Are you looking to start a consulting business? The demand for expert networks or subject matter experts and people with niche skill-sets is increasing rapidly. If you are an expert in your chosen field and your colleagues or subordinates rely on you for advice and guidance, starting your own consulting business could be the right career choice. Consultancy service is not only a lucrative business but offers opportunities for you to emerge as a thought leader and influencer within your industry.
Consultants offer professional advice to businesses and individuals in specialized fields such as IT, management, business, finance, human resources, real estate, environmental regulations, among others. The global consulting market in 2017 was worth $262 billion, while in the U.S., the consulting market amounted to $69.9 billion in 2019.
While the flexibility and earning potential of having your own consultancy are the plus points, one of the key challenges every entrepreneur face relates to saving enough capital to start and sustain a new business.
Financing your business
Business owners and entrepreneurs face a cash crunch, particularly when they are starting out. Studies across the world show that while a majority of startups close within five years, a U.S. Bank study shows cash crunch is the reason behind 82% of small business failures. Apart from a poor understanding of finances, lack of a comprehensive business plan, and starting the business with very little money are the reasons behind the failure.
Steps to ensure adequate capital for your consulting business
Create a detailed business plan
Before you look at ways to save money towards starting your consultancy firm, you need to know the exact costs involved. Creating a detailed business plan is the first step to understanding the amount of initial capital you need as well as the recurring running costs. Your business plan should highlight your vision, goals, marketing plan, organization, management, staffing plan, and the structure – all of which influence the initial capital and running expenditure.
The other important detail that you should include in your business plan is financial forecasting. This relates to details of expected cash in-flow, out-flow, and cost-benefit analysis that drives the budget for your consultancy firm. A heightened awareness of cash flow and spending will help you prepare a thoughtful forecast, which in turn helps you attain sustainable growth.
Calculate the costs
Startup costs for consulting firms can include expenses related to office equipment, including computers, software, furniture, and other specialized equipment. The other major costs relate to utilities and office space rentals. Typically, start-up costs can be anywhere from $10,000 to $50,000, depending on the industry or specialization of your consultancy. Ongoing expenses include office supplies, staff salary, rent, scheduling software, insurance, travel expenses, marketing, and ongoing legal services.
Review your expenses
Budgeting helps you get started on saving up money for your consultancy firm. Review your expenses and reduce unnecessary ones. Saving on insurance for the consulting business could be one of the areas people often overlook. Comparing insurance quotes is always a good practice. Visiting a website like bizinsure.com can help consultants compare on insurance quotes online and make potential savings.
Create a budget
After reviewing and eliminating unnecessary expenses, create and adhere to a budget. Track all aspects of cash flow, including groceries, utilities, rent, clothing, entertainment, and so on. Keep a record of essential expenses and review them on a weekly and monthly basis.
Manage debts
One of the major expenses relate to the repayments of credit card debt or other loans. If you are only making minimum payments on your credit card debt each month, you will end up paying much more than the actual principal. For instance, for a credit card loan of $3,000, if you make a minimum payment of $25 each month at 17% interest, you will have repaid $5,241 by 126 months. Request lower interest rates or repay the principal as soon as possible to clear your debt.
Separate your business and personal accounts
One of the smartest ways to streamline your cash management is to keep your personal and business finances separate. This will make tax filing easier and limits your liabilities. If the two accounts are not separated, your creditors can utilize your personal assets to clear obligations and debts while hampering your credit score. Maintaining a healthy business credit score is crucial if you plan to apply for business loans.
