Posted on 02/22/2016 9:32:52 AM PST by Alberta's Child
I am looking to make a transition in my career this year, and I am starting the process of setting up my own consulting business in my industry. I've got a reputation and track record that my clients seem to value, and I'm looking to break free of the constraints of my corporate role.
I will be working with a lawyer and a CPA once I get a little further down the road here (probably when I am ready to get an EIN#), but in the meantime I'd be interested in getting input from other Freepers who may have followed (or tried to follow) a similar career path:
Just a few background items:
A. I am a civil engineer by profession.
B. My highest attained degree is an M.S.
C. I have been working in this field for more than 20 years.
D. I consider myself "business savvy" in my field, having worked in a corporate/managerial role for almost five years.
My early action items in this effort include decisions on the following:
1. My intention is to set this up as a limited liability company (LLC) under the laws of my state, but I know this designation has no meaning under Federal tax law. If the LLC gives me the legal liability protection I need, is there an advantage to establishing this venture as a corporation, as opposed to a sole proprietorship or partnership?
2. I have a small number of potential partners who are not able to make this leap right now for a number of reasons (risk tolerance, other commitments, family matters, etc.). If I set this up as a sole proprietorship, would I be able to convert it to a partnership without closing down the LLC and starting another one?
3. Are there any unique challenges with establishing an LLC in one state and conducting business in another? I'm thinking particularly of maintaining the liability protection in State B if I am domiciled in State A.
4. Are there any special risks or financial considerations if I start this venture as a home-based business? I have already done research on this through my local zoning code, but I have a number of clients who would be great points of contact for short-term or temporary office space with shared administrative staff and meeting space, if necessary. I just don't want to make any commitments until I have some contracts established for short-term revenue.
5. Any other thoughts, ideas, or advice related to the start-up process before I get the lawyer/CPA involved?
After all your hard work, when your business gets off the ground, just remember... you didn’t build that.
In all seriousness, good luck and God bless all your new ventures FRiend.
My consulting fee is negotiable, but payment in advance is necessary
Went the same route 8 years ago. I set up a full corporation with Subchapter S election, whereby all profits can be passed through to me as the sole shareholder and taxed as ordinary income. Your lawyer should be able to suggest the best option for your particular circumstances. Consulting has very low overhead and I knew there would never be any partners so this was kind of a no-brainer for me, and it still gives me the structure to do any other things corporations might want to do. Good luck!
Thank you! The advantage of a consulting business is that other than a trademark and logo, there aren’t really any assets for Barack Obama to take credit for building. LOL.
Be advised that when you are on your own... you are on your own. You become sales, training, consultant, billing, postal, clerk, receptionist, ... everything. Plan for far more “admin” time than you think.
I will gladly pay you Tuesday for a consultation today. :-)
Start small, conserve your cash, slowly build.
Be your own boss. Every successfull start up with equal partners usually ends in disaster.
Expect long hours 365 days a year
That will be a question for the CPA, of course.
Don’t forget the Small Business Admin:
https://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business
Your local office should provide free advice given by local small business people.
Thank you! To be frank with you, that’s one of the reasons I am doing this. I have basically become a bureaucrat, and I can do a lot of those things better than my fellow bureaucrats who are supposed to be responsible for them.
A lawyer can best answer your questions. And you are well ahead if you talk to a lawyer first. Saves a lot of hassle later.
I’ve set up two business - one was consulting. I did work for companies in other states and it was never an issue. (The other states were California and Georgia - I’m in Texas).
(Second business was for my son - it’s his business, I just helped him set it up)
I used Quick Books to manage the financial side of the business and that was a learning experience.
Good luck - it can be a great experience.
Advice from one who took the plunge about 3 years ago...
1: Focus early on getting framework agreements set up with your former clients. It has been my experience that some of them won’t be able to just give you work without a frame contract already in place.
2: Pay close attention to insurance requirements; commercial general liability, professional liability and others. Often, limits of liability are unnecessarily high, and you might be able to negotiate them down to more acceptable limits.
3: Be wary of consequential damages and unlimited liability clauses - those can kill you.
4: Be prepared for the business to grow much, much more slowly than you would have imagined.
5: Be prepared for the loneliness that may come from being out on your own, and from being responsible for every aspect of your business.
6: Have fun - it’s stressful to not be reliant on a steady paycheck, but the ability to make your decisions is more than worth it.
Some of these answers might depend on what state you live in. I’m only familiar with Florida, which is pretty business-friendly. Your mileage may vary if you’re in some liberal hell-hole.
1. You can read more about the pros/cons here:
http://www.bizfilings.com/learn/llc-vs-corporation.aspx
LLC is cheaper, more flexible, and less paperwork, at least from what I’ve experienced. Just pick whichever suites your needs best.
2. You can actually re-file your LLC to add and remove partners and managers as necessary, but yes, you can also shut down the LLC and convert it to a corp. I’m not actually familiar with the details, but I worked at a startup where we did just that.
3. If you google “[your state here] llc doing business across state lines”, you should find a state/local chamber of commerce .gov site that gives you all the details on this. As far as I know, the only consideration is making sure that uber-lib states that make you pay their taxes have their rules adhered to, but that might vary depending on your locale.
4. There’s no disadvantage to using your home address EXCEPT for the fact that your address then becomes a matter of public record for your business. You might want to use a company to do the filing and handling for you. In my area, there are smaller outfits that will handle your filing, and accept your mail via PO Box, for fees as low as $200/yr. This way you don’t put your address out there should any customer down the road become disgruntled and pursue an avenue of personal harassment.
5. Use google and your local business .gov sites as much as possible. You SHOULD NOT pay for any seminars about how to do this, even if they are advertised on your local COC or small business developer website. From what I have gathered, they are just pyramid schemes/ripoffs set up to tell you all of the free information you can already get online, provided you have good enough reading skills to manage some basic legalese. Since you already have a lawyer lined up, just save any questions you might be confused about for them.
Hope this helps some. Good luck!
Good luck. I too am a civil engineer with about the same amount of experience...so I am interested to see how this works out for you.
I think there may be some federal tax benefit to being a sole proprietorship...but a CPA would know for sure.
Some of the smaller firms that have started where I live office close to a printing shop...so they can use them as an extension of their business - all printing, electronic plan room, large sheet scanning, even plotting progress sheets if you can’t afford a plotter right away.
Some cities have ‘business incubators’ where you can utilize an admin person, voice mail system, etc on the cheap.
I think one of the larger expenses could be professional liability insurance...so it may be worth investigating the minimum level required by your prospective clients, and shop around for a rate, before making the ‘leap’.
Sounds exciting.
That is a great resource. I am also pretty well connected at a local level here, with board-level roles in professional and organizations where I interact with similar folks regularly.
Always get half up front
I was forced this route back when the dotcom bust happened. I now own a small IT security business.
LLCs are good. Cheap and easy to maintain. I went with an S corp. The reality is neither really helps that much. Anybody suing you will have a better lawyers than you so what they really look for is a contract and liability insurance. Banks don’t care and will want your personal assets on the line.
I wouldn’t recommend partners unless you have too. If you do they have to bring something to the table. Money or business, otherwise use them as a consultant and pay the rate.
No unique challenges to doing business in other states except NY and CA. If they find out they will want a %. You’re really supposed to register in each state but they don’t really care unless you do a lot of business in that state, (a lot >$500k). Having employees in other states can be a major pain. I had employees in maryland and then stopped. The state didn’t like that and it took me almost 3 years to stop the threats and penalties for not paying taxes I didn’t owe.
I ran my company as home based for 7 years. You’ll get lots of mail and everyone will know. It does effect who will do business with you. I’d recommend using a executive office company so you have a ‘business address’. You can get these with Regis or one of a many others. I saw major differences in business when I moved to a ‘office’.
Selling is a bitch to learn for technical people usually. Absolutely critical though. If you can’t sell then it doesnt matter how good of an engineer you are.
Be careful if you have any customer who generates more than 10% of your revenue. I had customers who generated 50-80% and it hurt bad when they stopped.
My advice is to not do it. Have you ever run a business before? I would at least hold off to see how the election turns out. If the democrats stay in, expect 8 more years of economic stagnation. I would also try to see if I could renegotiate a better contract with your existing employer before walking away from that job.
Since you probably won’t take that advice, try to line up long term contracts (3 to 5 years) with companies or the government before you quit your current job. Also have a minimum of 5 years of income set aside to tide you over until you can acquire additional contracts. Factor in that your insurance costs are going to skyrocket when you run your own business.
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