Setting up a real consultancy

[Vandalay]

I'm working with a company who does this. Essentially, I run my own Ltd, but I'm 'affiliated' through their company and brand.

Their company is a partnership, but you could do it as a Ltd too.

If you're concerned about making the retained element a % why don't you just make it a flat fee - e.g. £20 per day per consultant

[JoJoGabor]

I do work occasionally for four guys who set up in this way, and get some decent bits of work in, even for investment banks. It can work.

They initially all had their own limited companies, I believe they simply billed the umbrella company appropriately to get their faire share.

Now they run as an LLP with a profit share which allocates a fair share of profits. I'm afraid I don't know the ins and outs of how this works, but will hopefully give you a starting point.

It -could- help with IR35 because as a collaboration you are probably more likely to say yes to some of the pointer questions, ie have you lost money to a client.

[BolshieBastard]

Had a mate do this with 4 other friends.

In the end, they shafted him. He was regularly outvoted and even not given the same share of divis because they said, in their opinion, he wasnt working as long hours as them. Or so he tells me. The truth may be somewhere inbetween.

The point is, you need to be confident this situation cant happen to you.

Me? I'd rather work my own way but that just me.

[Taita]

I have had this thought in my early days and have had other contractors approach me with similar ideas...

Firstly.... You are describing a setup... for what? You need customers first. There is no point trying to get people to buy in to something with no foreseeable revenue stream. The idea of a proper consultancy is there is an overhead that is suffered by the company as awhole. They have internal people running the business and they have people on the bench as well as working. You are not going to get buy in from anyone until you have a customer. Where is your advertising, mission statement, delivery history, credit history and all the other things you will need in place to even get in the door let alone gain any credibility and pass the requirements to get on a PSC.

Do you really think 20 contractors will not take contracts and just wait around until you finally get some work. When you do do you think they will all be available?

To run a business you need a hierarchy and leadership. Your proposal has none of these. Just a bucket load of people all wanting their cut. No team spirit, no leader, no cohesion nothing.

That is just the things that come off the top of my head without analysing your business model.

You just cannot run a company all as equals and each with his own setup and agenda. This idea is destined to fail if it even comes off.

Hello Mr Client, we have 6 independant contractors with no history as a group, can we be on your PSC and throw people in even though we don't have any central admin and no experience.

Looking at it from totally the wrong perspective IMO. No thought about the market, what clients want, what a consultancy needs to grow, nothing.

Absolutely correct.

Most public sector tenders base as much as 40% of the winning points on the financial credibility, work history, structure, insurance cover and adminstrative organisation of the tenderer. In other words your offering has to be 'tangible' and your organisation/company/consultancy (visibly accountable) before your tender can be considered.

This does not mean you cannot win contracts but, as NLUK says, you cannot ignore the prerequisites.

[tractor]

Sounds a bit like a managed service company. These were popular for a while but they got outlawed. The way you propose to do it is probably still legal though. You could allocate different classes of shares for each contractor so they could get paid based on the income they brought to the company.

I'd prefer to have my own company and form an alliance with a number of other people in the same field. Getting a load of people working through one company is going to lead to disputes over the way the company is run and what if someone does a runner with all the company's money......

IIRC, that was the bit that the Revenue did not like.

[Wanderer]

I wouldn't call it an umbrella as we won't be employees and would still be free to take contracts elsewhere (with short notice periods incase something better comes up through the consultancy).

Sounds a bit like a managed service company. These were popular for a while but they got outlawed. The way you propose to do it is probably still legal though. You could allocate different classes of shares for each contractor so they could get paid based on the income they brought to the company.

I'd prefer to have my own company and form an alliance with a number of other people in the same field. Getting a load of people working through one company is going to lead to disputes over the way the company is run and what if someone does a runner with all the company's money......

[IR35FanClub]

northernlad i think you underestimated what we are talking about. 4 of use will be directors, the other 20 are peole who would basically work through us as preferred suppliers. Lots of us in the group have previosuly got work for each other, but usually end up having to go through an agency as the end client wont take direct contracts. Thats where the idea of a company came together, we would invoice for all of us as a single invoice for services. Its up to us to run a complete project. In our particualar area we have a niche where every client we go to struggles to get the resources they need just like tractor has nmentioned. we feel theres a genuine market opportunity to provide not just labour but an approach, tools and the experience.

portsevern...yep current client us exactly where we are thinking of, theyve been trying to get permies to do the work for over a year but not found anyone suitable. 2 of us are there now, 1 previously, and several more we know who can do the work. We are planning how to approach the client to offer to effectively outsource a part of their ops as they cant run it themselves with no staff. Were even thinking of taking on some graduate trainees as permanent employees to train up as it will be a long term assignment.

What we are trying to work around .. as northernlad says, not everyone will always be avaiable for every gig, so we need to plan to use other contractors, both known and unknown to us to fill the gaps. We know what we are looking for and can filter out the chancers and blaggers before an interview. The cleint would get people who weve trialled work with offsite before they even get to see them.

As to selling, weve know how to get to market. But thats need to know. lol.

Central costs are what we are setting up the company for, were planning on a manned office. Likewise if someone is benched we can get them to write papers, develop tools, as long as theres funds and the need/vote is there . Virtual call centre to start, but more later depending on workload. I've dealt with many companies over the years who work like this. How many times do you call a company and get the sales rep? Usually you get such and such is busy... Ill get someone to call you ASAP. Anthing from cisco networking installers, to techinical trainers, all independent but working through a central company they own as a group. Wish id asked more questions about shares and control. That is the only bit where we are having issues coz theres a lot of ways to chop a company up.

Ive had some pointers to different share classes and so on, so am looking into this.

[portseven]

Firstly.... You are describing a setup... for what? You need customers first

This is where I would start too, what about speaking to your current client and saying, if a few trusted contractors were to bid for a project would you take us on? Make sure whoever has this conversation is your best salesman too.

The next question is what is the next project they can bid for? And go for it (assuming you get a positive response to the first question)

[tractor]

....

I have a friend that uses a similar model extremely successfully.

They each have their own limited co and contract to the consultancy co which they also own. How they go about connected interests etc I have no idea. IR35 is still an issue for them.

Their commercial domain is very niche though and their contracts rarely if ever come from the agency model. Given their niche, they have built up many senior contacts over the years and are well-qualified in their areas of expertise.

I have personally been the route of bidding for contracts before and trust me, if you don't already know, it's a minefield and very contrary to what the OJEU procurement rules and frameworks try to do, most public sector contracts are already sewn up before the tender is even issued. They just put lots of 'contenders' through the mill to demonstrate 'due diligence' and 'equality'.

The PCG tried this many years ago IIRC and it very quickly went by the wayside. If you are a member, you might still find the remnants of it in their forums but I suspect it got lost in the noise when the fora were updated a while ago. Maybe some members here can throw more light on it.

Of course, there are many pitfalls. But you gotta be in it to win it! Good luck with it. In terms of admin and technical resources, there are many cheap or free trial cloud services very similar to the old, now defunct Microsoft Action Pack (if you need any pointers, send me a pm) that you can take advantage of and set up some complex and resiliant infrastructure quite quickly if you need to. You would need some sound legal, contractual and taxation advice too, but you already know that

One last thing, you will need a good salesperson. People will buy anything from a GOOD salesperson. That is the only way the Big 5 who fail year on year on many of their contracts stay in business and win repeat contract after contract with a government that swears it will never use them again every time

Once again, good luck with it!

[northernladuk]

I have had this thought in my early days and have had other contractors approach me with similar ideas...

Firstly.... You are describing a setup... for what? You need customers first. There is no point trying to get people to buy in to something with no foreseeable revenue stream. The idea of a proper consultancy is there is an overhead that is suffered by the company as awhole. They have internal people running the business and they have people on the bench as well as working. You are not going to get buy in from anyone until you have a customer. Where is your advertising, mission statement, delivery history, credit history and all the other things you will need in place to even get in the door let alone gain any credibility and pass the requirements to get on a PSC.

Do you really think 20 contractors will not take contracts and just wait around until you finally get some work. When you do do you think they will all be available?

To run a business you need a hierarchy and leadership. Your proposal has none of these. Just a bucket load of people all wanting their cut. No team spirit, no leader, no cohesion nothing.

That is just the things that come off the top of my head without analysing your business model.

You just cannot run a company all as equals and each with his own setup and agenda. This idea is destined to fail if it even comes off.

Hello Mr Client, we have 6 independant contractors with no history as a group, can we be on your PSC and throw people in even though we don't have any central admin and no experience.

Looking at it from totally the wrong perspective IMO. No thought about the market, what clients want, what a consultancy needs to grow, nothing.

[Sockpuppet]

"The issues I'm having is deciding on the share structures so that different day rates or being benched doesn't leave anyone disadvantaged. "

Why, 1 share each. Your not going to be leaving any profit in the company as everyone is invoicing it out. It's a good idea but part of the problem is that it will take a lot of money to run an operation to keep 4-5 contractors earning. That will literally be a full time job for someone especially on the start up.

Easier to say would be to give each partner a share. Charge them £100 a month for "marketing" and use that - any money earn't goes out to the person wot earn't it.

[IR35FanClub]

Been talking to a few contractor "mates", best call them acquaintances, who'd I've worked with on and off over the years about settting up a consultancy specfically to bid on tenders and the like. There about 4 of us in the core who want to set it up, but probably about 20 or so people who we'd consider working with again in future, if we have work.

I wouldn't call it an umbrella as we won't be employees and would still be free to take contracts elsewhere (with short notice periods incase something better comes up through the consultancy).

The basic idea is for us all to keep our indivdual Ltd companies, so we invoice our rates back to The Consultancy. I think it would be best described as something akin to a cross between co-operative marketing association and an agency. I.e. members would get the benefits of acting as a collective, shared costs of running an office and so on. But we'd have less issues of distributing share captial - as the profits would disappear via the subcontracted companies - i.e myself and mates, "invoicing the crap" out of our consultancy. We can also go to jobserve / agents etc to bring in extra resources if required.

The issues I'm having is deciding on the share structures so that different day rates or being benched doesn't leave anyone disadvantaged.

We could go for equal shareholdings and basically invoice net of some admin % (say 5%) so there are no profits to be distributed. Any remaining capital each year can become the companies working captial. This could be used for example to pay us non billable day rates to put bids together, attending shows and networking events, and a slush fund for any other bits and pieces required. E.g buying kit, nice web design, advertising.

I still see the problem for people being unhappy about their contributions. Eg.
Contractor A invoices £400 a day. Works 200 days bringing in £80,000. At 5% he'll pay £4,000 into the company.
Contractor B invoices £350 a day works 200 days bringing in £70,000. At 5% She'll pay £3,500 into the company.
[edit]
Contractor C invoices £300 a day works 100 days bringing in £30,000. At 5% he'll pay £1,500 into the company.
[end edit]

I guess the simple thing is to have an informal agreement that near year end - we'll let each other stick a sneaky few days in the company to get any differences back out. Or am I missing something and there is a way to pay bonuses via a contractual arrangement to the subcompnies. Eg. a loyatly bonues or such like.

PS I don't want advice that it will fail - like anything in life there's a risk, but the driving factor for this is as a consultancy with added value instead of contractor bums on seats we can bump out day rates up by several tens of percent offsetting the few percent the association will take.

Not sure how it will affect IR35 - probably won't, the end client is still going to want us as individually contractors to be onsite - thought obviously we'll try and negotiate to pull it off site 4 out of 5 days so we can all work from home collaboratively - part of the selling point. What it will most likely show is that we have marketing costs and premises via the association getting us the extra points on the new risk scoring HMRC have bought in.

Anyone tried this route, got horror stories or even successful companies that started like this. Been having a right game trying to find the right search words. Most queries return existing companies trying to sell services - not the pros and cons of setting up.

?