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Is anyone here a consultant? I have questions...
Backstory: Seemingly randomly, I was contacted by a company that saw a comment I made online about a previous area of expertise that they want to venture into and have asked if I'd like to be a consultant to them.
I've never been a consultant, dealt with them directly, or have any idea what would be expected of me as one. Looking up consultants and consultancies and what they do has provided zero insight as they seem to be purposefully vague or overly broad.
Starter questions (I realize they're vague and I'll have follow up questions as I get a handle on this):
- If you are or have been a consultant, were you independent or part of a firm?
- What do you actually do?
- What did/do you charge for your consultancy services?
I have done consulting in legal matters and technical matters on my own and as part of a company. Lots of good advice in here already, but a couple of other things to keep in mind.
You can form an LLC, but you do not have to. You can merely operate as a sole proprietorship, which is what I have always done. The LLC does in theory, shield some of your personal assets, but if you think you are at a high risk of being sued, you probably should think twice about it.
Definitely find a lawyer who is experienced in corporate contract law. Expect them to bill around $300-$500 an hour, and expect to pay a retainer up front.
If your client does not provide a consulting agreement, the lawyer can draw one up for you. This will protect you and define the terms of your business relationship.
You may be given a consulting agreement by your client. You definitely want a lawyer to review it. Do not assume you understand the agreement just because it all makes sense to you. Many words in a contract have a specific legal meaning that may not be what you think it is. Moreover, the agreement may be missing something that you don't know should be in there, which is something only the lawyer can tell you. The lawyer can explain the risks associated with the things in the agreement.
If the agreement is untenable, the lawyer may be able to provide revisions. Before you pay the lawyer to do this, make sure the customer will agree to review changes (sometimes called red-lines). Some organizations have standard consultant agreements and do not want them customized. You don't want to waste money on the lawyer just to have the changes refused.
Couple of things to pay attention to in contracts (I am not a lawyer, but have dealt with lots of contracts):
If you get stuck negotiating on these, you can always agree to take on more risk, but you should ask for a higher hourly rate to do so.
On the tax side (assuming the US), know that if you are self employed, you have to pay additional taxes that are usually 6-9% over and above your normal income taxes. Because you are self employed, no one is withholding taxes, so you have to pay estimated tax (usually every quarter). If you pay too little estimated tax, you may have to pay penalties later, so you may want to overpay your estimates in the beginning until you understand your revenue better.
Depending on the state and city you live in, you will have to pay state and city taxes. There may be other business taxes, like local services taxes. You probably also have to do estimated taxes, and the schedules may not be the same for all of them.
I have figured all this out for myself in the past, but it's very worth it to pay an accountant to do it. They can also tell you how to track your business expenses so that you can deduct them from your taxes. So it's worth reaching out to them early.
You can see there is a lot to it, which is why you should charge more than you think for your hourly rate. If there are lawyers involved, double your rate. Sometimes the lawyers will not like it if your rate is too low because they expect to pay a certain amount or an expert (this has happened o me). If you are expected to testify, triple your rate because your schedule will not be your own. You will have to appear when a subpoena or trial judge says, which makes it hard to do other work concurrently.
This doesn't even get into how to manage a client's expectations but this post is too long already.
Good luck! And if you have questions as you get into it, feel free to DM me.
Hard disagree to all of this, especially when you're just starting out (and definitely in OP's case).
For longer-term missions, sure, you want a robust contract because there's more chances of something going wrong, so you want to clearly outline procedures. But the outlining is more important than the "fairness" of the contract in this case. Like "What happens if you pay late" -> "You get a $X surcharge per day" vs "Hey, you paid late so I'm just gonna randomly add numbers to the invoice and threaten you".
When you do the same thing a lot, also yes sure, have a lawyer draft you a standard contract to send out yourself. This is primarily so that YOU have consistency across your clients: Same payment terms, recovery procedures, arbitration rules, etc.
Here are a few facts of consulting:
(seriously, before spending even $100 on a lawyer, spend half of that digging dirt on your prospect, especially from other contractors similar to you that have dealt with the client before)
Also, In most countries, this whole "this doesn't mean what you think it means" is kinda nonsense. Plain english is fine. Here's my favourite little factoid about this in fact:
The whole thing about "signing a contract" is bullshit in the first place. I'm sure you already knew you don't need to do the whole print-sign-scan song-and-dance and a digital signature is sufficient (people use docusign after all, right?). But really, even the signature is useless: It's all about intent, and being able to reliably say that the parties have read, understood and accepted a clear set of terms. In other words, an email is a contract: I have given out equity with zero PDFs/signatures, simply by stating the terms in clear plain english in an email and "If you accept these terms, please respond to this email with the words "I accept these terms". Yes it works. Don't need a lawyer. Intent matters. Saved thousands.
I certainly know people who operate this way. It is all a bit of luck whether things go smoothly or not. If things are fine, maybe it feels like that money was wasted. But that's a little like not buying insurance and hoping the house doesn't burn down.
If it's a small enough job that the legal costs impact profitability, then maybe someone decides to operate without a contract at all. But talking about it ahead of time means the OP has an opportunity to build those costs into their rate if they want to.
I would still spend my money to understand someone else's contract before signing it. It's not all about whether the other party pays the bill. The indemnity stuff can create significant expense beyond the scope of the contract payment, and maybe years down the road.
Couple of other thoughts to offer as counterpoint:
If the attorney is billing 10 hours for contract review, get a different attorney. My total back and forth has never been more than around $800 and is usually much less. I have always considered money well spent.
@Adys is correct, operating in good faith is important. If you don't trust the other party, don't do business. But you may find who you are doing business with changes without warning or your control. The company can get bought out, or bring in new management, or fire the guy you had a handshake understanding with. When that happens, all that is left is the wording of the contract.
Also, if I understand the OP's past, they have been approached by a particular company, so they are not choosing "good" clients in that scenario.
In the U.S. at least, intent is defined by what the contract says. So if someone signs a contract, then says later, "this is not what I thought it meant", they will find out that the time to get that clarity was before signing.
Can an email create a contract? Yes. But I have written plenty of emails that I thought were perfectly clear, only to have someone respond with a misunderstanding (whether reasonable or unreasonable) of what I wrote, which us why contract language is so precise.
Another important feature of a contract is that it will have a clause stating that the contract is the whole agreement. If someone is unwinding dispute of something agreed to in emails, the other party can claim that their understanding includes other conversations that are not documented, and it comes down to "he said, she said".
There are non-trivial tax implications and regulatory requirements around giving out equity. If the email described here sufficiently encompasses those, then sure, an email stating agreement is as good as a signed contract. But the wording of that email is still the critical part, not the fact of how the agreement was reached. And that's the part a lawyer can help with.
I don’t have much to add but: Most lawyers will not help with taxation questions. You need an accountant, one that knows your financial situation. Whether you get that equity through an email or a very official looking contract won’t change anything about those implications, it’s the way the equity is delivered that will. And that … is a talk you should have with an accountant (though even a preliminary talk with ChatGPT will offer guidance).
There are two types of consultants: Consultancy firms, and independent consultants. You're in the latter case in this situation, we'll skip the former.
A consultant is, in short, somebody who is paid to advise on a matter of expertise. A lawyer will often be nothing more than a "Legal consultant", and an accountant is more often than not a "financial consultant". You pay for their time in giving their advice. That advice may be delivered over a simple phone call/zoom meeting, in-person directly, over an email, or in a 517 page report.
Without more details as to what your matter of expertise actually is, it's difficult to say what your rate should be or what you even will be doing. But the point is, the company has identified you as a subject-matter expert, and wants you to advise them.
Your price should probably simply start at what you are comfortable charging, for your own time, on an hourly basis. If the subject matter is highly niche, or locked behind expensive certifications, you can charge a high premium on that. There's plenty of ways to optimize this, but with zero prior experience as a consultant, it's going to be a waste of your time.
I would respond something like:
"Thank you for your offer. I am happy to make myself available on an advisory capacity on A, B and C. My hourly rate is $X."
Where $X is probably something between $65 - $150. If in doubt, make it 100; it's a very good hourly rate, and it's probably not crazy for something a company would explicitly ask for advice for.. and they might just ask for 1 hour of your time anyway. I'm making loads of assumptions here of course.
Ah, and since you asked about rates.
I have in the past been able to sell my most niche / rarest skills at what I consider absolutely crazy rates (~$500 / hr). Despite having acquired much rarer and nicher skills since, my prices have gone way down due to the current market, which has made consultants the first to go in cost-cutting measures.
What you might know as the "Big Four" are four consulting firms (Deloitte, KPMG, PwC and EY) which are able to charge these ridiculous rates (often with extra zeroes) for a large variety of mixed consulting services. If you work for them, however, you won't see much of the actual hourly; most of it goes into various management fees. This is a common reason why consultants are disliked: They are seen as highly inefficient machines whose output is platitudes, bullshit and reports nobody reads.
I personally like consulting quite a lot because I love solving unique issues for a large variety of people, more than I like solving the same problem over-and-over for the same employer. But that's since pushed me less into "consulting" and more into creating my own ventures.
If you don’t mind answering, I would have two tangentially related questions (but definitely going more in the off topic direction):
I’m currently in my last Bachelor year at a fairly renowned European university, in a decently but not overly technical subject/field, and feel like I would severely lack practical experience and knowledge, were I to want to start consulting in “my” area right now.
And to be clear, I’m assuming that’s mostly normal and to be expected.
Also I wanted to ask since – from what I’ve heard, and you’ve alluded to at the start of your first comment too – the work in a general business/management consulting firm, no matter the size, is quite different from that more technical, more independent type of consulting which you described.
But being able to experience work that’s not the same over and over in one’s job until retirement sure sounds appealing. (:
I don't have a good answer to this. I succeeded at it because of sheer luck, I think. I stayed extremely curious, and I get burned out if I do the same thing too many times, which has forced me to simply quit jobs and clients I no longer enjoyed.
Formal: None, I quit school at 14.
Informal: I started self-teaching programming and reverse engineering, then entrepreneurship -> starting my own startup with cofounders was a good way to speed-run the "wearing MANY hats" thing. I got burned out coding so after having done it for 17 years, I stopped being able to really code (I get seriously stressed and headachy if I start). I moved to management and got into it; the past few years I've been powering through a lot of new knowledge: VC world, politics, grant funding, financial planning, how money flows in the EU, etc etc... it's fascinating, to be honest, and I love that I'm still acquiring so many new skills after two decades in my career.
Yeah I mean plenty of people call themselves consultants with a day of experience on their resume. I think it's the other reason why consultants are despised, there's a lot of people out there selling lukewarm air. I would say, a good consultant has skills which are very difficult to acquire in any way, be it either expensive, taking a long time, or requiring a particular network. I also personally expect the consultants I work with to be top-tier, and if you're not there yet, I would expect them to call themselves "freelancer". But yeah, it's just a title, and people interpret it however they want so at this point it's all very meaningless.
If you can't do it passively, do it actively. Apply the google 20% rule to your own life: Budget a chunk of your work time to learning new work skills and applying them professionally. But like, radically different things, not just "Oh I know React so I'll learn Vue", more like "Oh I know React so I'll learn to read sheet music and make a sheet music react app".
Hey, something I can try to answer.
Happy to answer any other question you might have.
I would need to know your field to give you specific advice. I've been a consultant in technology, legal, and product development capacities. Usually it was a flat hourly rate. For emergencies where they wanted my time ASAP I typically charged a large minimum fee plus any hourly beyond that.
I had my own LLC.
Generally provided expertise, wrote reports, analysed forensics, gave suggested lines of inquiry for follow-up, testified, advised teams, gave emergency consulting to restore technical services, conducted surveys, etc.
Depends on the field. Legal I charged $200 hourly rate. Technology for emergency consults $2,500 minimum with $100 hourly after, or $100 hourly for non emergency consults. Product development was usually retainer based where I would agree to advise on a particular stage of development for a flat fee that depend on the level of involvement. Usually technical products.
I have performed contract administration between the client (my company based in the US) and service provider (the consultant). The consultant provided expertise in the form of knowledge sharing and system administration. Depending on the department, they interfaced with other internal staff or with external parties who were also working on projects for the company.
You have skills and expertise that will go towards some deliverable. Think about what you are willing to do and for how long. Maybe you will be able to find a sample Statement of Work within your industry. You will likely see an SOW become the basis for a legal agreement. If you are not offered an agreement, then you should provide the SOW and require signatures for your own protection. You should also create your own Invoice template for your own work record as well as for your client, who will likely review/approve and forward it to their accounting team to issue you payment. I am not qualified to give tax advice, but you should also anticipate how much consultants/contractors get taxed in your country so you don't owe your government more money than you were paid for this gig.
Regarding your rate, from the company's perspective, we would have done some shopping around... You might be able to find some contractor job postings up right now. That could help you anticipate the type of work in addition to "market" rates if you have to adjust like how Adys mentioned.