Operations of Consulting as a Business
Consulting businesses can be operated in a similar manner to any other, and every successful business begins with a plan. By developing a business plan for your consulting business, you provide a formal framework to build the business from the ground up, and into future expansion.
Consulting can be somewhat complex when you are trying to determine how to structure your business for tax purposes, determine what services you will provide to clients, your pricing, marketing strategy, financing your startup, and handling irregular issues, such as errors and omissions. So let us look at some of the common business activities you need to pursue.
In this article, we will discuss consulting reports, day-to-day operations, and pricing. Consulting reports are the second most important activity you will perform as a consultant -- right after developing a proposal. If you have a successful proposal, you win the business. After you have won the business, comes the greater challenge of delivering a successful consulting report that has quantifiable, actionable, strategic activities that will help your clients improve.
As a consultant, you will communicate many of your business ideas and recommendations through written analysis and presentations. You must structure your communications, both written and verbal, in a manner that most clearly and concisely explains your recommendations. Your presentations should be data driven and easily understood. Your structure may vary to a degree, but we will provide some of the content inside of it later. The key point is to develop operational efficiency by maintaining templates for your reports. You will individualize them for each client, but you will save a significant amount of time by having a foundation for the basic content. Be cautious, as you work with your reports, to always provide the correct version. If you have made edits, always send the correct report to the right client. Nothing is more embarrassing than emailing another client's report by accident.
Presentations most commonly address key client questions, such as how to increase revenue, how to reduce costs, and how to improve quality. It is your job to show, through your presentation, exactly where your client stands at present, and where they will be once they implement your recommendations. Most presentations begin by showing the current state of affairs for the company, and then showing expected improvements. It is important to use charts and graphs to explain the data. There are many dimensions you can add to show multiple measures of improvement. Some of the key dimensions to show are trends over time, projections, projected growth, impact of changes, and customer feedback. It is important to summarize your findings and use relevant graphics to ensure presentation success.
The content may vary, but here is a reasonable expectation of the contents of the ideal proposal. We will discuss the content, and then the presentation toward the end.
Table of contents
1. The cover page of the document. This generally includes the title of the report and information, such as the consulting company, company logo, the date of the final submission of the report, the consultant's name, and any relevant client information.
2. A disclaimer page, which limits liability for your company, such as errors or omissions. E&O insurance is used to cover professionals for errors and omissions in the practice of their business or craft.
3. The title page will include specific information on your consulting report, such as "System Redesign for Johnson Controls." This will include the name of your consulting company, the date, and any authors or contributors to the report.
4. The table of contents shows an overview of your consulting report. It also provides the reference point for each page of specific portions of the report. It generally contains an outline of titles of the sections of your report. The table of contents helps to organize your content, and helps the reader to more easily identify the section they're looking for.
5. The executive summary expresses the main points of the entire report with an emphasis on the results and recommendations. It is generally between two and three pages in length and serves as a quick overview of the recommendations. For yourself, it is a quick glance of the work you've accomplished.
6. The report introduction provides a preview to your consulting report, including the purpose, scope, background, and issues. It also contains some of the key terms within the report, and your sources of information or research your consultation is based on. You want to display for the reader the key issues at hand, or the need for your report. For example, the lack of specialized instruments for a production process is resulting in $3800 per day in lost productivity, or $19,000 per week.
7. The report background provides a frame of reference for your analysis, and information on the material contained within it -- especially when readers may not have knowledge or competence in your field and need to better understand the point of reference for the analysis of their problems.
8. The client information section contains information about your client. This is included in the report to provide a perspective as to how the client is viewed, overall, in the business world, and how their actions and operations are affected by the project for which you have provided consulting services. Client information you may want to include is:
The company name
Service or product they provide or produce
The number of years the company has been in existence
The organizational structure
Key employees and their backgrounds
Size and locations
Market information or local status
Any additional background information
9. Business information includes information on the client as to how they fit into the business market, either locally or regionally. You will want to do some summary of the businesses competition and their overall strategic goals for the short and long term.
10. The consultant tasks section outlines the basic undertaking you will make related to the client's needs, such as 1) Develop a cost analysis, 2) Perform peer benchmarking, 3) Develop a data collection tool. This section will include the details of each of your required tasks. Each section will begin with a summary of the current situation or process, as it is. You will explain and summarize your analysis. Then you will draw your conclusions and make recommendations. Primarily, you are explaining your methodologies and providing your recommendations as a consultant.
11. In the summary of your report, you will provide brief information that summarizes your findings, and what you determine to be the future prospects for your client as they implement your recommendations. This is also an opportunity for you to thank them for their business and to encourage future business opportunities.
12. The bibliography lists all of the books, references, or technical materials you have used to produce your consulting report.
13. The appendix contains any information that supplements your report, or clarifies any of the content within it. But often charts, diagrams, pictures, additional data, or additional information is placed in this area. Such as examples of customer satisfaction surveys, research, benchmarking reports, or statistical analysis. These are often items which the client may want to review as support for one of your recommendations both which is typically too bulky or not feasible to be included in your general report.
Branding for the right look and feel
Let us now talk about the overall appearance of the report you have developed for the client. When you present your report to the client, you want to put your best foot forward for your consulting company. This is the opportunity to establish your "branding" and reputation. What quality do you want your report to convey to your customers and clients?
Your consulting report should convey the branding you want for your company. It should be professional, elegant, and purposeful.
Following is a checklist you can use to review your client proposals:
Ensure the proposal is provided within the required time frame.
Provide the report in the required format.
Be sure to include all of the expectations of the client, which were in your original proposal.
Include a segment on the findings of your analysis.
Prepare for presentation, including presentation slides, hard copies of your document and any other electronic needs.
Be sure your final product has a quality presentation, including a high-quality binding with appropriate colors and inclusion of the client's logo.
Also include your name as a consultant prominently in the document, including the cover page.
As we said, the consulting report is a key component of your consulting business. A significant portion of your time will be spent developing consulting reports. In addition to your reports, pricing and contract oversight are also important.
Pricing is another important part of your business operations. You will not be involved with pricing on a daily basis, but pricing is driven by profit, labor costs, and overhead. Labor costs and overhead are two components that you will deal with frequently as a business owner.
Here is the typical formula for consulting pricing:
Profit + Labor Costs + Overhead = The amount you charge
Profit is your labor cost of $600 plus overhead cost of $576 for a total of $1176, times 20 percent, which equals your profit of $235
Labor costs equates to the cost per hour for consulting services provided. Labor is the amount you want to make, in addition to your labor costs and overhead, to provide income that covers basic pay and benefits. For example, let's say you want to make a salary of $150,000, and want to work 250 days per calendar year: Your pay will be $600 per day.
Overhead is the cost of running your business, which includes your rent, electricity, phone, insurance, and equipment cost. For example, say your total cost of all these is $12,000 per month -- or $144,000 per year. Divide that cost by the number of days you work per year, which is 250 days, and the result is $576. (The average consultant profit margin is equal to 15 to 25 percent of the consultant's total expenses.)
The amount you charge is $176.37 per 8 hour day, or $141.10 per 10 hour day
Let's show an example of this:
$600 + $576 + $235 = $1411 per day, or $176.37 per 8 hour day, or $141.10 per 10 hour day
Your task is to design your business processes so they net you the desired income and make adjustments accordingly if this does not occur.
Get it in writing - consulting contract basics
All of your consulting opportunities should be performed under a signed contract. It is rare these days for consulting to be performed without a contract, as it is necessary for each party to know their responsibilities. It also helps the client to understand the work that will be performed, in what time frame, and at what cost. It is best to develop your own standard consulting contract, unless the client provides one. The general contracts checklist is provided as follows:
Always thoroughly read through any contract provided by the client.
Always proofread your own contracts for consistency, and to eliminate errors.
Always ask for clarity for provisions that are not clear.
If in doubt about the language or requirements of the contract, consult your attorney.
Offer alternative wording before commitment, if you are uncomfortable with the verbiage.
Be aware of any changes in fees, payment terms, or reimbursement of expenses.
Be aware of the ownership of materials once the project is complete.
Beware of any "scope creep" (cost over-run) language, which adds responsibilities beyond your proposal.
Be alert to any unilateral changes the client may invoke.
Thoroughly review any cancellation notice requirements, and any outstanding fees.
Consulting is a business similar to many others. The differentiation is that you are constantly developing proposals and developing reports. If you think about it, consulting is no different than a job like marketing. Marketing managers develop proposals and develop reports in the same manner. The key you must know is that your proposals in consulting reports can make or break your ability to thrive as a business. After you have developed a methodology for your proposal reports, consulting reports, pricing structure, and contract maintenance, you'll want to refer to your business plan for the next steps. Once you have those items structured, utilize the consulting business checklist.
Consulting business checklist
Be familiar with any licensing requirements.
Have a good documentation and tracking system for financial records.
Have a good scheduling system.
Develop a portfolio management system to manage each client's information and reports.
Develop your business image through presentation templates, handouts, or visuals, using top-notch published materials.
Dress like a professional.
Find promotional opportunities, such as conferences or seminars.
Develop standardized pricing plans.
Develop revenue tracking templates.
Develop a time-tracking template.
Develop an invoice tracking system.
Once you have completed all of these activities and have your business up and running, these will be some of your daily tasks.
Consulting as a business: daily tasks
Field phone calls.
Schedule appointments with potential clients.
Follow up on payments.
Prepare consulting reports.
Perform research for clients.
Purchase any necessary supplies.
Now that you have the basics on consulting as a business, we will look more closely at the economic realities of becoming a consultant.
Summary Reminders and Takeaways
Consulting businesses are no different from the management and operation of other business entities. The only factor that may be different is the method you use to conduct your work.
This article we discussed consulting reports, day-to-day operations, and pricing. Consulting reports are used to communicate your business ideas and recommendations through written analysis and presentation. You must structure your written and verbal presentations in a manner that most clearly and concisely explains your recommendations. Your presentations should be data driven and easily understood. Your consulting report consists of the cover page, a disclaimer page, the title page, the table of contents, the executive summary, the report introduction, the report background, client information, business information, consultant tasks, summary, bibliography, and the appendix. The most important parts of your proposal include the executive summary and the consultant tasks, because they explain the activities you will undergo as the consultant.
As you develop your consulting business, there are number of actions you must take from a formal legal perspective to the operation of your business. The key areas here are to ensure you've met any licensing requirements, to develop a portfolio management system, and to develop standardized plans and tracking templates.
Pricing can be a difficult decision for consultants that can be managed by using formulas to determine the appropriate amounts. The formula for determining the amount you charge is: Profit + Labor Costs + Overhead. Profit is your labor costs plus overhead costs. Labor is the amount you want to make, in addition to your labor costs and overhead, to provide income that covers basic pay and benefits. Overhead is the cost of running your business, which includes items such as equipment cost, phone usage, insurance, rent, and electricity.
You should always perform your consulting services under a signed contract. Always proofread contracts you have developed. Thoroughly read any contracts that you are signing, being clear on the terms, or ask for clarity from the client. If you are still in doubt, consult an attorney. Contracts are legally binding and you may be responsible for damages, liabilities, or additional work under the law.
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