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The good, the bad, and the ugly of starting your own consulting business
by Doug Florzak
Had it with your job? Ready to trade the "shackles of servitude" for the "freedom" of self-employment? Hold on there, my friend. Before you hand in your resignation, make sure you understand what you're getting into. Here's the good, the bad, and the ugly of starting your own consulting business.
The good
Let's start with the good news. Yes there are many advantages to starting your own business. Here's a few examples:
You set your own income goals. A raise in your income is not tied to your next review. If you start a flexible, low-overhead, project-based business like consulting, you decide if you want to be aggressive and take on a lot of work or cut back and spend more time on other things. To diversify your income, you can branch out into other related businesses without being accused of "moonlighting."
You are not dependent on one employer. When you work as an employee, you have only one employer. When you work for yourself, you have many "employers," except they're called "clients" or "customers." For example, if you work as a consultant, corporate "downsizing" doesn't bother you because if work dries up with one client, you can find another client who will take up the slack. Also, unlike an employee, you are not stuck with only one company's view of the world. By working with different clients or customers, you see many different corporate cultures and points-of-view, providing you with a valuable perspective that benefits yourself and your clients.
You can custom-design your work. Many people seek control and diversity in their work. One of the top reasons people say they left a job to start their own business is for more creative control of their work. When you start your own business, you get to call the shots, designing it the way you want. Unlike employees, you can turn down work you donut want to do and select projects that interest you. This not only appeals to your need for diversity, but it expands your experience.
You have more control over your schedule. Another major reason why people quite their jobs to start a consulting business is to have more control over their daily schedule. Depending on your field, your consulting work may allow you to work at home. Provided service to your client doesn't suffer, you can adjust your hours to work when you are most productive. If you do your best work from 8 PM to midnight, you can work then, or you can complete a project over the weekend. This could free a weekday to complete errands during non-peak periods while the rest of the world is at the office. Work-at-home moms are particularly attracted to the consulting business because the added control over their schedule allows them to better work around family life so they can be there to drop kids off at school or attend a teacher conference. That's one reason why women are the fastest growing segment of the self-employed. According to Labor Department figures, between 1988 and 1996, the number of self-employed women grew at five times the rate of self-employed men and three times the rate of salaried women.
You avoid some office politics. Notice I said "some." Most of the time, you can focus on your work because you are not competing with other employees for promotions. However, company politics can still affect you. For example, occasionally certain forces within a project may attempt to shift the blame for a failed project from themselves to you, the outside consultant.
You control your retirement investments. This is an often overlooked advantage. Many employees are not pleased with the limited choices their employers provide them for investing their 401(k) retirement savings. As a self-employed person, you determine exactly how and where you want to invest your retirement funds.
The bad
Like any career option, self-employment includes several challenges that stretch you financially, mentally, and spiritually.
You must purchase your own benefits. As a business owner, you bear the burden of providing benefits to your employees (that's you!) You have to purchase essentials like health and disability insurance. Want to enroll in an MBA program at your local college? It's all on your tab. However, there are two bright spots to this situation. First, depending on how you set up your business, you can use the cost of all or a portion of these benefits to offset your company's tax burden. Second, as with your retirement investments, you may have more control over the type of benefits you select. This may allow you to customize your benefits to best fit your needs.
You have business overhead. Although a consulting business is relatively inexpensive and easy to set up, you still have business overhead costs that come out of your business revenue. Depending on where you work and the type of work you do, you'll have several overhead items such as Worker Compensation insurance, business liability, error's and omissions insurance, and business property insurance. Then there's payroll liabilities such as employer-side FICA (Social Security) and Medicare, state unemployment insurance, and possibly state disability insurance. Depending on your business and where you live, you may also have local licensing costs.
You may not make your income goals. There is no guarantee you will generate the income you expect. After you set your revenue goals, you have to get the work. Once you deliver the work, you have to wait for your money and there's no guarantee the client will pay you. These days, most clients want at least 30 days to pay an invoice. Can you wait 30 days for your money? If you don't control your costs, there's no guarantee you will make a profit.
The ugly
In addition to the above, there are several emotional, spiritual, and life-career issues that accompany self-employment.
You must do everything yourself. When the telephone rings, you become the receptionist. When you need more clients, you become the salesperson. When you pay yourself, you become the company treasurer. When you need to load software, you become the system administrator. You must provide all these support activities and still have time to deliver services to clients! At times, it's enough to drive you crazy!
You often feel isolated. I know more than one successful consultant who went back to captive employment because he or she missed the social interaction among the "water cooler community" that pops up at most large organizations. If you work at home, you feel particularly isolated. You can offset this somewhat by planning lunch meetings with friends or peers and attending professional meetings. Even if you work on a client site, you often cannot establish long term relationships because, just as you get settled in, the project ends and you move on.
You do not have a well defined "career path." Some companies have well-defined steps on the ladder to success. For example most of the top 10 accounting firms have specific steps that an employee can follow toward becoming a full partner in the business. If you desire a career with a "planned" path, consulting may not be for you. As mythologist Joseph Campbell once asked, "What if you get to the top of your ladder to success and discover that it's against the wrong wall?"
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