Advice: Business Opportunity

[Deleted]

I need advice on a business opportunity.

I am working in a consulting field and have been doing so for 10 years since I graduated with a BS in an engineering field.

I have always thought ownership was the ultimate goal in consulting, whether it was owning my business or buying into an existing firm.

A client that I have a close relationship with will be calling in the next couple weeks to ask if I would be willing to contract with them to offer my services for two days a week on a 6 month renewable basis.

I don't think I could ask for a better opportunity to start a business with that contract. 40% of my hours would be billable for the first 6 months minimum.

So, where am I wrong or right, and what am I missing?

Benefits from my current employer aren't an issue as I have my own private health insurance right now.

[stl76]

Do you have the option to go to part time at your current employer?

[Deleted]

Jun 29, 2011 14:01:08 GMT -5 @stl76 said:

Do you have the option to go to part time at your current employer?

Possibly for a time, but I will be competing directly with my current employer for work, which may make them less than happy.

I also happen to know my current employer is going to hire another employee for a new position similar to mine soon. Losing me may not be so bad if they know they have a replacement in the queue.

[bring in the new year]

Do you have a noncompete? Or a nondisclosure.

If you signed up with your current employer 10 years ago, go back and look at your paperwork. You're looking for a noncompete or some other legal agreement you signed stating that your company owns the clients.

When I worked at the accounting firm, they were reasonable cool about going off to work for a client. Not cool at all about going off to start your own business working for a client.

[Deleted]

Jun 29, 2011 14:08:24 GMT -5 bring in the new year said:

Do you have a noncompete? Or a nondisclosure.

If you signed up with your current employer 10 years ago, go back and look at your paperwork. You're looking for a noncompete or some other legal agreement you signed stating that your company owns the clients.

When I worked at the accounting firm, they were reasonable cool about going off to work for a client. Not cool at all about going off to start your own business working for a client.

Pretty sure I don't have a noncompete as I know several others broke away and started their own firm 6 years ago and stole several clients. It is pretty commom in this field to start a company in such a manner.

I will definitely look through my paperwork though.

[Deleted]

Does anybody have any advice about message boards specifically geared to small businesses?

[Regis]

I also have a BS in engineering and had my own consulting firm for 10 years before selling it recently. We were pretty successful as I made enough off the sale to pay for college for three kids and could probably retire right now (47) if I really wanted to. I say that not to brag but to let you know that it can be very lucrative.

Sounds like all of your eggs are in one basket right now. What are you going to do if the client decides not to renew in six months?

And give us a little background on what you know about running a business and we can help "steer" a little bit. There are lots of good engineers out there but few have the business acumen to become really good owners.

[Deleted]

Thank you for the reply Regis, glad to hear that it does work out for some!

As to not renewing the contract that is my concern. I do have other contacts that I could meet with to develop more work, but am some what limited.

As for running a business, honesty I don't have any experience. I have explored starting my own consulting firm in the past and went as far running the numbers for cash flow.

I know exactly where you are coming from about engineers not having business acumen, as I feel that is exactly the case where I work now. Do you have any good reference material or books to point out?

[Regis]

I took a class at a local university about running a business. I also talked to several other business owners I know. They were a great wealth of information - way more than I could have learned from a book.

A good place to start is to create an actual business plan with monthly projections on income and expense for the first year and then yearly projections out to the end of year five. Pretend that you're going to give it to the bank for them to evaluate you for a loan. Based on the business plan, would you give you money?

[stl76]

Look at sba.gov. They have free online classes. They have a lot of resources to help small business owners.

[Wisconsin Beth]

Didn't someone on the board offer to help another poster write out a business plan recently? Was that Thyme? who finds them fun or something? Maybe Dark Honor's thread about starting a business?

[Deleted]

I've done a yearly projection and it wouldn't be terribly difficult to extend that to 5 years other than the guesswork that would go into projections out that far. I will look into some classes at the local univsersity and community college. I do have a former boss and friend who owns a 2 man operation nearby so I do have a resource for answeriing questions about small businesses.

[bring in the new year]

Okay, you did a yearly projection.

You need three and you need to switch hats to do them. The first one is everything is going well, the second one is everything is going wonderfully well and the third one is oh shit, the wheels just came off the bus.

You need to break out your costs between fixed and direct. The big problems come as regis asked 1. if the bread & butter client doesn't renew and 2. when you suddenly get twelve clients and you discover that you can't support that many clients. That's why you want to look at as many scenarios as possible.

Also remember, your current employer might just undercut you on the bid the next time to get the client back so you really really need to know your costs inside and out.

The most important thing to think about is every small startup owner does a lot of different jobs and not all of them are good at all that many jobs. Find a CPA & have them look over your projections and figure out what you're missing.

Good luck.

[AgeOfEnlightenmentSCP]

regis-- I don't want to hijack this thread, but I'm very interested in the particulars of selling a consulting services firm-- specifically, how to value the business. Are you basically just selling a customer list and/or your contracts?

[Deleted]

I had a lengthy discussion with a friend about that very same thing Palmbeachpaul. I'm in the consulting world and he works for a large banking institution. I was explaining how most consulting firms gain new ownership when a partner buys in to the company. He was asking what real value my current employer had. The assets (furniture, computers, etc.) aren't really worth anything. Is the client list and company name really all that valuable?

Have partners being buying into a fraud for years and then perpetuating the fraud because they bought in and want somebody else to as well?

[cpadvisor]

If the assets, client lists, and current partners/staff aren't valuable.... Go start your own, new firm and see how you do.

[startsmart]

businessguy- not just the business numbers, but do you know your own numbers? your budget? how much do you need to survive each month? are you willing to live at "survival" numbers if things slow down or until you build up enough business and savings?

Does your financial plan include paying for your own health insurance if needed, retirement, vacation time, sick time, disability insurance, holiday time off, etc?

How much will you expect to pay in taxes on self employment income? Is that taken into account? What about your business equipment (computers, cell phone), software, travel, and incidentals?

Do you have quotes for business insurance so if you get sued you'll be protected? Even if you think you'll never get sued.

Do you have a business structure formed? typically when you incorporate, form an LLC, etc you reduce the risk of being audited.

Do you know what you'll need to cover yourself legally in forms of contracts, agreements and such?

What is your plan to bring in more business and clients so if your current client says 'see ya' in 6 months or goes bankrupt in 2 months you don't end up unemployed?

You definitely don't need to answer all these questions here but do try to answer them before leaving your current job. I went self employed a year ago after a transition to more and more freelance work and some of this I knew, most of it I didn't.

Plus my business now works with entrepreneurs who need to figure out all this stuff (money, biz structure, finances, tax advice, insurance, legal advice, and systems).

[Deleted]

Jul 6, 2011 16:25:18 GMT -5 cpadvisor said:

If the assets, client lists, and current partners/staff aren't valuable.... Go start your own, new firm and see how you do.

Of that list the only guarantee are the assetts. The staff may leave in droves after the sale and take the clients with them.

[Deleted]

Jul 6, 2011 22:22:25 GMT -5 startsmart said:

businessguy- not just the business numbers, but do you know your own numbers? your budget? how much do you need to survive each month? are you willing to live at "survival" numbers if things slow down or until you build up enough business and savings?

Does your financial plan include paying for your own health insurance if needed, retirement, vacation time, sick time, disability insurance, holiday time off, etc?

How much will you expect to pay in taxes on self employment income? Is that taken into account? What about your business equipment (computers, cell phone), software, travel, and incidentals?

Do you have quotes for business insurance so if you get sued you'll be protected? Even if you think you'll never get sued.

Do you have a business structure formed? typically when you incorporate, form an LLC, etc you reduce the risk of being audited.

Do you know what you'll need to cover yourself legally in forms of contracts, agreements and such?

What is your plan to bring in more business and clients so if your current client says 'see ya' in 6 months or goes bankrupt in 2 months you don't end up unemployed?

You definitely don't need to answer all these questions here but do try to answer them before leaving your current job. I went self employed a year ago after a transition to more and more freelance work and some of this I knew, most of it I didn't.

Plus my business now works with entrepreneurs who need to figure out all this stuff (money, biz structure, finances, tax advice, insurance, legal advice, and systems).

I need to look closer at my budget. On the upside right now my wife works very little on a PRN basis and could easily up her hours to compensate for some loss of income.

Health Insurance: I already buy my own private policy for my family as it is more affordable than my company option.

Retirement: The match at my current employer is not very worthwhile 25% up to 6% of my contributions. I would hope to make that up by increasing my salary as a self employed person.

Time Off: No time off is ever guaranteed around here based on workload, so I'm not overally concerned.

Disability: I already carry my own short term disability but would need to look into long term! Thank you for reminding me of this.

SE Taxes: My spreadsheets already take into account the approximately 12% in SE taxes I will be paying.

Office Equipment, etc.: I have figured for best case scenario total startup costs around $21k, which is quite expensive. I re-looked at the numbers and did a bare bones startup at around $8k which is much more manageable when there are still a lot of unknowns.

Business Form: I plan on forming an LLC based on review of the different options, and have been quoted from a lawyer on the cost to get that done.

Legal Forms: Many of legal forms in my business can be provided by the AIA for a relatively small amount of money.

E/O Insurance is the one open item on my spreadsheet because I hadn't gone far enough to get a quote as of yet, but it will need to be filled in before I move ahead.

Plan for Future: On the upside my client won't be going bankrupt (think large state funded institution). But you are right I need to bring in more business. I do have a number of contacts and will have to go on the hunt for more. Cold calling may be very unproductive but I will need to expand to some areas that I don't currently work in.

Any feedback on the major holes anybody sees in the above info would be greatly appreciated.

[bring in the new year]

If the value in an consulting business is in the fixed assets, then they're doing something wrong.

You think if they dissolve the employees will leave and the clients will follow them.

That's not usually the way it works. Usually the employees snatch up one or two of the smaller clients and the money makers just go onto a new firm. That's why people buy the client list.

If you are right for your industry, than starting your own firm is going to be a ton of work. Because the only thing keeping your client with you is your cost. And somewhere, someone is figuring out how to do what you do cheaper.

$21k is a lot in start up office equipment. Why? If it's for couches and desks, rethink it. If it's for professional software, okay. For the amount, I would be looking at the membership organization and see if there are packages you can buy or lease.

Are you going to be working from home? Seeing clients at home? Then check both your homeowners insurance and your local zoning. If you expect to rent space, remember you're going to need deposits and credit checks and landlords (at least around here) like 1 yr to 5 yr leases, not month to month.

Remember when you figure out your budget that unless they're paying you up front, there's a lag on payment. Doesn't matter how well funded they are in this case, it matters how fast they turn around payables. Bigger companies are sometimes amazingly fast and sometimes glacierly slow. I used to assume three months from bill to payment.

If your consulting job requires you to purchase anything for the client up front, remember to add that to your budget. (at least a ballpark) Same goes for any travel the client might need or require. You might want to look at corporate credit cards.

What's your burn? Take all the money you have put aside to keep you going spread out over the next year or two years. Now, subtract out on a monthly basis what you've budgeted to spend (assuming you make nothing). How long does that money last you?

Now add a line showing what you've projected to bill. And run that number out. That should show you how long you can cover your bills from savings with the projected income.

Do you have any idea how much time your employer charges the client and how much time they write off?

But more likely than not, the net number will be negative for the first few months. That's the burn rate.