Starting a consulting business can be a great way to make money and help others. But it's important to understand the legal and financial implications of setting up a business. In this article, we'll look at the nine steps you need to take to set yourself up for success as a consultant. The first step is to decide on the best business structure for your consulting business.
S corporations are usually better suited for large consulting firms with several shareholders and employees, as they provide protection for the assets of an LLC, but impose more liability on shareholders. Sole proprietorships are simpler and can be the sole owner or have partners. Taxes are listed on Schedule C of your personal tax return, and your personal assets are protected from creditors or in the event of a lawsuit. Once you've chosen your business structure, you'll need to register your business with the state.
This will involve filing paperwork and paying any applicable fees. You'll also need to obtain any necessary licenses or permits for your business. Next, you'll need to create a marketing plan for your consulting business. Some marketing assets that are “must have” for most consultants include a website, a LinkedIn presence, and business cards.
You'll also need to create a pricing structure for your services and decide how you'll accept payments from clients. If you're setting up a C corporation, you'll need to elect a board of directors and appoint officers who will be responsible for running the company. The separation between the company and the owners also protects the personal assets of business owners from business liabilities in most cases. You'll also need to create contracts for your clients that outline the terms of your agreement. Some consultants issue a proposal and then a separate agreement that summarizes the proposal and includes additional details about the business relationship, payment terms, and other information. Finally, you'll need to understand your tax responsibilities as a consultant.
Tax responsibilities for the business activities of a sole proprietor are transferred to the owner's individual tax return, and the owner must pay self-employment tax on the company's profits. Understand that you have a variety of options for your company when it comes to choosing your structure; choosing your company structure comes down to what works best for you. Unless your consulting business is about to become a big company, a C corporation is most likely not right for you. Once you've researched how to start a consulting business and are ready to make it a reality, you can streamline the process with CorpNet.