Part 2 - Consulting as a Business (Welcome to Entrepreneurialism)

Being an independent consultant means that you are now responsible for the "business of you"! With this comes all the behind-the-scenes operational and administration activities that will allow you to be effective at your primary purpose: provide a billable service. To be effective, a consultant needs to be organized, self-motivated, and good at setting boundaries.

1) What type of business is an Independent Consultant?

Before you start to earn income, it is essential to understand how the Government will see your business. You will be classified as:

Sole Proprietorship

A sole proprietorship is an unincorporated business owned and managed by one individual. That is, the company and the operator are the same in the eyes of legal and tax authorities. Sole proprietors are fully responsible for all debts and obligations related to their business.

Partnership:

A partnership is similar, but instead of one proprietor, there are two or more. As with a sole proprietorship, there is no legal structure for a partnership. However, partners usually have some type of contractual agreement that governs, in percentage terms, the sharing of revenues, expenses, and tasks. Then when preparing their taxes, the partners apply the same percentages to income and expenses.

Incorporation:

Incorporation means that you create a new legal entity that will have the same rights and obligations under Canadian law as a natural person. Your corporation's money and other assets belong to the corporation and not to its shareholders. Some benefits of incorporating are limited liability, lower corporate tax rates, better access to capital and grants, and continuous existence beyond the death of the owner.

(See BDC's "Choose the right structure for your business")

In Canada, you also need to know the threshold of income that will require you to register and collect Federal Goods and Services Tax (GST) and Harmonized Sales Tax (HST). Generally, if you exceed $30,000 in income you have to charge GST/HST and register for a GST/HST account. (see Government of Canada "When to register and start charging for GST")

2) Setting up Your Business as a Corporation

Setting up a business for the first time can seem overwhelming, but it is important not to over-complicate things. As your consulting company grows, you can add layers of complexity, but to get started, keep-it-simple, or you will get into "analysis paralysis".

Here are the basics:

Incorporating your company

Incorporation of a company must be done through a Government-authorized registry agent. For your first company, it is a good idea to find an experienced agent or small business lawyer who will take the time to discuss and explain the legal structure and obligations of your company, including your bylaws, annual returns, and notices.

Naming your company

Your company can be incorporated without a name and will be referred to as a "numbered company" for all legal and billing purposes. However, if you want your company to have a unique name, then you will need to have authorized agents to do a NUANS Report to determine the availability of a corporate/business name before it can be registered. It is best to spend some time to research the internet to figure out if a similar type of business is using the name you want in your province or state before paying for the NUANS Report. Also, if you wish to the website, then you should search to see if the domains are available as this may help you decide on your company name. (https://ca.godaddy.com/)

Canadian Revenue Agency Business Number and Accounts:

An incorporated business must have a Business Number and create Canada Revenue Agency program accounts. This business registration will allow you to set-up required accounts such as:

GST/HST program account (RT)
corporation income tax program account (RC)

(See Government of Canada's "Business Registration Number")

3) Organizing your Consulting Business for Success

Once your company exists, you are now ready to start organizing for success. Take the time to get a few of these things set-up properly the first time so that you will not have to go back and figure out the mess you have created after. As with everything in a small business:

Simple is probably the best! Get the basics right and worry about complicated issues when they are a concern.

Set-up your Accounting System

If you are an accountant or bookkeeper, then this should be no problem, but for most people, this can be how your company can go off-the-rails, so get this right. Find an Accountant who deals with similar independent consulting companies as yours and can help you get your accounting and bookkeeping system set-up. It is recommended to choose a cloud-based solution like QuickBooks that will allow both you and your accountant to access and update your books at any time. If you are going to be processing a lot of expenses, then get set-up with some automated solutions that you allow you to take photos of receipts with your phone and upload them directly into your accounting software.

IMPORTANT: Get in the rhythm of completing all of your month-end invoicing and bookkeeping promptly. Leaving these too long will ultimately cost you money and headaches.

Set up Email & Document Management in the Cloud

If you want complete flexibility to manage your company wherever and whenever you want, set-up your company to run on a cloud-based subscription service such as Microsoft 365 or Google G Suite. Both options come with integrated email, calendaring, file storage, and teamwork applications. Additionally, security and upgrades come with the package. Also, subscription-based services mean that you don't have to invest precious cash flow and time into a part of your business that is not earning you any revenues.

4) Your Office

If you set-up your company right, your "office is in the cloud" so it shouldn't matter where you sit, because you can work anywhere. The reality is that you will need somewhere that allows you to work effectively. Some options to consider:

Office in your home

Every small business owner should have an office in your home if, for no other reason, it offers you the ability to include a portion of your home expenses as a business cost (see Quickbooks List of the Most Common Business Expenses). However, a home office is not always the best place to focus and get work done, so you may need to find another space to be effective. It is also hard to set boundaries when working at a home office and can be very difficult for some people to establish a healthy work-life balance.

Client's office

The best scenario as an independent consultant is that you will be provided with a desk or office to work from by each of your clients. This of course is mutually beneficial to you and the client as it allows you to focus directly on the clients work in their space. Be careful that you do not stretch the boundaries on this, though; you can get off-side legally and ethically if you are using a client's office to work for other clients or on your own business. Transparency is the best policy when working in a client's office.

Rental Office

You should have a good reason to spend cash flow on a rental office as an independent consultant. For many, this is required because they do not have a good home office or need to separate their work from home to create a better work-life balance. Another good reason to rent an office is so that you can be situated close to your clients, or a space that is easy for your clients to meet with you.

A great option to start with is to find a shared office space that allows you the benefit of a professional office location with possible support services like receptionist, mail service, and meeting rooms. Coworking spaces offer the additional benefit of being surrounded by a community of like-minded professionals (see ReSourceYYC)

Most importantly, you should be very careful about making long-term financial commitments on any office space, furnishing, or equipment unless you are confident in the stability of your consulting practice and your clients. I used to work with a President of a start-up company whose famous line was "what is office furniture worth: NOTHING!". He was right; if you have ever moved offices, you will know that the furniture is only worth a fraction of what you paid when you go to sell it or how much it costs to move.

Continue reading here for the full article: Consulting as a Business

Ron Bettin is a Canadian executive with more than 25 years of leadership and entrepreneurial experience. He is the co-founder of several companies and provides management consulting to both large and small corporations. Ron has a strong understanding of the importance of building value and creating success. He is a graduate of the Southern Alberta Institute of Technology and has an MBA from Queen's School of Business.