Independent Consulting 101

Lightning Tree Consulting is owned and operated by people who have built their own smaller independent consulting businesses. We work with a wide range of different independent consultants every day. As a result, we have developed a detailed understanding of the sometimes daunting tasks that face an individual when setting up or expanding an independent consulting business.

We have developed a detailed guide that covers the 8 most important steps involved in setting up a successful independent consulting business in Canada. This is not an easy process, but we’ve been through it before and have helped many others to do it for themselves. We can help you make sure that you don’t miss anything and can help you determine  what you can do for yourself and what should be left to professional business advisors.

What follows is a brief overview of our 8 steps. If you have any questions or want more detailed information, please contact us at consulting_101@lightningtree.ca

1. Determine if you're cut out to be an independent consultant

Independent consulting is not for everyone. While it can be very rewarding – both financially and intellectually – many people try it and fail or find out after much effort that it is not the life for them. Generally you might be cut out for independent consulting if you have niche expertise or knowledge that is in demand, you have very good inter-personal skills, you are a bit of a risk taker, you can deal well with uncertainty and constantly changing circumstances, and you are financially secure.

2. Talk to a good accountant

While we can provide you with much advice and guidance, we are no substitute for sound professional advice. We certainly don’t advocate paying for advice or services that you don’t need, but there are many nuances and unique situations encountered in setting up a business and there is certainly no “one size fits all approach”. We can help you with the basics that most typical independent consulting businesses will face, but your personal financial situation, marital status, employment history, and a host of other factors may influence the details of how you proceed and an accountant experienced in dealing with independent consulting businesses can be invaluable. If you need help finding such an accountant, contact us at accountant_referral@lightningtree.ca.

3. Set up your business

Your accountant will be able to provide more explicit advice but some questions that you’ll need to answer in this step include:

  • Should I incorporate or operate as a sole proprietor?
  • What should I call my business?
  • How do I get an HST number and register with the Canada Revenue Agency?
  • Should I have any partners or directors within my business (potentially including your spouse for income splitting purposes)?
  • What kind of new bank account(s) will I need?

4. Finding your first consulting opportunity

For many independent consultants, the first consulting opportunity comes through their existing professional network. The client is typically someone that they’ve worked for or with in the past or someone that knows of them or their experience through other channels. Many new independent consultants will have the security of a first probable opportunity in place before they embark on the process of setting up their business. Or they may be confident enough of their prospects that they set up their business and then start marketing themselves – either directly to clients or through other consulting firms.

5. Figuring out how much to charge for your services

This is one of the biggest challenges for a new independent consultant. The first step is figuring out how a client would categorize you. For instance, in the Canadian federal government there are set lists of consultant categories and you'll have to figure out if your experience lends you to be called a Project Manager or a Business Transformation Architect or a System Analyst or any one of hundreds of categories. Once you have some idea of this, the next step is to talk to other consultants or consulting firms who do work in the categories that you have identified. There are no rules or guidelines for consulting rates and so past experience and knowledge of the marketplace is really the only guide. We often help new consultants figure out answers to this question.

6. Setting up a contract to do work and getting paid for it

In some cases - particularly in the private sector - a new independent consultant can set up a contract directly with a client and get paid directly upon completion of work. With much of our work dealing with the Canadian federal government, this is rarely the case. In most cases, contracts are issued through a "supply arrangement" or other "contracting vehicles" whereby the government has pre-qualified a number of firms to provide consultants in specified skill set-based categories. Some government supply arrangements like the forthcoming ProServices can be applied for by individual consultants. Most, however, have fairly onerous requirements around annual billings, past experience, and financial stability that make it very difficult for individual consultants to work directly for a client. Individual consultants typically work through a larger consulting firm to access such contracting vehicles with the consulting firm receiving payment for the work, keeping an agreed-upon "margin" of anywhere from 5% to 40%, and paying the independent consultant the difference.

7. Reporting income, paying taxes, and maximizing your deductions

Filing taxes as a business entity - regardless of whether you incorporate or operate as a sole proprietor or partnership - can be quite complicated. There are also many opportunities to minimize your taxes payable by claiming deductions for business expenses of all kinds. Thus, we highly recommend dealing with an experienced accountant to ensure that you are meeting your government obligations while minimizing your taxes payable.

8. Networking to find more consulting opportunities

One of the sources of the anxiety for independent consultants is the process of finding the next consulting opportunity. You never really know how long an existing contract is going to last as clients can terminate on short notice and so it is important to always be looking for the next opportunity. The best way to do that is to nurture your personal network by simply keeping in touch - whether that involves having coffee or lunch with your contacts, sending occasional e-mails, or keeping active on social network sites like Twitter and LinkedIn. You should also always be seeking to expand your personal network which should grow to include former clients, former colleagues, consultants who provide similar services, sales people and recruiters at consulting firms, friends, and family.

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HAVE ANY OTHER QUESTIONS?

If you have any questions at all or would like more information on how Lightning Tree Consulting can help you transition to the world of independent consulting, please contact us at info@lightningtree.ca or visit our Contact Us page for more options.

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