Once considered a transition career, today independent consulting is a fast-growing mainstream career choice. Professionals are able to leverage specialized knowledge and industry experience to create a career that offers freedom, flexibility and increased personal income.
Many consultants enjoy being able to choose assignments, diversify income sources, and scale up or down to fit income, professional goals and lifestyle choices. Technology and the ease of delivering work have only helped drive this growing trend.
However, it takes more than experience in your field and an impressive database of contacts to succeed as a consultant. Roughly 30% of consulting firms fail each year, making it essential for knowledge-based professionals to look beyond doing the work to running the business in order to make a smooth transition from employee to independent consultant.
Even the most seasoned professional does not benefit from going it alone. Independent consultants can easily become distracted and lose valuable billable hours if they fail to employ smart tools and resources to manage the details of running a business. Below are three common functions that can detract from your core expertise – and your income stream – if you don’t have an infrastructure in place to manage them.
Financial. After all of your hard work, you need to make sure that you are paid for your efforts. Billing, invoicing and expense tracking and reporting are critical functions that require a defined system. In addition to collecting from clients, ICs must manage and pay taxes. Knowing when and how much to pay in taxes is as critical as client collections. Unless your business is accounting, attempting to manage these tasks will distract you from your core expertise and eat away at your potential earnings.
Contracts and Compliance. From client contracts to IRS contractor rules to industry specific compliance regulations and business insurance -- this all-important back office detail may be overlooked by those considering freelancing or consulting. ICs working with a large enterprise may also face additional compliance rules on direct independent engagements.
Consultants and hiring companies are at risk of audits and penalties if systems are not set up correctly to manage these administrative details. For example, if you are found non-compliant with the IRS guidelines for working independently you may be liable for unpaid employer payroll taxes and fines. Your client could also face significant penalties and the increased scrutiny of the IRS for years to come. Business Insurance is another critical protection for ICs dealing with large organizations.
The right insurance plan will address workers compensation, general liability and professional liability—freeing consultants to focus on their work, not worry about ‘what if’ scenarios.
Benefits. Making the transition from an employee to consultant will mean researching and finding health insurance and retirement benefits. Consultants can spend an inordinate amount of time researching and evaluating plan options which differ greatly than group plans offered by corporations.
Independent consultants can be happily self-employed by partnering with companies that offer an infrastructure for managing the risks and administrative details of business. When it comes to running your business, it is far better to outsource the back office management so that you can focus on leveraging your core expertise and maximizing every moment of your time on revenue-producing work.
Gene Zaino is the President and CEO of MBO Partners. Visit MBO Partners on the Web at www.mbopartners.com