How to start an IT consulting business
Starting an IT consulting business involves risk and uncertainty, but the satisfaction of working for yourself can make it all worthwhile. Here are six ways to set yourself up for success before you make the leap to consulting.
1. Ask why clients will choose you
A successful IT consultant has a standout sales pitch. Think about why a client might hire you and not a business like your current employer. You don’t need to be better than the competition at everything, you just need to have your own approach to getting the job done.
Ask yourself what you love to do and where you excel. Do you know how to set up office networks? Do you want to help clients with online security? Figure out what you do best and what you want to do, and then get ready to present your unique consulting services to clients.
While most clients don’t require professional IT certifications, they can help you get a head start on the competition and quickly build your client base. For example, the Microsoft Certified IT Specialist and Apple Certified Support Professional certifications can demonstrate key proficiencies to new clients. Others like the Certified Management Consultant certification prove you know what you're doing as a business consultant.
2. Find your consulting role
From providing expert insight to covering for employees on leave, IT consultants can take on different roles depending on the client. What role do you want to play – and where do you want to fit into your clients' organizations?
If you easily identify problems and can come up with creative solutions, you’ll be a good match for an outside consultant role. Clients hire outside consultants to counter corporate groupthink and bring new life to their organizations. For this role, they look for consultants who are willing to call it like it is and make controversial recommendations when necessary.
With specialized skills, you can also take on the role of an expert consultant who steps in when employees don’t have the right expertise to solve a problem. You don’t necessarily need to specialize in a specific area to take on this role. Businesses without a dedicated IT staff rely on consultants to troubleshoot and resolve their tech issues – even the simple ones.
If you have both people skills and tech skills, you could work directly with the organization's employees as a supplemental consultant. Organizations can hire consultants to do the work of employees, but as independent contractors. They may also hire independent consultants to train employees on how to use new technology, like a new software program or computer system.
When you know what role you want to play in a client organization, you can slim down your target market to find your ideal client.
3. Prepare to put in long hours
It’s not uncommon for small business owners to work more than 40 hours a week. IT professionals often make the jump from employee to self-employed in stages, typically by first working as a consultant on the side. These consultants can end up juggling a full-time job and a new business.
Consultants can have more flexible schedules, but also a heavier workload and more diverse responsibilities. As a consultant, you won’t just be working with technology – you’ll also need to find clients, negotiate contracts, balance a budget, handle public relations, and do day-to-day administrative tasks like answering the phone.
If you anticipate a heavy workload, you may want to hire another person to take on some of your tasks. Just make sure you comply with all state and federal regulations on payroll taxes and workers’ compensation insurance.
4. Build a business plan
When you’re ready to dive into the details, it’s time to get your business ideas down in writing. A business plan clarifies specific questions about your consulting practice like:
What legal structure will it have?
The business structure of your consulting business will affect your legal and tax obligations, as well as your liabilities. Be sure to weigh the pros and cons of running a sole proprietorship, limited liability company (LLC), C corp, or S corp before making a decision.
What will your expenses be?
Before you start thinking about what to charge clients, calculate your overhead costs. That includes office space, equipment, payroll, and insurance.
If you work remotely from a home office you may not need commercial property insurance. But you should consider purchasing errors and omissions insurance and other business liability policies to help cover expenses if you're sued.
How will you find clients?
A new consulting firm needs an aggressive networking or marketing plan to bring in new clients. Business cards with key contact information are a tried and true lead generation strategy. Social media platforms like LinkedIn also make it easy to connect with potential clients, so play to your strengths and embrace new networking technology.
The Small Business Administration’s business plan template makes it easy to put together a good business plan. Another useful resource for IT consultants is SCORE, which offers free, expert advice to new business owners.
5. Decide what you'll charge clients
Now that you know how much it’ll cost to run your business, you need to decide how much money you’ll charge for your services. There's a lot of flexibility here. Of course, you always want to charge enough to cover your business's overhead and make a profit. But you'll also want to keep your rates competitive by taking other businesses' rates into account.
Once you decide how much to charge, you'll need to decide how you'll charge. There are three ways to bill clients: by the hour, per project, or on retainer. Each has advantages.
By the hour
By the hour is often the most logical way for clients to pay supplemental consultants, and clients often prefer to pay all consultants this way.
Make sure your hourly rate aligns with the hourly value you provide your clients. As an independent contractor you’ll want to charge more than an employee doing similar work, but not so much more that clients see it as a bad deal.
If the value of the work you provide is stable (you’re building an app or building a new WLAN network, for example), it may make more sense to charge a client per project. This billing strategy makes it easy for clients to compare bids from different consultants before they choose one.
A retainer is a set fee that pays you to keep your schedule open, even if the client doesn’t end up needing your services. If you need to constantly be on call to resolve system crashes or security breaches, consider charging clients a retainer for your time. Otherwise, you’ll need to take on other clients to pay your bills and won’t be able to guarantee your availability for the first client.
Be sure to include a list of miscellaneous expenses, like the cost of new computers or software, in your rates. Most clients understand these expenses come up from time to time, but it’s best to be transparent about the costs.
6. Get the right insurance coverage
Now that you’ve worked out the details of your business plan, it’s time to get serious about compliance. Either state law, client contractors, or business partners could require that your IT business carry certain insurance policies.
Insurance requirements for IT businesses vary based on factors like whether your business has employees, rents a commercial space, or owns a company car. Even if a specific type of insurance isn’t required by law, essential policies like errors and omissions insurance (also called professional liability insurance) and cyber liability insurance can protect you and your new business from the effects of a costly liability lawsuit.
Before you turn your business plan into action, make sure you factor in insurance. Learn more about which policies will benefit your IT business.
TechInsurance helps IT and tech business owners compare business insurance quotes with one easy online application. Start an application today to find the right policy at the most affordable price for your business.