Introduction
This module will be focused on commencing a consulting business and all that involves including the financial and legal processes. Also to be considered will be the planning process around starting any business. One aspect worth noting early on is the one of personal finance. Many new businesses, irrespective of type, fail early due to lack of capital. There are often many unforeseen setbacks when starting a business and financial reserves are critical in ensuring you can survive such obstacles.
Financial considerations
Finance is a difficult but critical area for success. As previously mentioned, many businesses fail due to a lack of capital. Even if you are an accountant yourself, it is worth getting someone independent to look over your business plan and projections. Such an approach removes the subjective bias from your proposal and can provide valuable insights. Another benefit of speaking with an independent accountant is that you may have the opportunity to form a strategic partnership with them for your services. If this is your intention, look for an accountant servicing a similar market to the one you intend to target.
Pricing
In the early stages of a business, swiftly building a client base is crucial for sustainability. Pricing your services appropriately is vital; neither overpricing nor underpricing will attract clients. Striking a balance is essential, as clients may perceive low prices as an indication of inferior quality or desperation for work. Your value and experience should be the foundation of your pricing strategy.
Initially, setting reasonable base prices is advisable, as adjustments can be made in the future. New clients may be charged higher rates, while existing clients can experience gradual increases. Market conditions, supply and demand will inevitably influence pricing, particularly in the thriving gig economy.
The extent of client engagement will also impact pricing due to time spent in face-to-face interactions. Occasionally, offering services at a lower cost could secure work with potential clients, showcasing your expertise and skills. Regardless of your pricing approach, always account for fixed and overhead costs to ensure coverage.
Cash flow
In any business, cash flow proves crucial. Possessing ample work matters little if funds remain locked in outstanding payments; survival cannot rely on debtors alone. Hence, cash flow projections serve as a valuable tool, enabling predictions of potential cash flow. However, within the consulting realm, such projections prove challenging due to the uncertainty surrounding business availability.
The business plan emerges as a vital asset in this scenario, providing insight into client acquisition strategies. With increased confidence in securing clients, one can feel more confident about their projected cash flows. Referring back to previously mentioned fee rates further solidifies these projections, as they take into account the impact of established rates on overall cash flow.
Professional advice
Establishing your business necessitates attention to the legal aspects of its structure. Solicitor advice, alongside accountants and insurance brokers, is crucial for ensuring compliance and avoiding legal missteps. Compliance requirements, such as an ABN or other necessary registrations and documents, must be addressed. Additionally, solicitors can assist with drafting client contracts. Choosing professional advisors carefully is vital, as their collaboration contributes to your business’s success.
A crucial aspect of professional advice involves selecting your business structure, be it a sole trader, company, or another suitable form. Taxation liabilities and limiting personal liability are vital considerations. Achieving this can be accomplished through professional indemnity insurance and corporate structures if required. Consulting an accountant is highly recommended to ensure the optimal business structure is established.
Business name
Choosing a business name is important, as it conveys the essence of your business and appeals to your target market. When selecting a name, ensure the internet domain name is available, and secure multiple extensions such as .com.au, .au, and .net.au to prevent others from copying your name and confusing potential clients.
Using your own name can be beneficial but may imply a single consultant in the practice. Expanding it to “and associates” or choosing a different business name avoids this limitation. A common mistake made by new businesses is limiting their operational area by including a specific location in their name, like “Melbourne Business Consultants,” which may deter clients from other regions.
Insurance
Insurance plays a role in risk minimisation for your consulting business, with professional indemnity insurance being particularly important. Consulting a trustworthy insurance broker about the types of insurance needed is highly recommended. Professional indemnity and public liability insurances are often required by clients, who may request certificates of currency before offering contracts.
Considering business insurance for your assets and cyber liability insurance for potential data breaches is essential, as they could lead to significant litigation. If employing staff, workers’ compensation insurance is necessary. For sole traders and partnerships, personal sickness and accident insurance should be considered, as workers’ compensation does not apply. In a company structure, however, workers’ compensation will cover you as an employee receiving a salary.
Intellectual property
Intellectual property demands careful consideration. It encompasses trademarks, patents, copyright, and confidential information. Being aware of what constitutes intellectual property is vital for protection. Intellectual property created by employees belongs to the employer, whereas in consulting, it belongs to the consultant and is licensed to the client for use or agreed upon differently within the contract.
At times, the intellectual property may be assigned to the client, resulting in loss of ownership. License and use should be scrutinised with guidance from an IP lawyer if possible, but either way, it is worthwhile becoming familiar with IP arrangements for inclusion in contracts with clients.
The video below is produced by IP Australia, an Australian Government Agency and provides valuable information about intellectual property.
Business planning
Pre-launch
Before initiating the business, it is wise to complete as much groundwork as possible, enabling a prompt start rather than lingering in preparatory stages. Zipurski (2018, p. 121) [^1] provides valuable tips applicable to the pre-launch phase of any enterprise.
- I am attending (or going to attend) networking events
- I am working on building relationships at these events
- I understand valuable relationships take time to develop
- I try to help connect and refer people I meet with others I know
- I have an effective elevator pitch and have practiced it
- I’ve developed my referral criteria and will go after more referral
- I understand how to use partnerships to build my business
- I understand persistence is necessary and will effectively follow up on connections and referrals
- I will focus on ways I can get the most out of existing clients
- I will identify my true buyer and issues in my sales cycle that may be causing a lack of clients
- I will make a checklist of those things that clients do not like that can cost me business
Business promotion
In the beginning, choosing between a specific niche or casting a wider net for clients depends on business promotion. Nowadays, collective marketing to a broad range of potential clients is achievable through targeted advertising on platforms like Facebook and LinkedIn. However, the target market must be carefully evaluated to tailor your marketing around the specific niche and offerings.
Being active on social media and professional networking sites for business promotion is essential. Bear in mind that initially, it’s about building relationships rather than pushing immediate sales. You will need sales of course, but balance between aggressive marketing and relationship building should be considered. Networking often proves to be the most effective marketing strategy.
Always seek opportunities to add value to clients’ existing services. Consider how you can complement their specialities and enhance their offerings.
Zipursky (2018, p. 169) [^1] lists a number of points to consider regarding the promotion of your business:
- Have you defined what makes you different from others in the market?
- Have you generated results in one form or another that will help you prove your skills?
- Have you clearly listed the services you can provide, and how they will benefit the client?
- Do you have an understanding of the industry or concerns that face the companies you are targeting in your market?
- Can you clearly explain how to price your services and the value you provide that justifies the cost?
- Are you ready to spend some money? Advertising and promotion costs money, so you will need to budget for these expenses and consider how to obtain maximum value for your investment.
Value propositions
Osterwalder et al. (2014) [^2] provides a concept of a value proposition that consists of three parts being, pain, jobs and gains.
Understanding a client’s struggles and pain points is crucial for a consultant to develop effective solutions. To ensure a smooth and efficient business operation, various factors such as speedy delivery, friendly service, and good customer relations must be considered. Delivering unexpected value through passion points or “wow” moments can create an impactful impression on the client.
A well-crafted value proposition forms the foundation for client engagement and should highlight unique selling points and differentiation. Points of parity, such as professionalism and expertise, are standard expectations from all consultants. However, points of differentiation set one’s services apart from competitors and may include superior experience, knowledge or presentation skills.
The value proposition encompasses both points of parity and difference, making it distinct from a unique selling proposition statement. A clear understanding of one’s value proposition enables the creation of an elevator pitch for networking purposes. Being aware of the solutions offered and key skills is essential in connecting with potential clients.
Figure 1: The Value Proposition canvas
The video below outlines the use of the Value Proposition Canvas and how the two sides have the intent of creating synergy between the product or service value proposition and the customers’ expectations and resolution of their pain points.
The video below goes through the creation of a Value Proposition for a software service example.
Your business model
The video below provides a demonstration of using the Business Model Canvas for visioning a business.
Conclusion
This module has looked at the many aspects of setting up and running a business. The financial and legal considerations have been examined as have the necessity of developing a strategic plan and a business plan. From that point, the detail was looked at closely with the development of a value proposition and also a business model canvas for the proposed venture. Starting a new business can be a rocky road, but the content of this module provides a solid framework to follow for doing so.
References
[^1]: Zipursky, M 2018, Consulting success: the proven guide to start, run and grow a successful consulting business, Consulting Success, Place of publication not identified.
[^2]: Osterwalder, A, Pigneur, Y, Bernarda, G, & Smith, A 2014, Value proposition design: how to create products and services customers want, John Wiley & Sons, Hoboken.
