Taking a decision to start one’s own consulting business involves great strategic thought process and immense complex preparations. If an individual likes resolving challenging business situations and has interest in assisting businesses to function more professionally, establishing a consulting firm is a great choice. Businesses around the world have an increasing need for individual who have knowledge in managing businesses, and can provide unbiased answers that accomplish quantifiable outcomes. More often than not, an individual will just need to manage his/her finances to secure their livelihood while they search for business opportunities.
The United Kingdom consulting industry has grown at a CAGR of 6% from 2006-2016, and is estimated to be valued at £9bn. Although the big firms direct the market, niche professional companies grew considerably faster (growth of 20%) as compared to other type of firms encompassing audit firms and pure consulting firms. Large firms – the likes of Big Four and Accenture comprise the major share of consulting revenues (78%) and they grew by 4%, whereas, medium-sized firms grew by 6%. The key driver for growth is Digital transformation, however, digital is considerably impacting the consulting landscape and operations. Consulting forms an imperative part of the UK sectors, with financial services retaining the major portion of fee income at 29%. Consulting activity in leisure and retail increased 24% and performance in resources and energy also grew.
Digital consulting accounts for 28% of specialised consulting advisory and continues to remains the core focus area of the digital value-chain, offering recommendation on automation, data analytics, artificial intelligence (AI), the IoT (Internet of Things) and other technologically driven ‘disruptive’ modus operandi across sectors. This prominence on digital makes operations consulting the second largest focus area. Nowadays, organisations aim to alter their operating models in order to meet the digital challenge.
The Digital transformation is also altering the consulting offerings as firms are positioning cloud-based consulting services, automation in analytics, and also positioning crowdsourcing. Due to these changes the fees for each consultant has increased by £10k since 2016. The development in consulting recruitment has slowed significantly, representing that few of the larger firms are discovering new ways to break the link between income growth and growth in consulting numbers.
Consulting fee income by service area
|Service Areas||% share of total market||Y-o-Y change|
|Digital and Technology||28%||0.3%|
|Programme & Project Management||8%||-4.0%|
|Risk and Compliance||5%||-0.6%|
|Economic and Regulatory||6%||1.6%|
|Disputes and Investigations||2%||-0.1%|
|Sales and marketing||1%||0.2%|
Consulting fee income by sector
|Service Areas||% share of total market|
|Government and Public||25%|
|Retail and Leisure||8%|
|Energy and resources||8%|
|Health and Life Sciences||4%|
Advantages and shortcomings of starting a consultancy business
|An individual is the boss of the company||As compared to a regular job, an individual’s income may vary|
|An individual has an option to select the kind of work||An individual is accountable for his/her own benefits|
|An individual has an option to work with multiple clients||An individual will have to travel regularly to get more and more work|
|Provision to work flexible hours and continuous learning||An individual is responsible for handling various aspects of business about which he/she may not be familiar e.g. bookkeeping, taxation|
Operating as a consultant
Many consultants decide on operating as sole traders instead of partnership or LLP (limited liability partnership) or limited company as this permits consultants to hold onto 100% of their earnings after tax. The only drawback of operating as a sole trader is that a consultant becomes individually accountable for any loss incurred in the business. Operating as a limited company, separates the consultant from the company which makes the company finances different from an individual. In case an individual opts to operate as a limited company, he/she will be required to register the company via Companies House and put forward at least one company director. The idea to register as a limited company is good in case an individual decides to employ other individuals or appoint additional directors in the business.
Thinking like a consultant
When an individual decides to move from working as an employee to a consultant, the process requires an alteration in the thinking process. An individual must prepare himself/herself for a dissimilar type of relationship with various people he/she is going to work with – this is not just interacting with senior management and bosses. Few imperative points to consider include:
- An individual is not part of a corporate structure. He/she must analyse the role of a consultant. A consultant is usually hired if there is a skills gap that needs to be compensated. Hence, an individual may be required to effect organisational changes and work with people who do not appreciate the work much and be part of a team that isn’t very supportive. As a consultant, an individual will have to get used to operating in a team structure, without essentially being considered as ‘one of them’.
- An individual must be confident and well-verse with the industry dynamics. This includes the capability to pitch oneself efficaciously to prospective clients, at the same time resisting the enticement to promise more than what one can deliver – always communicate the exact deadline and cost to complete the project. Correct timelines builds trust with the clients and therefore there is an option to get more work through referrals.
- Get used to operating as a manager and running the business in a channelled manner. A consultant will be required to manage the administration and financials of the business. On specific projects he/she may be given a short deadline date and will be required to deliver the best within the timelines
Building a client base
- Start with establishing a network: It is imperative for individuals to start building a network in their existing organisation before operating as a consultant. It is advisable to verify for any clauses in the existing employment agreement that may be of any conflict. If there is any clause, check with a legal advisor and seek their opinion rather than assuming of what the contract covers. Networking is one of the most appropriate ways to build a client base. There might be other situations where numerous prospective clients are gathered in one room, and this should be treated as an opportunity to strengthen the client base, sell skills and generate business. Ensure to put a professional catalogue together which highlights the key offering and the scale of business. During the initial stages, a consultant can even give a few hours of free consulting to showcase their capabilities and establish a repo. Collect maximum number of visiting cards and telephone numbers at events and continually follow-up.
- Define the business scope: A consultant must be very clear about his/her role and project to same to the clients. A consultant must establish his/her specialist or as an expert in a particular area rather than focusing on all things for all people. Also, ensure that the niche market selected is wide enough to provide sufficient prospects for work and check if the market is not saturated or exhausted by competitors. According to certain surveys, consultants often over-charge and under-deliver which in-turn is not god for their reputation. A consultant must resist the enticement to take up assignments that don’t match their skillset. Be clear on the promise made to the customer and be sure to insist on it in the contract.
- Using social media: With ~756mn individual registered on LinkedIn, and assuming almost 40% people check it every day, LinkedIn is an imperative tool for anyone doing business-to-business (B2B) trading. However, if an individual wishes to expand its footprint and get the most out of LinkedIn, he/she must frequently share content and build their network. Not only will a dynamic LinkedIn page give a consultant more contact for customers, but it will also establish their trustworthiness and acceptability. If there is a customer who is happy with the service provided, ask them for a review of the service and share the review with their network. Recommendations on LinkedIn can additionally project high points on a consultant’s expertise. linking with prior business acquaintances to recommend each other can boost the profile’s reliability as well. Groups on LinkedIn is one more way to associate with new customers. Advertising on LinkedIn is one more effective way of building the customer network. LinkedIn advertisements are comparatively inexpensive and skilfully targeted, allowing an individual to share appropriate content with people who fall outside the network.
Setting up a consulting business in the UK
Inform HMRC -You must notify HMRC of your self-employment status within three months of starting your business. A starter pack is available online. Additionally, you may wish to take HMRC's free online training. This section will provide you with straightforward, practical information on all aspects of self-employment, such as record-keeping and dealing with tax returns.
Obtain insurance -Even if you work from home, insurance may be necessary. If you invite a client over and they fall on your wet floor, you will be held liable for damages. A little public liability insurance can go a long way in this situation.
Decide on a name -Is the name you're looking for available? Search for Companies House. If you're unsure, use your given name for the time being. Once you've made a final decision, invest in the website domain name.
Open a Bank Account -If you decide to start your own business, you will require a business bank account. That is because it is a legal entity distinct from you. It is not a legal requirement if you are a sole trader, but it does help. It's worth noting that a separate personal account works just as well and is significantly less expensive.
Ensure Compliance -Your regulatory requirements must be met. That includes health and safety, as well as data protection. Utilise the tools available on Gov.UK.
Organize your financial records -Hire a competent accountant or invest in a simple bookkeeping system. The bare minimum that you should be doing is keeping track of sales and expenses.
Where are you going to work? -If you require commercial space, your local council should be able to assist you. If you intend to work from home, keep the following in mind:
- You can deduct a percentage of your rent or mortgage, as well as your utility bills, as business expenses.
- If you use a certain room exclusively for commercial purposes, you must pay capital gains tax.
- If you employ someone in your house, you may require planning permission.
- Renting may jeopardise your plans (consult your lease)
A hindrance for most individuals who setup a consulting business is chasing unpaid invoices. The consequence of not receiving payment in-time is that it can put pressure on an individual’s personal finances, particularly if it is the initial stages of the business. However, with a bit of preparation, an individual can circumvent compromising on their source of revenue.
Deposits: Before a consultant begins a new project, he/she must ask for a credit payment – particularly with new clients. This will give a consultant peace of mind and ensure that his/her time is always financially remunerated. If a consultant is billing for time, consider the payment as credit, and subtract future invoices from the credit received.
Contracts: A consultant must put all agreements and discussions in writing or share the details over an e-mail. Operating through a defined contract will benefit in avoiding possible discrepancies with customers, and should clearly summarise any monetary and work responsibilities.
How much to charge: With regards to money, a consultant must fix the price after evaluating numerous parameters. How much a consultant should charge will be contingent on a number of things including the experience of a consultant; the nature of work performed by a consultant; the amount of time invested in performing the work; deadline set by the client. Certain consultants charge on hourly basis, while others may charge on daily or weekly basis for smaller projects, at the same time others set up once-a-month agreements of reoccurring outlays with customers. Consultants with many years of experience usually charge high hourly rates, however, that does not imply that new consulting firms cannot charge high rates. The most imperative element to think through when arriving at a price is the value provided to the client. Ripping off a client will result in ultimately losing them and earning the business a bad reputation.
What should a new consulting business in the United Kingdom look like?
New prospective clients will be eyeing for comfort, and here the first impression matters. For example, the skillset a consultant has and the value he/she brings into a project. Additionally, it is also important to evaluate the structure of the new consulting firm – have a brand name versus trading under a new name. In such a scenario, competitor analysis will play an imperative role. It will be helpful to evaluate how other consultants operate and use this as a direction for what’s suitable and what’s not. A consultant’s aim should be not to mimic everyone else, instead discover a clean and effective way to present the business to the client. Whether in the course of a proposal, direct meeting, or over an email, continually converse clearly on precisely what is going to be delivered and what clients should expect as an output.