Starting a Consulting Firm in CA 2

[cah2oeng]

Hello,

I intend on starting a civil engineering consulting firm in CA over the next several months. I'm in the very early stages now (i.e. I have a potential client base, have some capital, a partner, etc...) but I'd like to know if anybody has some sound advice on the subject. Two things in general I'd like to hear about:

1) Things to watch out for or avoid (i.e. taxes, hidden or tricky paperwork, etc...)

2) Things that are a MUST when starting a business.

Thanks for your insight.

 

[Higgler]

A business was recently formed by a friend of a friend (in central Ca.) to help consultants (even very large firms)learn how to properly charge for services rendered. I could locate the contact information if interested, but that may amount to advertising which is frowned upon if forums.

This hints that many consultants know their technical abilities, but don't really know what their abilities are worth and how to get the most or proper income for their services.

Hence, watch out for not realizing that consultants often need guidance as to how to bill their clients.
I only make this note because it puzzled me greatly when I first heard that technical consultants needed financial consultants just to send their clients a bill, still seems odd to me, but as I age I realize I can be smarter by thinking I'm not so smart.
KCH
Antenna Engineer.

 

[cah2oeng]

Interesting. That's something that may come into the fold once we start billing clients. Right now, I'm just curious to hear other people's experiences with starting a buisiness... especially the things that may help me avoid some major headaches.

 

[RichGeoffroy]

Ce621a:

Here are a few thoughts on "Starting Your Own Consulting Practice".

Unless you have a few clients before you begin your consulting practice, you’re going to find that starting a consulting business from scratch can be a real drain on your savings. When planning to make your entry into consulting, you should first plan to have about 1-2 year’s salary in the bank. It generally takes 3-6 months before acquiring your first “paying” client (and several more months before you receive payment from your first invoice), and during all this time your bills will need to be paid. Now is not the time to be incurring extra expenses --- college expenses, doctor’s bills, braces for the kids, etc. Keep all expenses to a minimum.

Once you get your first job, don’t be confused by “all the money you’re making”. Remember, you really are not making a profit yet --- your cash flow position may be improving, but you’re still living off your dwindling cash reserves. It takes, on average, three to five years before your business is generating enough revenue to pay for all your business expenses and still be able to pay you the annual salary you were making before you started your consulting business (3-5 years earlier). At this point, you’re still not making a profit, you’re at break-even --- but, you are no longer dipping into that small amount of savings you have left. This is a critical stage, a small downturn in business here can be detrimental.

You must consider your salary as just another business expense. If you don’t, you will be fooled into a false sense of profitability and your business (as well as your hopes and dreams of financial security) will vanish into the harsh reality that comes with underfinancing a start-up business --- FAILURE.

I don’t want to discourage you, but it is important that you understand that, as gratifying as it may seem to have your own consulting business, the harsh reality is that most businesses fail in their first three years of operation due to undercapitalization. Having a good idea, and being very good at what you do is not good enough for success. You must have solid financial backing (usually only your savings), you must have a well-thought-out strategy for business entry and marketing, and, probably most important, you need the support from your spouse and family to make it through the “rough times”. There will be rough times, but try to postpone them or plan your entry around them, rather than trying to forge ahead with your business in spite of them.

Continued success at your business will require a lot of marketing, sales, as well as overhead time paying bills and collecting receivables to ensure continued success of your business. The technical aspect of consulting is just a piece of the puzzle --- now you're running a business.




Rich Geoffroy
Polymer Services Group
POLYSERV@aol.com

 

[cah2oeng]

Rich,

Thanks for the post. It's good to hear from people who've been there.

 

[rmw]

Don't load yourself up with a bunch of overhead; salaries for un-necessary personnel, rents, car or lease payments, copier payments, etc. Overhead goes marching on month by month whether or not you are billing any hours or not. Needless overhead can put you in the poorhouse.

Keep everything as simple as you can at first, until you begin to generate some cash flow.

I once heard it said the three most important things to remember when starting a business are (1) Cash Flow, (2) Cash Flow, and (3) Cash Flow.

Don't postpone your payroll taxes. Many a small business has been buried by getting behind on these.

Do a pro-forma, prepare a budget, and KNOW exactly what it costs you to swing your legs out of the bed and get up each and every morning. That is the minimum that you will have to generate just to break even. More than that, and you can make a profit.

Don't pro-forma your business based on 100% efficiency. You will have sick days, car breakdown days, personal days, professional development days, etc., when you can't generate income (produce billable hours), so don't base your plan on working 100% of the time.

It has been said that the nice thing about being in business for your self is that you get to work just 1/2 days. The other 12 hours, you can squeeze in 3 meals, some sleep, and all the rest that life requires.

Good Luck, (which means work hard)

rmw

 

[ClydeMule]

If you really think you can make it go, get a home equity line of credit NOW. If you wait until you quit your job, fergit it.

They want 2 years of income history.

I just started a sales rep/ manufacturing/ consulting firm 2 months ago.

Our lender is a business associate of my wife's (she's a real estate agent) and heard of my impending leap. He gave me the low down and set it up. $110,000 available. You only pay interest, 0.25 % above prime for the amount you take out. Different from a refi where you pull out the cash.

It is very liquid, frighteningly so. They give you these credit cards that draw directly from.

I am just a dumb engineer, not a financial guy (wife does the books). Ask a lender you trust.

If you have owned your house in CA for more than 2 years if you go belly up you just sell your place and move to North Dakota.

California is the most business unfriendly state in the universe. You also spend a lot of time dealing with stupid stuff like utilites, tax info, yadayada. Takes more time than I ever thought.

GOOD LUCK!!

Clyde

 

[mwest]

cah2oeng:

I just realized that you posted your question in May. Hopefully by now you are up and running and successful. I did exactly the same thing in 1997. I spent the first two years doing work on the side while working my other job building a client base and MORE IMPORTANTLY, building associate base of other professionals who began to call me with referrals and projects.

I would offer the following:

1) First and foremost, you are now a businessman, not just an engineer. If you don't dive into the finer elements of management, finances and everything involved with the one and only goal - generating a profit - then don't bother to do it. I myself enjoy the business stuff more than the engineering but that's me.

2) If you're going to do it, buy what you need right now (software, computers. printers, references, everything). What I thought was key was that I could immediately produce quality, professional level work from the get-go. I didn't worry about credit and debt (to a point anyway), I just wanted to make sure I could do whatever any potential client might ask of me. I never turned away a job and never had anyone say they didn't think I could handle it.

Obviously there's more but these were what I though were the two major factors of my success.

If you feel comfortable, let us know where in CA you are. I myself am always looking to work with folks for our common good. I myself am in Redding.

Doug