -- an economic downturn can actually provide the best impetus for launching an independent IT consulting practice. As noted in last week's IT Career Advisor, desperation can be a powerful motivator when making the transition from someone else's employee to your own employer.

That said, even veteran IT consultants say the market will be tough this year. While independents historically do well amid layoffs -- companies would usually rather hire temporary help than fulltime employees when they're cutting costs -- IT budgets are slimmer than ever. Contract projects may not be as plentiful as in recent years. On the other hand, if you've found yourself on the job market with few full-time prospects, what have you got to lose by trying your own business? If you start small and build steadily, you can still carve out a niche for yourself in independent consulting.

Get Your Ducks in a Row

Before formally announcing your availability (or, if you're currently employed, before giving your two weeks' notice), think carefully through what lies ahead and take the necessary steps to start smart.

Make sure you have enough cash on hand to survive six months with little or no work. Even if you start to land gigs right off the bat, you always want to have that cushion to see you through any downtime or to cover unexpected expenses.

Map out your business plan. Think about how you're going to sell yourself. In the current market it isn't enough to offer a potential client top-notch technical skills alone. Come up with a list of at least three supportable bullet points describing what distinguishes you from the next indie-consultant out there. For example, perhaps you have a track record of reducing costs in your IT department, creating user buy-in for new applications that require changes in work processes and bringing projects in under deadline. Then, based on the unique skills you have to offer, develop a list of target clients and types of projects to pursue.

Set your rates. This is often one of the most difficult tasks for new IT consultants. One rule of thumb is to figure out what the full-time salary would be for a given job, and double it. Most consultants recommend billing your time at an hourly rate, and warn against accepting flat fees for entire projects. Some good resources to help you establish your rates include the Real Rates Survey at http://itw.itworld.com/GoNow/a14724a55460a111463202a13 Dice.com's IT Rate Survey results at http://itw.itworld.com/GoNow/a14724a55460a111463202a12 and ComputerJobs.com's live Salary Ticker at http://itw.itworld.com/GoNow/a14724a55460a111463202a14Prepare to Manage Your BusinessRemember that there's consulting -- the work you'll actually do -- and then there's the business of consulting. You're not just an IT professional now -- you are also the company CEO, COO, president, payroll department and mailroom attendant. Following are some tips on managing your new consulting business effectively.

Get liability insurance. Most IT consultants recommend at least $1 million of coverage to protect your assets in the event that a client claims its business was compromised by the services you provided.

Decide on the appropriate business structure for your practice. You have three basic options: running a sole proprietorship, setting up a limited liability corporation (LLC) or partnership (LLP) or incorporating as a small business. When you're just starting out, a sole proprietorship is the easiest way to go (see NOLO's discussion of this at http://itw.itworld.com/GoNow/a14724a55460a111463202a44FCA-BDB93416A4D05479). As your business grows, you may want to consider forming an LLC or LLP or incorporating in order to legally separate your personal assets from your business assets. For information on how to make that decision, see NOLO's "Choosing the Best Ownership Structure for Your Business" at http://itw.itworld.com/GoNow/a14724a55460a111463202a34F92-AD191B56DF9D4CE6. And be sure to get the appropriate legal and accounting advice before making this critical decision.

Start tracking all of your day-to-day expenses. You'll thank yourself next April 15 if you establish a habit now of logging and categorizing your expenses in a tax program like Quicken or QuickBooks. Meet with a tax professional ASAP to determine your potential tax liability, your available deductions and your retirement plan options.

Do the little things that make you look more professional: Get business cards and letterhead (create them on your PC and print them out on a laser printer to save costs), set up invoicing software to manage and track billing, get a dedicated phone line for your business and a separate line for Internet access (or better yet, kill two birds with one stone with a DSL line), and set up a business Email address separate from your personal Email.

Start Small

Since you will grow your consulting practice via word of mouth, you need to quickly build a proven track record. You want to establish your credibility and reliability early on and gain the confidence and support of your initial clients. So, select your first few gigs very carefully. Only take on projects that will not involve a learning curve -- that you know you can finish on time and on budget. You'll have plenty of new challenges in learning to negotiate with clients, tracking your billable hours and expenses, and managing your time without taking on a huge new technical challenge. Once you have two to four successful projects in your portfolio and you've grown accustomed to the independent life, you can take on more ambitious projectsNow that you have a to-do list that will help you start organizing your new consulting practice, next week's column will look at how to generate gigs, build your credibility in the marketplace, and weather the downtime.

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