This article is a follow-up to a previous article entitled How to Start a RIM/IG Consulting Practice.
Congratulations! You are an independent RIM/IG consultant now.
As a contractor running a small business, the keys to success are firmly in your hands. The rate you charge clients, getting paid on time, managing taxes and expenses – all of these considerations factor into how well your business will do.
The following article offers insights into how to manage the back office in your first year as your own boss:
When you first start off as an independent consultant, you may not land a string of big lucrative contracts. Odds are you’ll be a shrimp among sharks and whales. But this is not a bad thing. You are learning the ropes and carefully building up brand recognition and industry reputation.
Stay flexible. You may have to take a side job to make ends meet while you’re bidding on new work. Just be very, very careful what you sign with clients or partners – some contracts can limit your ability to compete in the present or future.
Securing New Business
The independent consultant is always looking for new opportunities. It is important that you maintain professional credentials and memberships, stay visible at industry events, meet new contacts, and reconnect with existing contacts. Traditional means of building name recognition and remaining relevant to potential customers include holding seminars (webinars), writing articles/white papers, purchasing ad space, sponsoring events, and volunteering with trade groups. These days having a consistent social media presence is considered standard.
Be sure to sign up for notifications and alerts from public organizations who post Requests for Proposals; as a small-time operation, consider teaming up with other professionals (especially non-RIM professionals like project managers) as this will bolster the odds of landing public contracts.
A lot of new business is a good problem to have. If you are staring multiple clients/contracts in the face, and have the capacity to do so, consider working several projects simultaneously. This will ensure that you don’t find yourself twiddling your thumbs when the ball is in your client’s court and billable activity is limited.
If you do not have the bandwidth to take on new work, pass the opportunity along to a trusted colleague – for a fee, of course.
What to Charge
Fact is, there is no set rate for consulting services, nor is there a foolproof way to calculate a rate. It varies from project to project. A client’s budget, idea of fair market rate, location, and travel requirements are only some of the considerations when it comes to determining a rate to charge – the project timeline and total number of anticipated billable hours play a significant role as well. You will need to put considerable thought into the rate you charge – it can really make your or break you.
Why? Because consulting is feast or famine, especially for the small guy. Your real-world constraints and considerations as a small business owner (for example, medical insurance, which you’re on the hook for) should be factored into your decision to charge a specific rate. I know a fellow west coast consultant who will not under any circumstances accept an offer below $150/hour – in his words it is “literally not worth it” to accept a rate below this amount. And guess what? He is absolutely, positively correct in his assessment. As a seasoned industry veteran providing clients a valued service, he deserves to be compensated for all the hard work he does (not to mention charging discount rates can negatively impact the industry rate of pay for all RIM/IG consultants).
So be sure to charge a solid rate that takes your personal and professional goals into account. When working with clients to find a rate that works for them, it is always better to start rate negotiations on the high side than to come out the gate with a lowball offer. Former FBI hostage negotiator (and independent consultant) Chris Voss wrote an excellent book on the topic.
In a perfect world, a consultant performs the work as agreed upon, submits an invoice at the end of every month, and is paid within 30 days.
It is not uncommon for clients or master contractors to avoid or delay payment. Intentional or not, it can disrupt your business’ cash flow.
You should never be shy about following up with clients or master contractors concerning payment if you haven’t received it per the agreed upon contract terms. Be sure to always maintain several contacts in the client’s payroll department because one is often not enough to get the ball rolling when it comes to receiving payment (remember, you’re the only person who cares if you get paid).
If you are not being paid for work done, you may want to seriously consider withholding work product, or even ceasing work altogether – otherwise, you may find yourself working for free.
One of the great ironies of history is that a disagreement over taxation launched the American revolution, yet over two hundred years later the United States relentlessly taxes its citizens and corporations. A lot has changed since the signing of the Declaration of Independence, but one thing has not: people still hate paying taxes. As an independent consultant, you are required, at minimum, to pay taxes to the government on a quarterly basis. Waiting to pay taxes in April results in penalties and interest so the consultant is advised to keep up on payments.
And those payments are high. As both employer and employee, independent consultants must pay 15.3% into Medicare and Social Security – on top of state and federal taxes. While half of this amount is deductible, it must still be paid upfront. This additional tax can negatively impact your bottom line in a way it may not have when you were a regular nine-to-fiver.
And when it comes to taxes, even good news isn’t really good. The 2018 tax year saw the introduction of the 20% “pass through” tax, but the language in the legislation is confusing to just about everyone and it remains unclear if RIM/IG consultants can take advantage of the potential tax savings. As of the date of this publication, the IRS has yet to issue clarification or guidance on this issue.
Then there are, of course, expense deductions. The rules have changed drastically – some of the expenses you used to be able to deduct are no longer available. This is where you’ll want to consult with a tax advisor to develop an up-to-date, custom strategy for reducing your tax liability. You may even want to consider hiring a bookkeeper or payroll company like Paychex or ADP.
[For those who like to go with the rule of thumb: set aside 40% of income for taxes and pay it, at minimum, every quarter by the IRS deadline. This can be done online.]
About the Author: Rome Williams, CRM, is a University of Washington graduate and Certified Records Manager. He specializes in electronic records management, with a focus on developing technologies and enterprise system implementations. He has served on the Board of Directors for both the Oregon Chapter and Greater Seattle Chapters of ARMA International where he advocates for individual and collective action to elevate the RIM profession.
For more information on this topic, or to contact the author, please visit www.avicennaconsultingllc.com.