How to start a consultancy business

Most people set up a consultancy business after gaining knowledge, qualifications, experience and contacts while working for someone else. Some set up a consultancy business on their own, while others do it with colleagues.

Although there are no guarantees, setting up your own consultancy business can give you more income, greater flexibility and a healthier work-life balance. You get to be the boss and decide your own destiny. Others do it because they relish the challenge of creating, running and growing a successful consultancy.

As with most things, there are pros and cons. You may not earn more, not at first, at least. You may need to work longer hours to get established. And as well as providing your services, you’ll have to manage your business, which means having to take care of many tasks, including those you don’t like. But the pros can outweigh the cons and the rewards can be significant.

If you’re an employee considering setting up your own consultancy business, check your employment contract terms. Some contain “restrictive covenants” or “post-termination restrictions”, which prevent employees from leaving and setting up in competition.

They normally last for three to six months (12 months for more senior roles). Sometimes voluntary redundancy agreements also contain restrictive terms about approaching customers. Ignore them and there can be expensive legal consequences.

Even if there are no such restrictions, if you tell your employer that you plan to leave and set up your own consultancy, you could soon be put on “garden leave”. Naturally, your employer will want to mitigate potential damage. If you’re in any doubt about your legal position, seek tailored professional advice.

Start by answering some basic questions.

• Will yours be a full-time or part-time consultancy business?
• Should you go it alone or set up with someone else?
• Which specific services will you offer?
• Which customers will you target?
• Will you be able to you attract enough of them?

Carrying out basic market research is advised. If you don’t already know, find out who your main competitors are, what they offer and how much they charge. Crucially, consider how you can set your consultancy apart.

Also speak to potential customers. Tell them you’re planning to launch your own consultancy and ask them what they like and dislike about their current service provider. Ask how much they currently pay and whether this offers good value. Find out how your offer could be more attractive to them. 

If you can get a commitment from them there and then – get it. Being able to launch with clients in place will be hugely advantageous. Getting direct feedback from potential customers can prevent expensive start-up mistakes. At very least, it can help you to launch a consultancy that’s more likely to appeal and succeed.

You need to work out whether your idea for a new consultancy is viable. Things may be better or worse in reality, but you need to work with educated estimated figures to test whether your business idea could work.

Guided by your basic market research/knowledge, you should know what you can charge for your services, determined by how much target clients or customers are prepared to pay. Work out roughly how much revenue you’re likely to make in a month. Once you take away your likely start-up, operating costs and tax, would your take-home be enough?

Also consider where the money will come from to start your consultancy. You’ll have to use your own savings, but will you have enough to start and keep your business afloat until it generates profit? If not, you’ll need funding or finance. Minimising your start-up costs is essential, but you’ll still need spend some money.

• Find out more about start-up funding options

People often mistakenly believe that “brand” means logo, typeface, colours, etc. These are elements of brand identity. Your brand is what comes to mind when customers think of your business. Your brand is your promise to your clients – it’s what you stand for.

Successful businesses have strong, appealing, distinct brands. Invest time and money in creating your brand. Budget permitting, paying for advice from a brand expert can prove shrewd. Having an impressive brand can really enable your new, small consultancy to compete against larger, more established competitors.

Experts can help you with your brand identity, and once fashioned, you’ll be able to create your website. Your website should create a superb first impression by showcasing your brand, telling potential customers key facts and why they should buy your services. Obviously, it’s cheaper to do your own website, and it’s possible to create a reasonably good website, but hiring a professional can ensure far better results.

It’s a key start-up task, but you’ll also need to come up with and register a name for your new consultancy. Be sure to check that your preferred business name isn’t take and that you can get the website domain name you want.

• Visit government website GOV.UK for guidance on legal restrictions when choosing company names.

With all of the other main tasks completed, you’re now in a position to officially register your business.

• Your main options include sole trader (ie self-employed) and private limited company.
• If you become a freelancer or contractor, you can simply become self-employed or incorporate a private limited company.
• If you set up your consultancy with others, you could register as an ordinary partnership or limited liability partnership.
• Read about the pros and cons of different types of business that you can register.