The SBA provides valuable resources for the consultant. It is imperative that a consultant correctly negotiate fees and understand their tax liability.
Where to start?
The Small Business Administration is a valuable resource for those who wish to consider going into business independently. The SBA 's role is to help those wishing to start a business develop a business plan, apply for a business license and set up an accounting system prior to immersing themselves into the new business. The SBA is instrumental in ensuring that the important pieces are in place prior to opening a business. The SBA has an extensive library of books, articles and forms available on their website.
Expenses:
Underestimating the expenses of opening a business is a common mistake new business owners may make. Conducting research, relying on the experience of others and speaking with experts in the field will help present a realistic picture of the expenses an independent consultant might incur, but until the business actually opens, it will be difficult to know for certain the expenses that will present themselves. The administrative duties of calculating overhead, taxes owed, sales, and profits are very time consuming. Administrative mistakes can be avoided if a professional is hired to commence the administrative duties. An accountant can be hired to set up the accounting system and calculate taxes. It may be a difficult to incur the expense of an accountant prior to a positive cash flow from the business, but most feel it is imperative to ensure the successful operation of the business.
Common Mistakes:
According to the Small Business Administration, only 30% of new business starts actually succeed. One mistake consultants often mistake is setting the initial price of their services too low which gives the impression that their work is substandard. In addition, consultants often neglect to factor in a salary for themselves from the profits. By not factoring in a salary, the profits are inflated and portray an unrealistic picture of the income of the business. It is often difficult to separate business from personal expenses. If a home office is used for business, personal assets will need to be separated from business assets. An accountant can help determine what needs to be separated and what records and receipts need to be kept. Direct costs are fairly easy to separate; it is the indirect costs that can become blurred. For example if a computer is used for both personal and business use, the percentage of time the computer is used for each would need to be calculated so that expenses can be split between the two. When purchasing supplies such as computer paper and ink, both would again need to be separated into the percentage of the cost that belongs to the business and the portion that is being used for personal use.
The bottom line:
Keeping immaculate records is imperative for the success of the business. A business owner will be asked to participate in many different roles during their tenure as a consultant. It is important that the consultant recognizes that it is very likely they will not be able to perform every role in the business without help. When an area is beyond their scope, a consultant should ask for help from those with the expertise they desire in order to improve their chances of success.
