Do You Need to Create a Legal Company to be a Consultant?
You do not typically need to form a legal company (e.g. LLC, S-Corp, C-Corp, etc.). Consultants who choose to form a company usually chose an LLC (Limited Liability Company) because of its favorable income tax reporting status. An LLC does not require you to file an additional income tax return for the entity. Your corporate income is reported on ‘Schedule C’ of your personal income tax return. In addition, you will likely be eligible to deduct some of your corporate expenses from your personal income tax return. However, you should discuss this with a tax accountant for more information on this.
Forming an LLC is a legal, state-registered business entity. Working under a LLC may provide you some limited liability protection. However, you should discuss this with an attorney.
The cost to form an LLC will be about: $200-500 to start. Many states require the LLC to file an annual registration, which will cost $50 in NJ.
What if Client Requires a Corp?
Sometimes your client will only hire a consult via another business entity. When that happens, you have several options in order to accept the contract:
- Find a consulting company to hire you. There are many such companies. When doing so, be assertive in negotiating the rate to be as favorable to you as possible. Often, a consulting company will take a large percentage of your hourly rate (e.g. 50% or more). They justify this since they also perform the recruiting. Since you are bringing the position to them and they primarily have only an administrative expense, you may be able to negotiate keeping are larger portion of the hourly rate.
- Find a colleague or friend who owns an LLC or other corporation to hire you. In this case, you will be an employee of the colleague’s corporation. The colleague’s corporation will contract with your client. You colleague’s corporation will have administrative tasks related to employing you, so you should expect to give up some of your rate to them.
- Engage with a “split-placement” company.
- A “split-placement” company is a business entity that employs independent consultants who need to work through a parent company. They usually do not perform recruiting, so the percentage of the rate they take is lower than working with a consulting company. In some cases, they allow the contractor to buy insurance and contribute to a retirement account.
- Examples of some “split-placement” companies are:
- Top Echelon
- NPAWorldwide
- Fee Trader
- Form your own LLC:
- This takes about 2-3 weeks.
- You can do this on your own, you can hire an attorney to set up the LLC for, or you can hire an online specialty company such as LegalZoom.com, Inc. or The Company Corporation to set up the LLC for you.
- The cost will be about $200-500 to set up an LLC.
How to Become a Consultant
The first thing you need to do to accept working as a consultant is to Say, “I am a consultant.” Next, you will need to do these few things:
- Identify the niche in which you have knowledge, experience and support. Consultants that promote themselves as working primarily in a specific market sector or industry, or with a specific set of skills are often more successful than a generalist. That’s because the client will pay for specific expertise over someone who is a jack-of-all-trades.
- Once you choose your working niche, research your target market. Understand the concerns, challenges and issues that your clients may have. Then, build your brand around how you solve those issues.
- Alert & manage your professional network. When you are employed, you have a supervisor or co-workers with whom you can discuss your challenges or solution approach. When you are an independent consultant, your professional network includes the professionals that can provide that kind of support to you.
- Develop a business plan. A business plan is a written description of your business goals. It is a document that describes what you plan to do and how you plan to do it.
- Now that you are a Consultant, you must promote yourself and your brand;
- Name & create your company.
- Register your website address; and create a website.
- Define your service offerings & pricing.
- Acquire any needed professional licensing & certificates.
- Don’t do this alone. Get advice from:
- Accountant and lawyer: Make sure you set up your business properly (legally), and ensure you take advantage of all available tax incentives.
- Your friends know you well and will also give you advice.
- SCORE, Small Business Association. This organization provides free and low-cost advice to new business owners.
- Update your LinkedIn Profile. Make sure that other professionals can find you. Also, it will eliminate your unemployment gap.