Consulting Tips for Ed-School Students
John R. Whitman, EdM, PhD
276 Oakland Street, Wellesley, MA 02481
781-431-8636
john.whitman@utoronto.ca
Last update: 28 January 2008
Is there a market for your services?

It is important to learn how business really works. If you have not had previous
private sector experience, check out some basic books about business.

Companies primarily want to make money for their owners. Every expense is
measured with this objective in mind.

Every employee and consultant costs the firm money; only some make the firm
money. Know where you stand in this equation.

Don’t be fooled thinking that companies “need” what you have to offer. The
difference between a “need” and a “market” is that a market requires both a
demand for what you offer, and the money to pay for it. No demand or no money
= no market. (Of course, bartering substitutes something else of value in place of
money.)

Find out who really makes the decisions. Sometimes, only people at the very top
can see the strategic value of what you have to offer as an investment, not simply
as an expense.
How do you get started in a consulting business?

Think about where you want to be and what you want to do five years out. Do you
want to be employed in a particular industry? Do you want to have a “lifestyle”
business, working for yourself? Do you want to grow a major consulting
enterprise? Do you want to build a company that provides services, sells products,
or both? Do you want to build a firm that gets acquired or goes public? Think
backwards from this destination to figure out how best to get there.

Understand the three typical forms of business entities: Sole-proprietorship,
partnership, and corporation. Decide which is best for you. If you decide to set up
a corporation, consider the pros and cons of incorporating and operating as a nonprofit organization (typically a 501-C-3 company).
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
Talk to a lawyer and accountant about what you will need to know working as a
consultant (and possibly hiring others to help you). Familiarize yourself with
“intellectual property” and learn what the phrase “work for hire” means as it
applies to you (in relation to your client) and to those you might hire. Determine
what you will own, what your client will own, and what people you might hire
will own as a result of your work. What you (or your business) own creates its
asset value.

Save enough money to cover expenses for at least one year. Meanwhile, do not
buy anything that you do not absolutely need.

Know exactly what your service is, but be flexible (opportunistic) in taking
assignments until you get momentum. Then you can afford to be strategic,
focusing only on the work that will get you where you want to go.

Focus on one client (or a few) at a time, and build a list of satisfied clients. Only
work for clients that you would be proud to include as references (but get their
permission before you use them as a reference; they may not allow this). If you are
fortunate, you may get more clients than you can handle by yourself. Think in
advance about this possibility, and identify sources of help that you could hire for
projects on short notice.
How do you get the word out?

The easiest way is to start with someone you already know, or with someone who
can recommend you directly to a decision maker.

Network at every opportunity, and don’t be reluctant to do volunteer work. The
key is meeting the right people, getting projects done, and showing a track record.
That builds momentum.

If you do not have an email account, get one right away (select a service you will
keep for years). Select an email address that includes your name (e.g.,
“john.whitman@xxx.yyy”), not an alias (e.g., “sunny 49@xxx.yyy”). Put your
email address on your business cards, always carry your cards with you, and give
them out freely.

It is easier than ever to create your own web site. Get a copy of Dreamweaver
from Macromedia or Microsoft FrontPage and set it up at www.godaddy.com or
some other Internet Service Provider. You will be well served if you know not
only how to create and maintain a web site, but also what is happening on the
Internet in distance learning, e-commerce, news, publishing, and other areas that
may be critical to your clients.
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How do you set your fees? And how do you get paid?

There are several steps in this calculation (your accountant can help you sharpen
this analysis):
1) What would a company pay you annually as an employee? Divide this annual sum
by 2080 to get the base hourly rate you should charge. This would be your hourly
earnings from the company as an employee. However, as a consultant, you can
charge more than this base amount.
The reason you, as a consultant, can charge more than this is because the firm that
hires you does not have to pay your entire year’s salary and benefits; they will use
your services only for the number of hours they wish. Moreover, they will not
have to provide an office, supplies, or other employee needs. By hiring you as a
consultant they get your services without the obligation and expense of hiring you
as an employee. They will pay a premium for this, which can be about 2-4 times
your base hourly figure.
2) Multiply your base hourly rate by a factor of 2 to 4. This multiple is expected to
cover costs that you do not otherwise charge directly to each client. These costs
can include your own rental space, expenses for furnishings, a computer, supplies,
telephone expenses, your health insurance, and anything you cannot charge
directly to a client. Now you have determined your chargeable, or billable hourly
rate.
For example, say you could be paid an annual salary of $40,000. Your hourly
equivalent would be $20 (rounding up a bit). Multiply this by 4 and you get $80
an hour, your billable rate. If this sounds high or low, find out what other
consultants in your area of specialty charge as a guideline to determine an
appropriate multiple. If you know of a consulting company that provides services
similar to yours, try to find out what their employees are paid (at your professional
level), and how much they bill their clients for that employee’s time, per hour.
Divide the billable hourly rate by the employee’s hourly salary rate to get the
multiplier used by that company. Note that the company’s multiple must include
expenses that you as an individual probably do not have, so their multiple may be
higher than you need charge. This makes you more competitive.
3) When you bill your client, in addition to billing for the hours you spend on the
project, you can also charge for specific, direct expenses related to the project.
These might include itemized telephone calls you made for the project, the cost of
printing a report, the cost of the binders for the report, the amount you paid
someone to help you enter data into the computer, etc. You can add these
expenses to your bill at cost, or you can add an additional fee, such as 10%, to the
total of these direct costs.
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Typically, either you want to be competitive on price, or you want to offer such a
valued service that you can charge more than other consultants (you can always
make exceptions and reduce your standard rates to accommodate a client). In
either case, build trust and guarantee satisfaction.

Determine in advance whether you need a purchase order to get paid. Sometimes a
purchase order can take weeks to be processed and approved, and you won’t get
paid without it. Determine whether a single purchase order will cover the entire
project, or whether a separate PO will be required each time you submit a bill. At
your discretion, you may also inquire whether the firm typically pays on time, or
whether you can anticipate a delay in payment.
Submit an invoice on the same day each month. Include the purchase order
number and your taxpayer ID on the invoice. Indicate that terms are payment in
full in 30 days, and that 1.5% per month interest will accrue to unpaid balances.
However, often a client, even a large one, may not pay within 30 days, so be
prepared for delays. If you suspect that your invoice may have been misplaced in
the client’s firm, by all means raise the possibility with your client, who should
then make the appropriate internal inquiries.

In some cases, you can get paid an advance amount, or a retainer, prior to
conducting the work. This will be especially important if your own start-up costs
for the project will be significant. Ask the client directly if it is possible to be paid
an advance amount. Sometimes the client may be willing to pay half the
anticipated amount at the start, and the balance at the end of the project, upon
their approval of the work.

Cash flow is like blood to your business. Use a spreadsheet to track all your
expenses by week to see how much savings or income you need at least to break
even. Similarly, total up all your personal expenses for a year (rent, food, gasoline,
etc.), which is how much money you will need after taxes. Then gross up this
amount to include the taxes you would have to pay on your income. The result
indicates the minimum amount of money you will want to take out of the business
in the form of your salary or earnings. For example, let’s say you need $25,000 to
pay your living expenses, and you figure you pay 35% of your income in state and
federal taxes. That means that $25,000 should be 65% of what amount? Divide
25,000 by .65 and the answer is that you need a salary of $38,462 to net $25,000
in after-tax cash. Consult your accountant for amounts your business will have to
contribute to Social Security, health, and unemployment not only for your own
salary but for your employees, as well. Be sure to include these amounts in your
cash flow analysis.
Tax considerations:
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
Get an accountant as soon as possible, preferably one with other clients in your
line of work. S/he will advise you on your tax and reporting obligations. Most
likely these will involve prepaid estimated taxes on a quarterly basis. Discuss the
advantages and disadvantages of operating a non-profit organization versus a
profit corporation.

If you hire others you will have additional reporting and payment obligations.
Learn how the IRS defines the difference between a “consultant” and an
“employee”.

Determine in advance the dates you must file tax and other payments, and enter
these in your calendar book so you don’t miss deadlines. Penalties apply.

Always keep a time sheet on which you log the actual hours you spend each day
for each client (these may get audited as evidence that you did the work you billed
the client for and that you didn’t bill more than one client for the same time).
Always get and keep receipts for your business expenses. If you have employees
or contractors, make sure they, too, keep time sheets and business receipts. You
should make up the time sheet for them to complete and return to you.
Joys and realities:

Gratification comes from providing a valuable service that results in quality work
that gets used by the client. Additional rewards can include recognition and
payment. Since you may be working long hours and during holidays in order to
please your clients, make sure your loved ones understand and share your dream.

It helps to understand the political role you can sometimes play as a consultant:
You are an outsider; therefore, your opinion, advice, and work can be used to
effect nasty outcomes that no one inside the company wants to claim as their own.
You need to understand the various possible political dimensions of your role, in
addition to doing what you like to do.
You may wish you had known:

You may wish you had known more about business. Every educator and
administrator, not to mention consultant, should have a solid understanding of
business as part of his or her professional education. Consider taking some night
courses in business at area colleges or community colleges to round out your
knowledge of the private sector and how its denizens think and act. If you are a
self-learner, read business books that are assigned as part of a business school
curriculum, for example, in strategic planning, marketing, and accounting.

You may wish you had created a product, in addition to offering your services.
Selling your services means selling your time, and everyone has only 24 hours a
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day to sell. If you have a product (or a line of products) -- whether a directory of
useful resources; a booklet or book based on your expertise; a practical workshop
or seminar outline and workbook that could be conducted by others; a videotape
or audio tape product; or a software program -- you can sell as many of these
items as possible. This way, you can leverage the value of your time far beyond
the hourly rate you get paid as a consultant.
I hope this set of tips is helpful to you. If you have any questions, please feel free to call
me at 781-431-8636, or email johnwhitman@surveytools.com. (I’d appreciate an email
anyway, just to know you have read this. Please tell me what, if anything, you liked best
and what you think needs further clarification.)
Best wishes, and good luck.
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Copyright © 2005-2008, by John R. Whitman. ALL RIGHTS RESERVED.
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