7 Steps to Becoming a Consultant at 50+

     

When we think of entrepreneurs, we often picture young, tech-savvy millennials. But the face of American entrepreneurship is actually quite different. A recent survey conducted by Monster.com (link is external) found that baby boomers take more risks and start more businesses than twentysomethings. With assets such as more wealth (and less debt), wisdom, education and experience, it’s no surprise that the average age of entrepreneurs is rising.

Consulting or contracting is a particularly attractive form of business ownership to older people – you can work anywhere and start-up costs are low. According to MBO Partners (link is external), nearly 5 million baby boomers are working as independent professionals – and 83 percent of them held traditional jobs before starting their own businesses.

If you’re interested in consulting or contracting as your second career act, here are eight essential steps to getting started.

The business planning stage

Most consultants and contractors start their businesses with very little financial investment, but that doesn’t mean you can ignore the planning process. In fact, a business plan can help you focus on your goals and the route you need to take to achieve those goals while doubling your chances for success (link is external)!

If you need help with your plan take a look at SBA’s online, interactive Build a Business Plan tool.

Choose your business structure

Many consultants and independent contractors assume that they need to form a limited liability company (LLC) to operate successfully and with minimum risk. While being an LLC can protect you from personal liability for business decisions or actions of the LLC – the liability protection is limited. In fact, over 70 percent of small businesses operate as sole proprietorships – the simplest way to start a business.

A sole proprietor owns and runs the business – there is no legal distinction between the business and you, the owner. This may be a disadvantage because you can be held personally liable for the debts and obligations of the business.

Managing this and other forms of risk is an important consideration and often requires a layered approach that includes selecting the right business insurance (clients often require that consultants have a form of insurance before entering into an agreement) and consulting an expert about the best structure for your business. Read more about your business structure options.

Financing your consulting business

How much money you need depends on the cost of doing business for the first few months (before you start generating sustainable income) such as the cost of getting business insurance, utilities, incorporation fees, setting up a home office, etc.

If your cash flow predictions indicate you may not be able to cover your expenses during this period, consider your options. Many contractors get around this problem by maintaining their existing full-time job while running their consulting business on the side. If you do need to borrow money, AARP strongly advises against dipping into your retirement funds. Instead, consider other ways to finance your business.

Tax and legal obligations

Starting a business can seem overwhelming and not just because of the legal and tax obligations that you’ll encounter. During the start-up phase, it’s important to get these right.
This includes obtaining the right licenses and permits. If you intend to use a trade name or name your business something other than your own name, then you’ll need to register that name with your local government.

From a tax perspective, consultants need to take care of quarterly estimated tax payments to both the IRS and yours state revenue office.

For a complete list of the legal and regulatory “must-dos,” read “Starting a Freelance Business – How to Take Care of Legal, Tax and Contractual Paperwork”.

Setting your pricing

Consultants and contractors often undervalue their worth for a number of reasons. It can be awkward to talk about money or we underestimate how long things take us, or, worst of all, we want the gig so bad that we underprice it. To help you set your pricing, and negotiate your worth, read How to Calculate and Negotiate Your Hourly and Project-Based Pricing.

Go after your existing contacts

Your current pool of business and personal relationships will almost certainly be the source of your first clients as you start up. When I started my consulting business, my first client was my last employer. It’s been a fruitful relationship on both sides that spans over 10 years. They understand my value, trust me to deliver results and I understand their work practices inside out.
From there, network out and tap into relationships with former colleagues and industry peers. As your client base grows, hopefully these folks will also become your cheerleaders. Referrals are a huge source of business for consultants.

Marketing

While networking is important, it’s a good idea to have a marketing plan. Elements to consider include establishing a website (to build credibility, showcase work, promote testimonials and ensure you can be found on search engines). You should also work on refining your marketing message – what you do, for whom, and why you’re different from the competition. Other tactics that can help build your online profile are blogs, social media accounts, etc.

Custom Business Cards

All cards ship tomorrow + Free Shipping!

Working as an Independent Contractor

While seeking and employing alternative work arrangements in response to economic, technological and social changes, workers with an entrepreneurial spirit and wise U.S. employers have created more opportunities for independent contractors than ever before.

If you're the type of person who likes to settle in and dislikes ever-changing working conditions, then a so-called "permanent" job might suit you better. But if you're the adventurous, entrepreneurial type who likes new challenges, then working as an independent contractor might be right for you.
Independent contractors are sometimes called ICs, consultants, freelances, free agents and just contractors. Regardless, all are self-employed for tax reasons in the U.S. and essentially the same in practice.

But, speaking of tax reasons, the IRS has only two distinctions: independent contractor or employee.

The UpSide

As an independent contractor, you are your own boss. That's the main reason why most employees turn independent contractors. Even though you might occupy office space and work shoulder-to-shoulder with employees, companies are not your employers per se, but your clients. As clients, they are not entitled to direct you in your work like an employer may direct an employee. In other words, clients "hire" your services, not you.

Naturally, your clients are entitled to state the results they expect for the rates you're charging for your independent contractor services. It's also in your best interest to satisfy your clients, if you wish to receive favorable referrals for landing more contract jobs. But you decide when, where and how to work to get the job done. It's all about degree of control and independence, according to the Common Law Rules enforced by the IRS and the Fair Labor Standards Act enforced by the Department of Labor.

Independent contractors usually make more money than employees. Companies are willing to pay more for independent contractors because they don't have the expensive, long-term commitments they do with permanent employees, such as benefits, unemployment compensation, and Social Security and Medicare taxes. Independent contractors may also deduct more business expenses than employees, which might sweeten your net pay.

Independent contractors "withhold" their own federal, state and local taxes, unlike employees. This gives you the option of "working the float" on your gross pay, until taxes are due. For example, you might bank it to earn interest.

The Downside

Independent contractors don't have the same job security as employees, if there is such a thing anymore. The gold-watch-reward days of our grandfathers are pretty much a thing of the past. But even in a slowing business climate, employees continue to get paid. In really bad times, employees who survive layoffs continue to get paid and those who don't may at least collect meager state unemployment insurance benefits to survive.

Independent contractors are usually among the first to get the axe when slowdowns and layoffs occur. Independent contractors typically aren't eligible for state unemployment benefits, because they're self-employed. (If you work as an independent contractor and employee, you might be entitled to unemployment benefits if you lose your employee job.) Contract jobs might be fewer, and you might find yourself competing more, bidding lower, and going without work for awhile. Even worse, you might have to temporarily go back under the corporate thumb as an employee.

Independent contractors don't get free benefits and perks as do employees. You'll have to pay yourself for sick leave and vacation, fund your own retirement accounts, and among other things, buy your own health, dental, disability and life insurance. Insurance rates for self-employed individuals are usually higher than what employers pay per employee at group rates. Some companies may require you to carry liability insurance before hiring your services.

Since companies don't withhold taxes for independent contractors, you are solely responsible for filling out the paperwork and paying your taxes on time, every time, including self-employment taxes. Typically you'll pay estimated taxes quarterly, in lieu of employer withholding.

According to government guidelines that regulate employment relationships, independent contractors typically provide their own tools. If companies provide the tools, then one or more of the enforcing agencies might "punish" them for misclassifying employees as independent contractors if other factors don't offset it. Consequently, you'll likely have to make an initial or ongoing investment in tools (e.g., computer hardware and software upgrades) at your own expense.

The same goes for employee-like expenses, such as travel and entertainment. Companies are generally not allowed to reimburse independent contractors for such expenses, because it indicates an employer-employee relationship more than a client-IC relationship. If you incur such expenses, they'll likely come out of your own pocket. But it's acceptable to consider all of your expenses when calculating the blanket rates you'll charge for your services.

Speaking of misclassification, some employers naively don't understand the difference between employees and independent contractors. They treat independent contractors as employees, which defeats the reason you became an independent contractor in the first place: to be your own boss. Other employers are fully aware of the difference. But they attempt to exploit independent contractors as employees anyway, because it's clearly to their advantage to do so. In either case, it's a common "con" of becoming an independent contractor, even though it violates your rights as an IC.

- The Executive Suite

____________________________