How to structure and run a new consultancy?

**ruasonid** · 2 February 2017, 07:28

Originally posted by IanR View Post

Hi all
have spent some time googling this without much success.

Situation: myself and 2 other contractors have recently had our contracts not renewed by the end client because the central IT dept we work for has had its budget cut. The 3 of us were in effect the only IT team.
We know that various other depts have IT work that they need doing, and we have confirmed with a senior source in another dept that they will have to go to external agencies to get the work done if central IT wont do it.

So, myself and the other 2 are proposing to form a new company (probably ltd or llp) and offer our services back to client. We have already confirmed with the client senior source that they are indeed interested in this: they know us and we know them and the codebase etc.

The broad question is: whats the best way for us to form and run a consultancy where
- we may be working for different amounts of time for the client (we have slightly diff skills)
- we may have different ideas in the future about how to take money out (salary vs divs etc)

I wonder if there is a 'template' or a 'best practices' for this kind of thing somewhere?
If not, any advice from ppl that have been through the same thing would be very helpful.

thanks in adv
Ian

You have mentioned several points that lead me to say "two's company, three is a crowd".

If you plan to go in it for the long term you will need a clear plan to address the points you raised and I would say a limited is the better route. But will you be able to resolve voting differences (2 vs 1)?

You also seem to have reacted after the event. How, once in business, will you ensure cashflow (continuity of work)? Who will do the sales?

It does not sound like a viable plan to me.

**northernladuk** · 2 February 2017, 09:33

Originally posted by IanR View Post

We know that various other depts have IT work that they need doing, and we have confirmed with a senior source in another dept that they will have to go to external agencies to get the work done if central IT wont do it.

So, myself and the other 2 are proposing to form a new company (probably ltd or llp) and offer our services back to client. We have already confirmed with the client senior source that they are indeed interested in this: they know us and we know them and the codebase etc.

The broad question is: whats the best way for us to form and run a consultancy where
- we may be working for different amounts of time for the client (we have slightly diff skills)
- we may have different ideas in the future about how to take money out (salary vs divs etc)

I wonder if there is a 'template' or a 'best practices' for this kind of thing somewhere?
If not, any advice from ppl that have been through the same thing would be very helpful.

thanks in adv
Ian

Ahh this old cookie. Find me a contractor that hasn't had this thought along with being a pseudo agent. Many reasons why this fails 99.99% of the time.

So.. IMO in most of these situations. If you have to ask a bunch of contractors then it's not really going to work. You need to be a business man first. Doing the work is easy. If you haven't got the nouse to make the right moves, understand the situation then you aren't cut out. You can't do this stuff via templates and best practice. If it were that easy don't you think we'd all be doing it?
Just my gut feeling.

So.. let's be very clear. You won't be a consultancy. You'll be 3 money grabbing mercenary contractors. It's very unlikely you'll find a model that you are all happy with. As soon as someone starts working less but getting the same as you the fur is going to fly. As soon as one of you wants something else the others will get upset. You've got to start taking hits for the team and the bigger picture. Not something contractors are particularly good at.

So where is the extra money in it for you. When a client picks consultancies they get more than just 3 bums on seats which justifies the costs (well should). All you can do is offer T&M BoS which you already are. All you can charge them is 3x what you are now so why bother? You are going to lose money supporting the guy that takes more holiday unless you plan to pay per time worked which is hardly a consultancy model.

You've got all the legals to sort out, go LLP or something like that and understand all the business back end. Something you've got to do on your time not the clients. You've got the cost of all your literature, time spent on service offerings and brochures to look like a consultancy... but wait. You aren't, you are just 3 contractors picking some BoS work... All comes down to the same...

Feel free to have a look but my best advice is to get on Jobserve before the other two....

**LondonManc** · 2 February 2017, 10:25

Create an extra company, pay for someone you trust to act as the fourth cog in the wheel to administer the funds - your limited cos all invoice the holding consultancy for work done on a business-to-business basis. You'll have to all go on to a paid-when-paid cycle (work in Feb gets paid in April for example). You all put £50ish on your day rates to cover the admin costs of the consultancy company but still bill the same rates to that company; you've all still got your own limited companies and take salary and dividends as you choose.

TL/DR - See an accountant

**SueEllen** · 2 February 2017, 10:44

Originally posted by LondonManc View Post

Create an extra company, pay for someone you trust to act as the fourth cog in the wheel to administer the funds - your limited cos all invoice the holding consultancy for work done on a business-to-business basis. You'll have to all go on to a paid-when-paid cycle (work in Feb gets paid in April for example). You all put £50ish on your day rates to cover the admin costs of the consultancy company but still bill the same rates to that company; you've all still got your own limited companies and take salary and dividends as you choose.

TL/DR - See an accountant

That extra person you want is actually a sales manager who also knows enough to be able to interview other contractors. Otherwise how are you going to get more work? How are you going to expand and ensure a continuous income stream?

It will be then be left to one of you with the best admin skills to do the grunt work in the weekends and evenings until you have expanded to take on more contractors/workers so you don't have to be on a client site full-time. Oh and you don't get extra pay for doing the admin until you have expanded enough and it is a proper job.

**Eirikur** · 2 February 2017, 10:48

Originally posted by IanR View Post

Hi all
have spent some time googling this without much success.

So you decide to ask some anonymous idiots on the internet for advice?

**LondonManc** · 2 February 2017, 10:50

Originally posted by SueEllen View Post

That extra person you want is actually a sales manager who also knows enough to be able to interview other contractors. Otherwise how are you going to get more work? How are you going to expand and ensure a continuous income stream?

It will be then be left to one of you with the best admin skills to do the grunt work in the weekends and evenings until you have expanded to take on more contractors/workers so you don't have to be on a client site full-time.

The extra person is an admin staff. It's not about getting more work, it's about someone (sometimes a spouse of one of the contractors) who controls the money in an agreed manner.

I'd create the extra consultancy, three way share split (£300 share capital, each own £100 of shares), where there is minimal cash remaining within that company. The salary is met by the "commission" and the person appointed discharges the duties of the company in a manner that is unanimously agreed in writing by the three shareholders. If the company flourishes, then a sales manager could be considered.

**kaiser78** · 2 February 2017, 13:35

Originally posted by SueEllen View Post

That extra person you want is actually a sales manager who also knows enough to be able to interview other contractors. Otherwise how are you going to get more work? How are you going to expand and ensure a continuous income stream?

It will be then be left to one of you with the best admin skills to do the grunt work in the weekends and evenings until you have expanded to take on more contractors/workers so you don't have to be on a client site full-time. Oh and you don't get extra pay for doing the admin until you have expanded enough and it is a proper job.

I would have thought that the primary role of the sales manager is to go and source the work opportunities ? And off the back of these opportunities flooding in, the consultancy the build up the resource pool to match, which may or may not involve the sales manager in doing so.

I tried this a few years ago and did get a working model but the went back to the contract model, as this was more "secure".

OP - what skills/service are you offering to consult around (just out of interest ?)

**kaiser78** · 2 February 2017, 13:36

Originally posted by Eirikur View Post

So you decide to ask some anonymous idiots on the internet for advice?

That's why were are here...

**MrMarkyMark** · 2 February 2017, 13:38

Originally posted by kaiser78 View Post

I would have thought that the primary role of the sales manager is to go and source the work opportunities ? And off the back of these opportunities flooding in, the consultancy the build up the resource pool to match, which may or may not involve the sales manager in doing so.

I tried this a few years ago and did get a working model but the went back to the contract model, as this was more "secure".

OP - what skills/service are you offering to consult around (just out of interest ?)

Exactly.

Getting on those PSLs is pretty much impossible in most cases.

Total brown envelope job, at least in finance

How to structure and run a new consultancy?