10 Steps to establish your consulting business
Here are the steps you can take to start your consulting business! It’s easier when you know how to get there. Following the steps in order makes it simpler to get started.
The good news: you can usually establish your business before you leave your job. Consult as a part-time activity until you know you can earn enough to succeed.
TIP: Currently employed? It’s best to find out what your employers rules are for consulting or outside work.
Here are the 10 steps:
- Find your niche and choose your path
- Choose a business structure
- Register your business
- Know your tax responsibilities
- Get a tax number
- Separate business from personal finance
- Establish an office
- Get online
- What about insurance?
- How much do I charge?
1. FIND YOUR NICHE & CHOOSE YOUR PATH
“If you don’t know where you want to go, then it doesn’t matter which path you take.”
Lewis Caroll
1.1 Find your niche
Certainly, your niche and your ideal clients are very important and should be considered as you follow the steps. You should also consider your brand.
Use this table to clarify where you want to focus your consulting practice. The more specific you can be across these dimensions, the easier it becomes to market yourself, attract ideal clients, and command premium rates.
Consultant Niche Definition Framework
| Category | Questions to Consider | Examples |
|---|---|---|
| Industry/Sector | What industries do you have expertise in? What sectors interest you most? | Technology, healthcare, finance, manufacturing, nonprofits, retail, education |
| Business Function | What specific business areas do you specialize in? | Operations, marketing, sales, HR, finance, strategy, supply chain, IT |
| Client Type | What size and type of organizations do you serve best? | Startups, mid-market, enterprises, family-owned, public sector, nonprofits |
| Company Stage | What stage of business do you focus on? | Pre-launch, early-stage growth, scaling, turnaround, transition/exit |
| Problem/Challenge | What specific problems do you solve? What pain points are you best at addressing? | Digital transformation, cost reduction, team building, process improvement, revenue growth |
| Geography | Where do you operate? Are you location-dependent or remote? | Local, regional, national, international, remote-only |
| Client Budget/Value | What price point clients can you serve? | High-value enterprise contracts, mid-market budgets, solopreneurs, nonprofits with limited budgets |
| Methodology/Approach | What’s your unique approach or methodology? | Lean, agile, data-driven, design thinking, coaching-based, fractional executive |
| Experience Level | What experience qualifies you? What credentials matter? | Years in industry, certifications, past success metrics, unique background |
| Passion/Energy | Where do you get excited? Where do you have natural curiosity? | Problem-solving, people development, innovation, systems thinking, sustainability |
1.2 Choose your path
Choose how much you want to be involved in the details of running your business. This will help in your choice of a business structure. Then you can register your business, address the financial considerations, insurance, and where you want to actually perform your work.
1.2.1 Let someone else handle business details and find clients for you
Some companies that support consultants and contractors will arrange the work, the travel, and the projects. Then you just do the work and they send you the check. You can pick and choose the jobs as long as you have enough work. In this case you devote yourself entirely to consulting.
An example is Advarra. MBO Partners handles some of the business details and helps you find clients.
1.2.2 Let someone else handle business details, but find your own clients
An option is to join an organization that allows you to be an “employee of record.” The organization could handle all of the business, provide benefits, such as group health insurance, and do the billing, bookkeeping and taxes. So you would find your own clients and projects. An example of a company that provides such services is Solo Workforce for independent professionals. Agents and various companies will be happy to find work for you – for a fee, of course.
1.2.3 Establish your own business, find your own clients, and do the consulting
If you go with establishing your own business, you will first have to decide what business structure you will use. You can see that I did not mention every possibility.
In any event, you would need to choose the appropriate business structure whether you work as an solo consultant or hire others.
Consulting Business Models Comparison
| Model | Client Acquisition | Business Management | Your Role | Example |
|---|---|---|---|---|
| Full Service Provider | Company finds clients | Company handles all (travel, projects, billing, taxes, bookkeeping) | Execute consulting work only | Advarra, MBO Partners |
| Employee of Record | You find clients | Organization handles business details (benefits, billing, bookkeeping, taxes) | Find clients and do consulting | Solo Workforce |
| Independent Business Owner | You find clients | You handle all business operations | Manage business and do consulting | Self-established business |
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2. Choose a business structure
2.1 The simplest business structures
The two simplest structures are a sole proprietorship or a general partnership. Simpler as you will see below is not necessarily better.
While these structures are the easiest to establish, simplicity doesn’t equal protection. Both expose your personal assets to business liability.
- A sole proprietor has no separation between personal and business liability.
- A general partnership is even riskier since you’re also liable for your partner’s actions and decisions.
- Consulting with a lawyer before choosing either structure is strongly recommended, especially if your work carries any substantial liability risk.
The Two Simplest Business Structures
| Structure | Setup Complexity | Best For | Key Advantage | Major Liability Risk |
|---|---|---|---|---|
| Sole Proprietorship | Minimal—register with county/state government | Low-risk consulting with minimal liability exposure | Simple to establish and operate; no separation between you and business | No personal liability protection—your personal assets are at risk if sued |
| General Partnership | Minimal—partner agreement needed | Sharing workload with a colleague; handling uneven demand for services | Ability to take time off; partner covers overflow work; shared responsibilities | Worse than sole proprietorship—both you and your partner are personally liable for each other’s actions and business debts |
2.1.1 Sole Proprietorship
For a sole proprietorship, in the United States,
- Check with your county government or state for registration details.
- For a business with low liability risk you might feel that this is just the structure for you.
- Check with a lawyer, because as a sole proprietor, there is no difference between your personal liability and that of your business.
2.1.2 General Partnership
You could form a general partnership with a colleague who has complementary or similar skills. If the demand for your services is more than you can handle, having a partner could be an attractive option. The rate at which work comes in may be uneven, and your partner could step in when you are too busy.
You may even like to go on vacation without having to say no to new projects, or working through your “time off.”
Looks good, doesn’t it?
The problem, though, with general partnerships is liability. Because there is no difference between you, your partner or your business, it is even worse than a sole proprietorship.
2.2 Better business structures
“Life is about choices. The better you become at making good choices the better your life will be.”
Germany Kent
Get advice from a lawyer and an accountant sooner rather than later. An accountant can give important advice about your taxes, and whether a limited partnership (LP), a limited liability company (LLC), or a corporation may be best.
2.2.1 Limited Partnership
A limited partnership has two types of partners, general partners and limited partners.
General partners:
- are responsible for managing the organization
- can make obligations on behalf of the partnership
- are liable for the partnerships actions and obligations.
Limited partners
- Liable to the extent of the money that they put in the organization, provided that they are not actively involved in the affairs of the partnership.
- To avoid liability problems, the limited partnership can have a corporation or LLC as general partners.
- Forming a limited partnership that provides good liability protection is more complicated than forming either an LLC or a corporation.
2.2.2 Limited liability company (LLC)
Many consultants use the LLC, because:
- It is easier to run than a corporation.
- Has less burdensome regulatory requirements and more flexibility.
The LLC tends to be favored in the real estate business. It is not allowed for certain organizations, such as banks.
2.2.3 Corporations
Types of corporations
There are two main types of corporations of interest to consultants, C corporations or S corporations.
Other sorts of corporations exist, but may not be relevant, especially to solo consultants.
Tax of corporations
The individuals in a C corporation:
- Pay taxes on their own income and the corporation is also taxed.
- This results in double taxation.
For S corporations, there is a pass through tax.
- The tax passes through to the owners.
- This results in single taxation.
- Profits and losses of the S corporation would be paid on your personal income tax.
- Some states tax S corporations.
Liability protection of corporations
Unlike sole proprietorships or partnerships, the LLC, C corporations, and S corporations have good liability protection. But to avoid losing your liability protection:
- You have to carefully follow the regulations, including holding annual meetings.
- You should carefully separate your business and personal finances.
Better Business Structures for Consultants
| Structure | Liability Protection | Tax Treatment | Management Complexity | Best For | Key Considerations |
|---|---|---|---|---|---|
| Limited Partnership (LP) | General partners liable; limited partners liable only to extent of investment (if not actively involved) | Varies | High—more complicated to form and operate | Partnerships seeking liability protection with passive investors | Can use corporation or LLC as general partner to improve protection; not commonly used by solo consultants |
| LLC (Limited Liability Company) | Strong—protects personal assets | Flexible; can choose pass-through or corporate taxation | Low—easier to run than corporation; fewer regulatory requirements | Most consultants—especially solo practitioners | Favored for flexibility and simplicity; not allowed for banks and certain regulated organizations; must maintain separation of business and personal finances |
| C Corporation | Strong—protects personal assets | Double taxation—corporation taxed and individuals taxed on income | High—requires annual meetings and strict regulatory compliance | Larger consulting firms planning to reinvest profits | More burdensome regulatory requirements; typically overkill for solo consultants |
| S Corporation | Strong—protects personal assets | Pass-through taxation—single taxation on personal returns | High—requires annual meetings and strict regulatory compliance | Consultants wanting liability protection with tax efficiency | Some states tax S corporations; good option to minimize self-employment taxes; requires careful financial separation |
Key Takeaway: Consult a lawyer and accountant before deciding—they can advise on tax implications and which structure best fits your situation. Most solo consultants choose LLCs because they offer strong liability protection with less complexity than corporations. All three liability-protected structures require you to carefully maintain separation between business and personal finances to preserve protection. For more detailed guidance, check the IRS and U.S. Small Business Administration websites.
For more information to help you decide about the best business structure for you, excellent information is available on the Internal Revenue Service and US Small Business Administration websites. Also, see this blog article about why it is important to register your business and some mistakes to avoid.
3. Register your business
3.1 US Small Business Administration Resources
- Free, useful information and links available on their websites
- Grants and other forms of assistance for small and startup businesses
- Worth exploring in depth to find all available support options
3.2 Registration Options
3.2.1 Direct Registration (Least Expensive)
- Register your business directly with your state on your own
- Lowest initial cost
3.2.2 Online Registration Services
- Use services like MyCorporation or LegalZoom to file LLC or corporation paperwork
- Less expensive than lawyers or accountants
- Research services before choosing
- Often provide additional help such as:
- Outlines of your responsibilities by business structure
- Example forms and templates
- Legal advice (available through LegalZoom)
Whatever way you decide to move forward, registration is one of the important steps to start your consulting business.
3.2.3 Do you need a lawyer?
Finding a Lawyer
- Ask business associates or people you know for referrals
- Search online and filter for business lawyers in your state/jurisdiction
- Check the American Bar Association (ABA) site website for general guidance
- Use UpCounsel for one-time issues or ongoing legal advice
- Check freelance sites like Fiverr for legal help
When to Use a Lawyer
- Have a lawyer verify your company setup is legally correct
- Get lawyer review of contracts
- Access Legal Forms and guidelines for contract requirements
While many services can handle the registration of a business, this is not the same as having a lawyer.
3.3 Do you need an accountant?
Finding an Accountant
- Use CPAdirectory or similar resources
- Check freelance sites like Fiverr
- Some accountants can handle business registration (more expensive than self-registration or online services)
Why Early Accountant Review Matters
- Verify proper company setup from a financial standpoint
- Avoid financial and tax problems later
4. Know your tax responsibilities
In addition to understanding the legal implications of your business, it is important to know your tax responsibilities among the steps to start your consulting business. Seek the advice of professionals and review tax information resources.
Tax Professionals
- Certified Public Accountant (CPA) or Enrolled Agent (requires IRS exam and background check)
- Can provide tax advice and services
Tax Information Resources
- IRS website—extensive information on tax responsibilities, educational materials, and video seminars for small business
- US Small Business Administration—free information, links, grants, and assistance programs
5. Get a tax number
As soon as you have the documents from the state in which your business is registered:
- You should get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
- You need this even if you don’t employ anyone.
- In general, you will need an EIN to establish a bank account for your business.
Go the IRS site for Small Businesses and Self-Employed for more general information and for instructions to complete your EIN application online.
Soon after completing your application, you should receive a letter with your tax number.
6. Separate business and personal finances
Separating your business from your personal finances:
- Is an important step in starting your consulting business.
- It helps to insulate your personal finances and property from liability relating to your business.
- It makes it easier to track your business finances.
Bank and credit card accounts
First set up a separate small business bank account and obtain a business credit card:
- You could use the same bank as you have for your personal account, but set up a separate business account.
- The banking industry keeps changing, so shop around for the best deals.
- Also, look for the best deals for credit cards.
Manage your finances
While you can use paper or spreadsheets to record your finances, consider getting user-friendly accounting software:
- QuickBooks is widely used and training courses and experts online can help you get set up. If you have never used accounting software, it will need some effort to learn it.
- Simpler bookkeeping and billing apps are available, such as Wave (which has a free version), Xero or Zoho Books. What you end up using depends on your business structure, and how much you want to get involved in managing the books and billing yourself.
While using accounting software does not require much knowledge of accounting, it is useful to have an accountant set up your initial chart of accounts. This is a listing of all the accounts of your business and is the way in which you would categorize all the money coming in and going out.
The blog has more information on setting up your consulting business to deal with money.
7. Establish an office
Office Space
- Set aside dedicated office space in your home
- Ensures professional environment for client calls and work
7.1 Essential Furniture and Supplies
- Desk and chair
- Filing system or storage
- Office supplies (pens, paper, notebooks, etc.)
7.2 Technology and Equipment
- Laptop computer or tablet for consulting work
- Mobile phone with call timing features (useful for billing purposes)
- Peripherals (keyboard, mouse, monitor, external hard drive)
- Software (productivity tools, accounting software, industry-specific programs)
7.3 Communication Tools
- Landline or Voice over Internet Protocol (VOIP) telephone service
- VOIP offers reasonably good sound quality
- Caution: May not work during internet outages
- Multipurpose printer with fax function (if clients require fax capability)
7.4 Document Management
- Scanner for digitizing documents
- Email for sending documents (replaces traditional faxes)
- PDF apps for mobile phones to create and sign documents electronically
7.5 Internet Connectivity
Essential backup for maintaining client communication
Wireless hub (integrated with mobile phone service or standalone device/dongle)
Benefits: Keeps your computer online when your primary internet service is down or when traveling
Verizon Mobile Hotspot Jetpack
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Cloud Services and Software
7.6 Business Accounts
- Microsoft, Google, or similar providers offer small business accounts with:
- Cloud storage for secure data access
- Email software
- Word processing, spreadsheets, and presentations
- Video conferencing capabilities
- Zoom and other platforms also provide video conferencing
- Action: Research and select the provider that best fits your business needs and budget
7.7 Physical Office Space
7.7.1 Do You Need to Rent Office Space?
- Generally not necessary for a consulting business
- Meeting alternatives:
- Meet clients at their offices
- Meet at neutral locations (coffee shops, libraries, etc.)
- Only rent space if you have a specific business need
7.7.2 Cost-Effective Options for Occasional Needs
Examples: Co-working spaces, business centers that offer hourly or daily rentals
Temporary office rental services provide space on an as-needed basis
More economical than long-term office leases for consultants who rarely need physical space
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8. Get online
Website Essentials
- Set up a professional website that clearly explains:
- Your consulting services
- How clients can contact you
- Establishes wider presence and allows you to brand your services
- Provides potential clients an easy way to find and learn about your offerings
Domain Name
- Obtain your own domain name (e.g., consultant-example.com) for a professional appearance
- Domain registrars where you can search and purchase:
Website Setup Options
Option 1: Free Website (without custom domain)
- Platforms: Wix, GoDaddy, Squarespace, Google’s Blogger, WordPress
- Trade-off: Less professional than owning your own domain
Option 2: Website with Custom Domain and Hosting
- Combined services: Domain registrars listed above often provide hosting and website building tools
- Advantage: Professional domain name and all-in-one solutions
Option 3: DIY Website Building
- Website builders with no programming experience required:
- Wix, GoDaddy, Squarespace, WordPress
- Include programs/apps for easy site setup
- Resource: The blog has more information on website hosting options
Option 4: Hire a Professional
- Freelance services offer affordable website setup:
- Cost-effective for custom professional websites
A website can also allow your clients to pay you online using PayPal or an online merchant’s account.
Getting online is one of those important steps to start your consulting business, because it gives you a wider presence and is an opportunity to brand your services and provide a way to find you and learn about your services.
9. What about insurance?
General Business Insurance Requirements
For some people, getting insurance may not be top of mind as one of the important steps to start your consulting business. Your insurance needs will depend on the types and level of risks in your area of consulting.
Types of Insurance Needed
- General commercial liability insurance (typically inexpensive)
- Errors and omissions (E&O) insurance, also called:
- Malpractice insurance
- Professional liability insurance
- Cost varies: E&O insurance can be costly, especially in high-risk consulting fields
Determine Your Specific Needs
- Insurance needs depend on:
- Type of consulting you provide
- Level of risk exposure in your field
- Resource: Investopedia’s article “Best Small Business Insurance Companies: Find the right insurer to help protect your business“
Health Insurance
Obtain Your Own Coverage
- As an independent consultant, you must secure individual health insurance
- Exception: If you’re covered under someone else’s plan (spouse, parent, etc.)
Cost Considerations
- Individual health insurance costs more than group insurance from an employer
- Cost-reduction strategy: Use a higher deductible to lower premiums
- Trade-off: Lower monthly payments but higher out-of-pocket costs when you need care
Find and Compare Plans
- Use eHealth to research and compare health insurance options
- Enter your state and coverage preferences
- Get instant quotes from multiple providers
- Compare medical, dental, and vision insurance
- Covers individual, spouse, partner, and family options
Life Insurance
Consider Term Life Insurance
- Relatively inexpensive compared to other insurance types
- Protects your family in case of your death
- Recommended: Evaluate your dependents and financial obligations to determine coverage amount
10. How much do I charge?
“Strive not to be a success, but rather to be of value.”
Albert Einstein
Start with an Hourly Rate
- Begin by calculating your desired hourly rate
- This is a useful starting point, even if you later charge by project, retainer, or other methods
Don’t Simply Convert Your Current Salary
- Avoid: Taking your current salary and dividing by hours worked
- Why: As a consultant, you won’t spend 100% of your time on billable work
Calculate Your Actual Billable Hours
Available Work Hours
- 40-hour workweek × 50 weeks/year = 2,000 hours annually
- (Assumes 2 weeks off for vacation and sick days)
Non-Billable Hours You Must Account For
- Approximately 1,000 hours per year spent on:
- Looking for new clients
- Writing proposals
- Billing and invoicing
- Administrative tasks
- Other non-revenue-generating activities
- Result: Only ~1,000 billable hours per year (50% of available time)
Account for Benefits and Expenses You Now Must Pay
Benefits You Lose as a Consultant
- Health insurance
- Life insurance
- Liability insurance
- Retirement plan contributions (no employer match)
- Paid time off
- Professional development and conference attendance
- Work space
Business Expenses You Must Cover
- Office equipment (computers, phones, printers, furniture)
- Software and subscriptions
- Supplies (stationery, etc.)
- Overhead costs
- Internet and phone service
Calculate Your Target Rate
General Guideline
- Charge 2.5 to 3 times your desired hourly employee rate
- Example: If you’d earn $50/hour as an employee, charge $125–$150/hour as a consultant
- Rationale: Accounts for non-billable time (50%) and self-paid benefits/expenses
Important Caveat
- This is not a fixed rule — you can only charge what clients are willing to pay
- Research your market: Ask peers and research what consultants in your field and region are charging
Pricing Methods Beyond Hourly Rates
- By project, retainer, or other methods may work better for your business
- The blog has more information on alternative pricing strategies
Build Pricing Knowledge Over Time
While Still Employed
- Transition gradually while keeping your job
- Gain clarity on your actual cost of business
- Test pricing with clients in your spare time
As an Independent Consultant
- Learn what you need to charge to sustain your business
- Discover what clients are willing to pay for your services
- Adjust your pricing model based on experience (hourly, project-based, retainer, etc.)
Try our Contractor Rate Calculator to play around with the numbers.
Now it’s up to you to take the steps to start your consulting business!
“The only thing worse than starting something and failing… is not starting something.”
Seth Godin
Take the first step. Follow the steps in order to set up your business. Use what works for you and move forward.
For more about establishing and growing a consulting business, visit the Home page and blog.
Visit our YouTube Channel – Consultant Freedom.
Not yet ready to go into consulting or set up a consulting business?
You can read articles in the blog for more information:
- Who can be a consultant?
- So you want to be a consultant?
- Learning about consulting
- Mentors can help you start and grow a consulting business
- An account of my own experience
If you have decided to move into independent consulting, see these articles:
- Standing Out From the Crowd: A Guide to Defining Your Niche as an Independent Consultant
- From unknown to in-demand: How to market yourself online as an independent consultant or freelancer
Please leave comments.
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