Tag: consulting mechanics

Developing business

People seemed to appreciate my first post about the mechanics of starting a one-person consulting shop. This post builds on it, talking about the pattern I use as I progress interesting conversations through to closed business.

This is offered in the same spirit as that first post. Your milage will certainly vary, this just is my experience – based on what has worked well for me. I’m super curious to hear any feedback you’re willing to offer.

Conversations from possibility

After a couple of decades in the same field, I have a really solid professional network. I took my first months of independence as an opportunity to re-connect with as much of that network as I could. I filled my schedule with phone calls, Skype dates, breakfasts, coffees, lunches, and after work beers. Even though I’m an inveterate introvert, I found it really pleasant (though tiring) to re-connect with so many people.

In all honesty, it eased my transition from a highly engaged role at a full time job to a much more solitary day to day routine.

It’s important to note that I don’t approach these conversations with any kind of a sales pitch. I was really, seriously just re-connecting with friends and colleagues, letting them know that I had changed jobs. Most of my early business came from referrals from those conversations rather than having my friends hire me directly.

As my schedule has filled up with paid work, I’ve deliberately left gaps so that when someone reaches out asking if I have time for a coffee or a beer, I say “yes, how about Friday.” Those meetings are just as much a part of the job as showing up to a client site. I’m working to develop next quarter’s income, not deliver on this quarter’s.

Scoping conversations and the Nondisclosure

From time to time, one of these casual conversations will unearth the fact that there’s a match between somebody’s needs and my abilities. At this point, I usually say “this sounds really interesting. Can we put a nondisclosure agreement (NDA) in place so we can get into the details?” NDAs are closely related to CDAs, or Confidential Disclosure Agreements. The differences aren’t really relevant at this point, either suits the purpose of these conversations.

An NDA should be a very straightforward document, not more than a page or two, in which both parties agree to keep each other’s information private. The NDA should make no commitments about any particular work, nor should it get unduly detailed. The NDA should also be 100% reciprocal. I won’t blab about you, and you won’t blab about me. The point of this document is to enable further conversation. This is not the time to get fancy with the lawyering or try to exact some competitive edge.

I have an NDA template, but I usually wind up using whatever my prospective client’s attorneys suggest – provided that it meets the criteria above. Most companies are bigger and more formal than my one-person shop, so it’s easier for me to adjust than for them.

From my perspective, the primary value of the NDA is as a lightweight validation that we’re all professionals and taking the conversation seriously. It lends gravity to the conversation, and serves as a gentle on-ramp to slightly more formal meetings.

Building a Statement of Work

As a social side-note, this is the point at which the meetings usually move from coffee shops and restaurants to an actual office. There’s a clear link between where we choose to have a conversation and how serious we are about it.

The point of the post-NDA conversation is to understand enough about each other’s situations to allow a good statement of work to take shape. This is the part where, as the consultant looking for work, it’s my job to have an idea and to make a proposal.

Full disclosure: I used to experience this as the very most stressful part of the process. I assumed that proposing a statement of work was some sort of commercial imposition on what had been, to this point, a delightfully high minded conversation.

When I started out with BioTeam, the founders were constantly behind the scenes, prompting and supporting me to (as they put it), “have an idea! go get some work!” After I got good at it, a major part of my job became to provide that same sort of coaching to help new members of the team overcome the same inertia and nervousness that I had felt.

Over the years, I’ve realized that creating a statement of work is the very best part of consulting. I literally get to write my own job descriptions and (as one mentor put it) “speak solutions into being.”

I talk to interesting people, try to understand their situation, and then try to imagine something that we could do together that would help them. It takes practice to get up the nerve to say “it sounds like there’s potential here! How about this.” These days, I see it as a creative challenge rather than an imposition on the other person.

My statements of work almost always start with a “situation” section that briefly outlines the current state of affairs and scopes the reason for considering a project. I find it incredibly useful, mired in the depths of a negotiation – or even when delivering on a project – to go back and read the “situation” section that we wrote together. All too frequently, I realize that I have wandered away from the original problem that we set out to solve.

Having written the situation, I write a description of what I will do to impact or change that situation. This should be specific enough to see how it would matter, but still leave lots of space for adjustment in both scope and tasking.

The Proposal

At some point, the statement of work starts looking pretty solid. We’ve come to a shared understanding of the situation, and we’ve described things that I could reasonably do that would improve that situation.

This is where it starts to get a bit commercial. I’ve got a proposal template (it’s in Word), with sections for both “situation” and “statement of work.” It also includes a bunch of stuff about how we’ll deal with travel (whole days only, pre-approved only, customer pays for single occupancy rooms, coach class airfare, and a car if necessary), time tracking (I track it and provide detailed invoices), and payment (I invoice monthly, they pay within 30 days of receiving the invoice). There is also a section titled “about the consultant,” which reads like a mini-resume. This bit is important, because the proposal is the document that the person I’ve been talking to will shop around to their organization.

There’s also a section titled “investment.” This is the “how much will it cost,” part.

There has been a lot of ink spilled about negotiation, and still more about how to set prices. I have strong opinions on both topics. Without going too far into those opinions, I will simply say: Ask for a rate at which you will be happy to be doing this work, and be fair and open in the conversation. The real trick to negotiation is to keep the conversation going. Have a list of things you’re willing to give, and have a list of things you’re willing to accept. If the conversation stalls, offer to accept something that you know is easy for the other person to give.

Recall – you wrote the statement of work. You can edit it as you see fit. As the saying goes, negotiate scope rather than rate.

Also, do keep in mind that you’ll be setting aside half of your gross receipts for taxes. That’s a lot.

Closing the deal

Closing the deal is wildly variable. In my experience, smaller and younger organizations tend to send an email that says “yes! Proposal accepted! When can you start?” Larger shops will have a more formal process. I will leave the nuance of navigating a big commercial purchasing system for a later post. Suffice it to say, this is the point at which the documents get complex and it might be good to have a lawyer looking over your shoulder.

As I said up top – I am very interested in feedback and opinions on this stuff. This is what I know, and it works for me. What works for you?

The Mechanics of Consulting

Since going independent in February, A few people have asked me about starting an independent consulting practice. This post shares some of my experiences. In order to keep it to a manageable length, I have omitted stuff like developing and maintaining relationships with clients, writing statements of work, running the actual projects, as well as the banal necessities of invoicing and collection.

If you happen to be thinking of doing something like this, please keep in mind that your milage will certainly vary. A cursory internet search about starting a company turns up lots of strong opinions – many of them written by people who seem to be selling something. I’m not an attorney, I’m not a CPA, and I do not specialize in setting up small businesses. This post describes my experiences and should be taken with a grain of salt.

With that, here are some of the mechanics:


I registered an LLC with the secretary of state of Massachusetts. This involves filling out a straightforward web form and costs $500. There is a $500 annual fee to keep the company active, and a $500 fee if you want to make changes to the filing (like updating an address or a name) in the middle of the year. I paid an attorney to fill out the form for me, but in hindsight it’s simple enough to do for yourself.

My understanding is that I didn’t have to register an LLC. I could also have simply started “doing business as,” myself. I registered both because I thought it was cool to own a “real” company, and also to provide a legal framework to keep my personal and my business finances separate. Despite the words “limited liability,” an LLC does not actually provide much in the way of legal protection for my assets. That sort of protection comes from consistent, audit-ready financial practices, and insurance.

The form requires a brick and mortar street address as the official location of the business. Everything else can run through a post office box, but the state wants to know where the business actually operates. Since the filing is a public document, some people might be leery of using their home address. When I started my business, I rented a mail slot from WorkBar, my local co-working facility. That let me use their address rather than my own.

You aren’t allowed to have the same name as another registered company. Attorneys can do the search for you, but google and the secretary of state’s website provide a solid first pass. Because my brand is just “me,” I used my name in the filing. There are many reasons that a person might name their company based on what they do, rather than on who they are. Based on my experience and that of several friends, either path can work.

Legal contracts always use the formal name as registered with the state. In conversation, I may refer to my business as “Dwan Consulting,” or similar variants – but on the contract it’s always “Dwan, LLC.”

Tax ID

Once the corporate registration has been accepted, you can apply for a corporate tax ID from the US government. This is another self-explanatory web form.

You will receive a PDF with your company’s tax ID, which you can use to fill out the W-9 form that all your customers will want.

Bank Accounts

With the tax ID in hand, I set up a pair of business bank accounts. I use the checking account for the vast majority of my transactions, and the other one to hold money for taxes. A good rule of thumb on taxes is to set aside half of your gross income. This is almost certainly overkill. Over time you will accumulate data that allows a more accurate number.

Credit Card

In addition to the bank accounts, I use an American Express card for my business expenses. The one I use has an annual fee and comes with benefits that in my opinion make it worth the money. The benefits that I like the most are passes for in-flight internet (I used one in writing this post!), access to airport priority lounges (snacks, comfy chairs, good wifi, and ample power outlets), upgraded memberships in car rental and airline upgrade programs, and so on. There are tons of non-billable expenses associated with business travel, so this works for me. As mentioned above, your milage will vary.

Since I set up the tax ID number with the IRS, my company can have its very own credit history. This will come in handy if I ever decide that I need a business loan.


Some of your customers will insist that you carry insurance. Whether they do or not, it’s a really good idea to sign up for a policy. I was surprised at how little it cost for me to have remarkable amount of coverage.

There are two primary kinds of policy that are of interest to the independent consultant. I have both, and it costs me about $100/month:

  • General Liability: This is insurance in the event that I directly cause damage or losses to my customers. For example, if I spill coffee into their precious server and destroy their data, that’s general liability.
  • Errors and Omissions or Professional Liability: This is insurance in the event that I do not directly cause the damage, but my advice and service are bad enough that when the accident happens – it’s obviously my fault. If I wrote the design that specified that the office coffee pot should be located directly above the precious server, that would fall under “errors and omissions.”

Boilerplate Legal Agreements

I had the good fortune to work with a lot of different contracts and agreements during my time at Bioteam. Because of that, I was confident enough to distill several example documents into templates for Nondisclosure, Proposal, and Consulting agreements. If you don’t have that background, this is a place where I would suggest hiring an attorney to be sure that you understand the terms and conditions under which you intend to do business. This is particularly true if you intend to write software or generate intellectual property.


I use Quickbooks Online. It’s about $50/month, which comes with bank account integration and time tracking. I like the time tracking feature a lot, since I can create invoices that show, day to day, when I was on the clock. I make a practice of recording my time in the system every day. Time tracking software like Harvest is also quite good in this regard. There are other features of Quickbooks that I haven’t needed yet, like payroll and direct deposit.


Taxes are a big deal when you’re out on your own. You are responsible for both the employer and the employee portion of social security and medicare tax. You are also responsible to file quarterly pre-payments. Even though it’s not technically required in your first year of operation, it’s a good idea.

As mentioned above, a good rule of thumb when starting out is that you should set aside 50% of all the money that you get paid. That will feel really uncomfortably high, but it’s way better to over than to under estimate. Over time, you will get a feel for your actual effective tax rate.

I pay an accountant to do my taxes at the end of the year. We usually sit down and go through quickbooks together so that he’s confident that he understands my system, and then he does the rest.

It’s worth noting that a single member LLC like mine is something that the IRS refers to as a “disregarded entity.” The government, doesn’t care if I move my money around between my own pockets. This means that even though it’s a big deal to me when I pay myself, it doesn’t matter at tax time whether I moved money from my business checking to my personal accounts. It’s all the same filing.

Expenses and Deductions

There are lots of good references out there about what you can and cannot deduct as business expenses. I tend to err on the low side, only using the business accounts where it’s really unambiguous that the only reason I’m spending the money is to support my business. I know people who are more aggressive on that front. It seems to work out okay for them.

And that’s it! Even though there are plenty of moving parts, it’s really not all that complex to set up and run a sole proprietorship.

I’m interested in whether this post was interesting or useful to you. Please leave comments or shoot me an email.