If you’re going into business as a consultant, you’re going to be responsible for managing your own cash flow and keeping your business afloat. In a way this is like having two jobs at once, unless you contract your accounting out to a professional (in other words, hire a consultant for your consulting firm!).
Repeat clients and long-term clients are going to be your bread and butter, but never come to rely too much on any one client.
Keeping track of your budget is absolutely critical if you’re going to be profitable, which in a way makes accounting just as important as whatever it is you actually do to make money. If you protect your earnings and do your job, your profits should take care of themselves. Here are some tips to get you going on the right path
- Before you start your consultancy business, make sure you have a basic budget planned. You should know exactly what your monthly expenses are going to be both for your business and for your personal needs. If you’re a sole proprietor, the IRS will not treat your grocery bill as a business expense, but you can’t work if you can’t eat, so you need to treat it as one. You will need to make enough money each month to compensate for all business and personal expenses to come out profitably.
- Learn about taxes starting from Day 1. Many business owners are surprised come tax day when they owe a lot more than they thought they would. Figure out how to calculate your quarterly taxes before you start your business, and consider taxes yet another business expense to calculate into your budget.
- Don’t wait to do your taxes. You are going to owe quarterly installments to the IRS and if you pay them late you will pay a penalty. If your income varies a great deal throughout the year, calculate your taxes each month so that you can pay the appropriate amount when it is due each quarter—and be prepared to do extra paperwork at the end of the year.
- If you have employees, remit your payroll taxes when they are due as well in order to avoid more penalties—or worse.
- Don’t put all your eggs in one basket. Repeat clients and long-term clients are going to be your bread and butter, but never come to rely too much on any one client. All good things can fall through eventually and things change constantly, so diversify your investments, including your client accounts.
- Cultivate favors. Go above and beyond and do a little extra for your clients. Not only will this impress them, but it may also be handy if you reach a time where you need a hand. Providing incentives for reviews and referrals for example is a great way to get some positive promotion and meet new clients. While this may not appear to be an accounting tip, it actually is one, since it’s a question of forfeiting small profits now in order to earn big profits later.
- Calculate your budget regularly, but do so consistently. Don’t change the order of your calculations around, or calculate your budget at different times of day, or on random days of the month. All you’ll do is confuse yourself and create unnecessary headaches. You need a method for your accounting in order to get reliable readings of your cash flow.
- Understand that money flows. Profit isn’t necessarily a simple, clean calculation since the way our money flows may vary from month to month. At any one time, the money you have on hand may not represent your “actual” profitability. Perhaps some clients owe you money, while others have paid you in advance. You must compensate for these nuances in your calculation in order to get a consistent portrait of your “real” profitability.
- Always do your best at what you do. This may not sound like accounting advice, but it is. Be personable and easy to get along with—make your clients feel like they’re dealing with someone they can trust and not a stranger. If you have some advice that falls outside your contract’s scope, provide it. A little generosity may result in a substantial payoff later.
- Consider outsourcing your accounting tasks. There are many accounting firms that can provide you with helpful software and professional advice, and which can alleviate some of your burden.
Running a business as a consultant is a complicated task since you need to not only do your job as a consultant, but also monitor your budget and deal with all the accounting needs of your business. This is one of the most critical elements of your work since if you do it wrong, you may not know whether you’re making or losing money until it’s too late. Don’t be afraid to hire a little extra help if you need it.