Making Your Money Last


Set Out on Your Own as a Consultant

After decades in the workforce, you may have the knowledge and contacts to go it alone.

EDITOR'S NOTE: This article was originally published in the April 2009 issue of Kiplinger's Retirement Report. To subscribe, click here.

Cynthia Currence always dreamed that she would one day retire early from her company and set out on her own as a consultant. Last January, when she lost her job as a marketing manager at the American Cancer Society during a corporate reorganization, the opportunity presented itself earlier than she had expected.

One year later, Currence, 52, who lives in Atlanta, is a consultant with more than ten clients, including the Atlanta Falcons football team. "It's challenging, and it was scary at first," she says. "But it's a lot of fun."

In the face of rising corporate layoffs and declining opportunities for salaried employment, a growing number of workers are becoming independent consultants. Recent retirees whose investments have been hit hard by the falling stock market are also taking consulting jobs in order to replenish their portfolios.

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Before you strike out on your own, however, some introspection is in order. "You need to think about whether you'll enjoy working by yourself, and whether you'll feel motivated to pursue the marketing part of the business," says Bette Price, a consultant in Dallas who works with companies on human-resources issues.

The first hurdles are financial. You should have six months' to a year's worth of expenses in cash reserves, in case it takes a while before you can generate income.

Experts recommend working with a lawyer or a financial professional to set up your new business. In some cases, it makes sense to operate as a sole proprietor. In other cases, incorporating your business as a limited liability company, or LLC, is the right move. "An LLC creates a separate legal entity from your personal life so that if you're sued, your personal assets aren't at risk," says Drumm McNaughton, chairman of the Institute of Management Consultants, an industry group in Washington, D.C.

McNaughton also recommends obtaining an errors-and-omissions insurance policy. These policies protect you if a client holds you responsible for mistakes, or if you fail to perform as guaranteed by your contract.

You'll also need to decide how much to charge clients. To figure out your hourly rate, divide your former salary by 2,000 -- roughly the number of working hours in a year -- and then multiply that figure by two or three to cover overhead. Some consultants charge by the project. The Web sites Kennedy Information (www.kennedyinfo.com) and RainToday (www.raintoday.com) publish reports that track consultant fees.

As for drumming up business, the good news is that companies are looking to hire consultants because they are cheaper than full-time workers. Consultants do not receive 401(k) benefits or health insurance.

Network, Network, Network

The most natural place to look for consulting projects is with your former employer. "If you've been in some business for 30 to 40 years, chances are you know a lot of people. And they know a lot of people," says Walt Maclay, president of the Professional and Technical Consultants Association, in Santa Clara, Cal.

Networking is key, says Christine Lambden, coauthor of Everyday Practices of Extraordinary Consultants (Red Line Publishing, $25). "Consulting is a relationship business and when you network you need to have a 30-second commercial about who you are and what you have to offer," she says.

It's also worth joining a professional consulting organization. The Institute of Management Consultants (www.imcusa.org) hosts networking socials all over the U.S., as well as workshops. Members of the Professional and Technical Consultants Association (www.patca.org) are listed in the group's online directory and have access to listings of prospective projects.

Barbara Hart, a consultant in South Portland, Maine, who specializes in recruiting, advises investing in a high-quality Web site. Once a prospective client meets or hears about you, she says, "They go back to their office to look at your Web site. If you don't have a Web site, you will lose jobs."

For more authoritative guidance on retirement investing, slashing taxes and getting the best health care, click here for a FREE sample issue of Kiplinger's Retirement Report.

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