Independent Consulting Guide: Do You Have What It Takes?
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Yesterday, I received yet another email from a developer asking me how I went about establishing my own independent consulting practice. To be honest, there isn't a lot of magic to it, but there are definitely some things that I have learned along the way that I would have liked to have known before I got started. Over the next several articles, I'll outline my personal recipe for independent consulting success. If you are already a successful independent consultant, congratulations! This article may not be of very much interest to you. I encourage you to read it anyway, though, and share your experiences in the article feedback. If you are contemplating making the jump, then hopefully this series of articles will help you get started.
Before you hang your own shingle, however, you first need to determine whether it is really your thing. Owning your own consulting practice is not for everyone. That last sentence isn't meant to insult anyone, but there are definitely some tradeoffs to consider (both good and bad) before you make the leap. Here's my list of factors to consider (in no particular order):
You're the Boss
Most people hear that phrase and start celebrating, but put away your party favors. Being your own boss is damn hard. First, you have to be disciplined enough to actually do work every day, since nobody is looking over your shoulder (don't laugh… it's harder than it sounds). Second, you are in charge of the schedules and work activity of everybody that works for you. My employees are published industry experts, yet they still rely on me to keep the cycle of work going. It's my business, not theirs, so I have to make sure that they know what projects they are supposed to be working on and when those projects are due.
I have adopted a system whereby my employees (as well as myself) control their own daily schedules to a large degree. I just tell them what projects need to be done by when, and they are responsible for getting it done. At the end of the day, though, it is me (and only me) who bears the onus of making sure that the work does (in fact) get done. Not only done at all, but done properly. That includes providing architecture guidance and reviewing code. When you have one client, that isn't much of a problem, but the fun really starts when you are ensuring the deliverables for multiple clients.
The upshot to being the boss is… well, you're the boss. You can actually use the term "my way or the highway" and be serious about it. Don't get too excited, though, because your clients run the show much of the time. If you have the wrong attitude, your clients will take the highway option.
The money end of independent consulting is where it really gets interesting. When business is good, the money is good… check that… The money is phenomenally good. Independence carries with it the advantage of not having to fork a percentage of your revenue over to some blood sucking contract placement firm. You also get to make revenue on each developer that you employ, so you get a multiplicative effect.
Ahh… You thought it was all gravy, didn't you? Not really. All good things come with a price. The thing about indepenent consulting is that money doesn't just appear in your bank account every other week. You actually have to send out invoices and wait, and wait, and wait a little longer to get paid. I have some clients that are fantastic and pay me ahead of schedule. On the other hand, some of my clients are… well, not so good about paying on time.
The thing you need to keep in mind is that your money comes in ebbs and flows, so you need to come up with your own mechanism to budget your money closely. You can't afford to free-wheel it with your bank account. Every penny must be accounted for, or you may go bankrupt and not even realize it until it's too late. That includes keeping your business accounts separate from your personal accounts at all times. I also suggest that you separate out any money that you plan to give out as employee bonuses. Think you don't need to give bonuses? Think again. Even nice-sized bonuses are a small expense compared to the cost of hiring someone new and getting them accustomed to your clients and work environment. Remember that when you have employee turnover, it's hard on both you AND your clients.
Another thing to consider is that if you employ other developers, you need to pay their salaries on regular intervals (my employees are paid via automatic bank transfers). If your clients get a bit stingy for awhile, you have to have the money to cover payroll until the money comes in. While you may be willing to live on Ramen Noodles if times get tough, you can't ask the same of your employees. After all, they are sacrificing some of their income potential to you for the security of a regular paycheck. That requires cash reserves. I recommend keeping at least two to three months worth of payroll in reserve. Don't hire employees unless you can afford them that much protection (especially if you are hiring them away from another steady job).
Drumming Up Business
One of the most common questions I get asked is "How do you find new clients?" The fact that I get asked this question so often underscores the confusion in most people's minds. My answer is that I don't find new clients… They find me. This isn't small retail. You're not selling vacuums door-to-door. If your clients don't know who you are, then you're sunk. You have no competitive advantage. Sure, there are plenty of things that you can do to network yourself, like joining the local Chamber of Commerce, but you're making your life much harder than it needs to be by taking that approach.
The key to getting clients to line up at your door is to launch a personal publicity campaign. As you probably already know, I'm pretty good at that part of the game, and in a future article in this series, I'll cover how you can accomplish the same thing. It's not as hard as it sounds, and once you get the ball rolling, you'll be amazed at the results.
Of course, once clients start coming your way, you have to keep them happy enough to earn endorsements. Endorsements are the lifeblood of a small consulting company. Many clients have concerns about allowing a smaller company (no matter how well known its developers are) to do work for them. If you can show prospective clients that you already have an established track record of success, though, you can ease those concerns. Again, I'll cover how to establish client relationships and get endorsements (often before you strike out completely on your own) in a future article.
A big thing to keep in mind when starting up your own consulting practice is that all of the hardware, software, office supplies, office rent, travel and training for both you and your employees is on your dime. That can seriously add up. I offset the office rent and part of the hardware cost by allowing my employees to work from home and use their own laptops (they have to use laptops in case they need to travel). Some expenses like software licenses, travel and training, however, can't (well, shouldn't) be avoided. You need to factor all of your expenses in when you are deciding how much you need to charge your clients.
When you strike out on your own, you you'll have to construct your own benefits package (e.g. health insurance, life insurance, etc… ). It also helps if you can offer these benefits to your employees, but be prepared for sticker shock. The per employee health insurance rate for small companies is enough to suck the air out of your lungs. The best approach to having benefits as an independent is to have your spouse take a more secure job that provides benefits and use those until your company gets large enough to take on the responsibility.
Vacation time is an easy benefit to calculate. You can take as much vacation as you like, as long as you don't mind not getting paid while you're away. Obviously, you have to work around your client's release schedules, but you get the idea. Also, factor in the cost of vacation time when hiring employees. When they take vacation, you still need to pay them.
It takes A LOT of time to run your own consulting practice. Besides just coding, you have to run the rest of the business, manage your employees, invoice clients, maintain relationships with multiple clients, juggle several projects, etc… I sometimes look at my watch and see that it is 3:00 pm and I haven't done anything all day that is billable. That usually means that it's going to be a late night (or long weekend). Don't run your own shop if you want a 9 to 5 job with evenings and weekends sacred. You'll drown.
When you incorporate your business (don't even think about not incorporating), you'll be introduced to a mountain of paperwork that needs to be filed monthly, quarterly, and annually. Some of it is downright stupid. For instance, I had to fill out workers compensation and unemployment benefits forms every quarter before I even hired any employees (I guess technically, I'm an employee of my company). Then there's the taxes that you need to file every month. When you're an employee, you are safe under a placid W2 umbrella. Outside of that umbrella, things get pretty scary. I can't believe that I got my degree in accounting, because I would be very depressed if I had to do that type of work all day long.
You're not an accountant, nor should you pretend to be. I highly suggest that you keep an accountant on retainer to handle all of the paperwork and tax filings for you. I would also have your accountant prepare monthly, quarterly and annual financial statements for you, so that you can keep track of your company's financial health. You should still keep track of your company's day to day banking transactions yourself, though.
If you can't function under pressure, then going independent is not for you. As the owner of a consulting practice, you are the conduit through which all activity flows. You must deal with both your employees, as well as your clients. Everybody's problem is your problem. Each of your clients expects you to treat them as if they are your only client. When one of your projects is under the gun, don't expect your other clients to sympathize. As your business grows, the stress will get overwhelming at times. This is an unavoidable process. The key is keeping a level head and working through each challenge as it presents itself. If you want to go independent, keep a large supply of antacids handy.
Going independent is scary at first. The hardest thing to do is convince yourself to actually try it. As long as you are dedicated and willing to do what it takes to succeed, though, you will. The risks are high, but so are the rewards. You rarely hear of anybody getting rich working for somebody else, so view this article as a call to action. Hopefully, the experiences that I am going to share in these articles will make your journey that much easier. If you've made it this far and are still interested in going independent, then check out part 2 on Marketing Yourself and part 3 Breaking Away.
Are you currently an independent consultant? What factors would you recommend people consider before going independent? Talk back!