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INTRODUCTION xix 1 UNDERSTANDING THE CONSULTING BUSINESS 1 1. WHAT IS A CONSULTANT? 1 2. WHO GOES INTO CONSULTING? 4 3. WHY DO ORGANIZATIONS USE CONSULTANTS? 4 3.1 Temporary assistance 4 3.2 Objective review 4 3.3 Third-party request for problem identification and resolution 5 3.4 Surviving a crisis 5 3.5 Initiating change 5 3.6 Obtaining funding 5 3.7 Selecting personnel 5 3.8 In-house education 5 3.9 Dealing with internal personnel difficulties 5 3.10 Delay tactics 5 CONTENTS vi Start & run a consulting business 3.11 Executive assistance 6 3.12 Government regulatory compliance 6 3.13 Socio-economic and political changes 6 3.14 Government excess funds 6 4. REGULATIONS AFFECTING CONSULTANTS 6 2 SELF-ASSESSMENT 7 1. INTRODUCTION 7 2. ATTRIBUTES OF SUCCESSFUL CONSULTANTS 7 3. ASSESSING YOURSELF AND YOUR MARKETABLE SKILLS 8 4. RESOURCES FOR IDENTIFYING CONSULTING OPPORTUNITIES 8 4.1 Consulting newsletters and websites 8 4.2 Newspapers and magazines 8 4.3 Consulting and professional associations 9 4.4 Government agencies and publications 9 4.5 Public and university libraries 9 4.6 Continuing education courses and seminars 9 4.7 Competitors 10 3 SETTING UP YOUR BUSINESS 13 1. START-UP COSTS AND MONTHLY EXPENSES 13 1.1 Start-up costs 14 1.2 Monthly overhead expenses 14 1.3 Personal expenses 14 2. SELECTING A NAME 15 2.1 General considerations 15 2.2 Fictitious name 18 3. SELECTING AN OFFICE 18 3.1 Home office 18 3.2 Office outside of home 19 3.3 Equipping an office 22 3.4 Office supplies 24 3.5 Personnel 25 Contents vii 4. SELECTING A TELEPHONE SYSTEM 26 4.1 A separate phone at home 26 4.2 Business line terminating at answering service 26 4.3 Business line terminating at home and answering service 27 4.4 Overline 27 5. SPECIAL TELEPHONE FEATURES 27 5.1 Call waiting 27 5.2 Call forwarding 27 5.3 Three-way calling 27 5.4 Speed calling 27 5.5 Phone/fax 27 5.6 Call display/name display 27 5.7 Call return 28 5.8 Call again 28 5.9 Call answer 28 6. SAVING MONEY ON LONG DISTANCE PHONE CALLS 28 6.1 Charging long distance calls to clients 28 6.2 Calling cards 28 6.3 VoIP 28 7. OTHER COMMUNICATION OPTIONS 29 7.1 Voice mail 29 7.2 Generic telephone number 30 7.3 Pager 30 7.4 Cellular phone 31 7.5 E-mail 31 7.6 The Internet 31 8. DEVELOPING YOUR WEBSITE 32 8.1 Pitfalls to avoid 32 8.2 Keeping the website interesting 33 8.3 Designing an effective web page 33 viii Start & run a consulting business 4 LEGAL FORMS OF BUSINESS STRUCTURE 35 1. INTRODUCTION 35 2. SOLE PROPRIETORSHIP 35 2.1 Advantages 36 2.2 Disadvantages 36 3. PARTNERSHIP 37 3.1 Advantages 37 3.2 Disadvantages 37 3.3 Partnership agreement 38 3.4 Kinds of partners 38 4. CORPORATION 38 4.1 Advantages 38 4.2 Disadvantages 40 4.3 Corporate purposes 40 4.4 Shareholders' agreement 40 4.5 Maintaining the corporate protection 41 5. S CORPORATION (SUB-CHAPTER OR SUB-S) (UNITED STATES) 43 6. LIMITED LIABILITY CORPORATION (LLC) (UNITED STATES) 43 5 SELECTING BUSINESS AND PROFESSIONAL ADVISERS 45 1. GENERAL CRITERIA FOR ADVISER SELECTION 45 1.1 Recommendations 46 1.2 Credentials 46 1.3 Clientele 46 1.4 Fees 46 1.5 Technical competence and industry knowledge 47 1.6 Style and personality 47 1.7 Confidence 47 1.8 Communication 47 1.9 Commitment 48 1.10 Availability 48 1.11 Length of time in practice 48 Contents ix 1.12 Ability to aid growth 48 1.13 Small firm versus large firm 48 1.14 Comparison 48 2. LAWYER 49 3. ACCOUNTANT 49 4. BANKER 50 5. INSURANCE BROKER 51 6. CONSULTANTS 51 6.1 Private consultants 51 6.2 Consultants subsidized by the government 51 6 PREPARING YOUR BUSINESS PLAN 53 1. WHY PREPARE A PLAN? 53 2. FORMAT 54 2.1 Introduction 54 2.2 Business concept 54 2.3 Financial plan 54 2.4 Appendixes 57 3. ESTIMATING YOUR START-UP FUNDS 57 3.1 Assessment of personal monthly financial needs 57 3.2 Estimated business start-up cash needs 57 4. SUMMARY 57 7 HOW TO OBTAIN FINANCING 71 1. TYPES OF FINANCING 71 1.1 Equity 71 1.2 Debt 72 2. SOURCES OF FINANCING 74 2.1 Equity 74 2.2 Debt 75 3. COMPETITION BETWEEN LENDERS 75 4. TIPS ON APPROACHING YOUR LENDER 76 5. WHY LOANS ARE TURNED DOWN 77 x Start & run a consulting business 6. TYPES OF SECURITY A LENDER MAY REQUIRE 78 6.1 Endorser 78 6.2 Co-maker 78 6.3 Guarantor 78 6.4 Promissory note 79 6.5 Demand loan 79 6.6 Realty mortgage 79 6.7 Chattel mortgage 79 6.8 Assignment of accounts receivable 79 6.9 Postponement of claim 79 6.10 Pledge of stocks or bonds 79 6.11 Assignment of life insurance 79 8 KEEPING RECORDS 81 1. ACCOUNTING AND BOOKKEEPING 81 1.1 Separate record-keeping 82 1.2 Double-entry and single-entry bookkeeping 82 1.3 One-write accounting system 83 1.4 Cash or accrual record-keeping 83 2. BASIC ACCOUNTING RECORDS 83 2.1 Sales journal 83 2.2 Cash receipts journal 83 2.3 Accounts receivable ledger and control account 84 2.4 Accounts payable journal 84 2.5 Cash disbursements journal 84 2.6 Payroll journal 85 2.7 General ledger 85 3. NONFINANCIAL RECORDS 85 3.1 Personnel records 85 3.2 Tax records 85 3.3 Service records 86 Contents xi 4. OFFICE SYSTEMS 86 4.1 Handling new clients and projects 86 4.2 Time records 86 4.3 Standard form letters of agreement or contracts 86 4.4 Billing, credit, and collection 87 4.5 Calendars 87 4.6 Filing systems 87 9 HOW TO LEGALLY MINIMIZE PAYING TAX 91 1. TAX AVOIDANCE AND TAX EVASION 91 2. CASH OR ACCRUAL METHOD 92 3. FISCAL YEAR-END 92 4. CORPORATIONS, PROPRIETORSHIPS, OR PARTNERSHIPS 92 5. MAXIMIZING DEDUCTIBLE EXPENSES 93 5.1 Home office 93 5.2 Automobile 94 5.3 Entertainment 94 5.4 Travel 94 5.5 Bad debts 95 5.6 Insurance 95 5.7 Education and professional development 95 5.8 Salaries 95 5.9 Equipment 96 5.10 Furnishings 96 10 INSURANCE 97 1. OBTAINING INSURANCE 97 1.1 Agencies 97 1.2 Insurance brokers 97 1.3 Clubs and associations 98 2. PLANNING YOUR INSURANCE PROGRAM 98 3. TYPES OF BUSINESS AND PERSONAL INSURANCE 99 3.1 General liability 99 3.2 Products or completed operations liability 99 xii Start & run a consulting business 3.3 Errors and omissions liability 99 3.4 Malpractice liability 99 3.5 Automobile liability 99 3.6 Fire and theft liability 100 3.7 Business interruption insurance 100 3.8 Overhead expense insurance 100 3.9 Personal disability insurance 100 3.10 Key person insurance 100 3.11 Shareholders' or partners' insurance 100 3.12 Busin…