Starting a consultancy business: 9. Managing a consulting business

In the last of this series of articles Calvert Markham, former Director of the Centre, focuses how to manage your consultancy business successfully.

Excellent consultants are not necessarily excellent managers; indeed, consultants frequently shy away from the necessary administrative tasks involved – perhaps by taking employment in a consulting firm! This article is for those who are running their own consulting business, emphasising some of the advice previously given in this series.

The basic disciplines

1. Maintain utilisation. Utilisation is time on fees as a fraction of total time. For most consultants, income is calculated simply as number of days on fees times the fee rate. Once a day has passed then the opportunity for earning fees on that day has too, so monitor your utilisation and regularly estimate what it will be over the coming period, taking action to remedy any shortfalls where necessary.

2. Invest non-fee earning time wisely. Notwithstanding (1) above, make sure that sufficient time is given to selling, administration and product development. For example, insufficient time given to marketing and selling can lead to a ‘feast-famine’ cycle.

3. Control the cash. Say you win an engagement in May, starting in June at the end of which you send an invoice which gets paid at the end of July. You have the expenses of May, June and July to pay in the meantime, hence the need for working capital to finance this. But what happens when you are late submitting the invoice, or there is a query on it, or the client’s payment terms are not so favourable? More capital is needed! So keep on top of your invoicing and credit control.

Financial structure

As with all businesses, sales are the result of decisions of other people, so there will be some uncertainty about income. By contrast expenses are mostly under your control, so you need to decide on the balance between fixed and variable expenses. In a service business most expenses are fixed, so to reduce vulnerability to downturns in sales, you need to introduce variability to expenses – e.g. by using associates on zero hours contracts rather than employing consultants as your business expands.

Business development

There are three areas to consider in business development:

1. Building identity: this is what you want to be famous for, or simply your brand. All that you communicate should help to underwrite what it is that you want people to say about you, so you need to be clear what this actually is.

2. Building community. Your business does not exist in isolation, but in an ecosystem including clients, suppliers, professional institutions, associates and connectors. You should aim to maintain and develop your presence by networking carefully (see article 4 in this series on ‘Promoting your services’).

3. Building value. Be clear about the value you bring to your clients. This might be:

• Through the insight you have in their business and sector that enables you to help them in formulating their development agenda.
• Through your technical knowhow that enables you to identify and implement solutions that they don’t have the capacity to carry out for themselves.
• Through your experience, which enables you to execute projects with lower risk and cost than if the client were to do it themselves

Remember how experience contributes to the increasing value that you bring to your clients.

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Running your own business can be lonely, so I would commend finding a trusted confidante with whom you can discuss the issues as they arise. In my own case, when I launched my own business I had a friend also starting a related line of business; we met every couple of months or so for co-counselling sessions.

Finally, let me finish this series with a quote from Robert Townsend, who in his celebrated book Up the Organisation said, ‘If you are not in business for profit or fun why are you here?’

Running your own consultancy business should be fun; I hope you have as much fun running yours as I have mine!

For more on this and other related topics, see Calvert’s books The Art of consultancy and Mastering Management Consultancy