The Business of Consulting

September 14, 2023
If you're ready to leave an employer and strike out on your own as a consultant, it helps to plan ahead, set up a separate business structure, and make sure you're properly insured.

In the middle or advanced stages of a successful career, it's common for accomplished people to wrestle with a simple—sometimes dreaded—question: What's next? The answer is often consulting, a form of self-employment in which one markets their career expertise to provide advice to other professionals and companies.

This career shift has become more common since the COVID-19 pandemic as many people, particularly Baby Boomers, retired early or approached retirement.1 "At a certain point, you want to stay involved—keep the gray matter going—but you don't necessarily want the corporate drama or to work from 8 to 5 anymore," says Steve Boltz, an Indianapolis-based senior financial planner with the Business Ownership Planning group at Schwab Wealth Advisory, Inc. "At a time when there's a labor shortage, particularly within certain areas of expertise, many of these people are filling that gap."

"It's a combination of brain stimulation and desire for purpose," adds Susan Hirshman, director of wealth management at Schwab Wealth Advisory, Inc., about why successful professionals might be drawn to consulting. "Regardless of age, whether they've reached the C-Suite, led a company, or spent decades honing a specialty, many people who turn to consulting do so because they have no personal need or reason to hang up their hat."

Plan ahead

"Creating a consultancy has some of the same considerations as starting any business," says Steve, who is a Certified Exit Planning Advisor®. "Those who make the most successful transitions typically create a smart exit plan from their prior job—as well as a business plan charting their intended path into consultancy."

"The central question is whether this will be a side gig or a veritable enterprise," Susan says. This informs almost everything else that follows—from the professionals you engage to set up the business, to its legal and tax structure, to your retirement savings strategy.

A sound plan for consulting might include:

  • Market research: Is there enough demand for your expertise to generate steady work? Steve recommends making a list of potential clients. "The people I've seen do that well are known in business settings. Perhaps they serve on industry advisory boards, which can lead to relationship-building and future projects," he says. You could also try negotiating an arrangement with your employer to retire from the company but stay on as a consultant on special projects. "Building that future client base can ease some of the pressure once you take the plunge," Steve says.
  • Cost estimates: Building any consultancy comes with expenses, the most common being marketing costs, travel, licenses, and attorney and accountant fees. Knowing these expenses can then help you set revenue goals, forecast profits, and secure possible loans.
  • Liquidity: Similar to planning for retirement, you should know how much liquidity you'll need to maintain your lifestyle and build your new business. "We know many small businesses fail within the first two years, and that a common cause is undercapitalization," Steve says. "Can you live without a steady paycheck for one or two years?"

Set up your business structure

Once you've developed a plan for launching your consultancy, make sure you work with an attorney and a tax advisor to set up a separate entity for your business.

"When running any business, it's wise not to commingle business and personal expenses," says Hayden Adams, CPA, CFP®, director of tax and wealth management at the Schwab Center for Financial Research. Consulting is essentially self-employment, which could lead to legal ramifications or liabilities that you may not be familiar with if you've never owned your own business. "Should your business become involved in a lawsuit or other legal issues, you don't want your personal assets to be at risk because they're indistinguishable from your business assets."

Many tax advisors recommend setting up a limited liability company (LLC). "This is typically the best business structure at the outset," Hayden says. "LLCs are generally inexpensive to create, avoid corporate taxes and complexities such as having a board of directors or issuing stock, and they can protect you from personal liability in many cases."

Hayden also suggests opening a separate business bank account and using a business credit card for all your consulting expenses. "It makes that distinction between work and personal expenses much clearer and easier to document," he says. "It also can make it much simpler to do your bookkeeping and prepare your business tax return."

How your wealth advisor can help

Your Schwab wealth advisor can connect you to a business planning specialist who can share entrepreneurial insights and suggest steps to help reach your business goals.

Your Schwab wealth advisor can connect you to a business planning specialist who can share entrepreneurial insights and suggest steps to help reach your business goals.

Take care of yourself

As you organize your consultancy, you'll need to replicate a suite of benefits your employer used to offer. In particular:

  • Health insurance: You'll no longer be on an employer-provided health plan, so consider your health care options. If you have a working spouse, you might consider coverage through their health plan. And if you're 65 or over, Medicare can take care of most needs. But if you're below that age, you can explore the plans offered by the Affordable Care Act exchanges or join a trade organization that offers health care benefits.
  • Professional liability insurance: As a consultant, your advice may carry some liability; for instance, if you're an engineer advising on the safety of a construction site, or a fundraiser leading a capital campaign. Work with an insurance specialist to determine what the best options might be, Steve says. An attorney can also help craft a service contract for each project that states where your liability starts and ends.
  • Saving for retirement: If you haven't yet retired, you'll want to keep saving. There are several options for the self-employed: individual 401(k)s, SEP IRAs, or SIMPLE IRAs. Compared to traditional IRAs, these retirement savings plans provide the potential to save more and reduce taxable income.

For many people in middle age, Susan observes, consulting also requires a mindset adjustment. "You might find in this new line of work that you'll need to do tasks you aren't used to, such as chasing clients, billing, and filing paperwork. It could be lonely starting out, especially without the name of an established business behind you. Those can be simple yet powerful mental roadblocks for any accomplished professional."

"Consultancy is a service that often requires active listening and asking empowering questions more than driving decisions," Steve adds. "It can require a different skill set than being a corporate leader." Steve suggests seeking guidance through the U.S. Small Business Administration or entrepreneurial leadership organizations such as SCORE (Service Corps of Retired Executives), which offers coaching and mentorships, usually free of charge.

All that said, becoming a consultant is often an ideal second-act career precisely because it's an opportunity to continue learning and applying your skills to new projects. "It can be an exciting adventure," Susan says, "and a way to make a positive impact."

1 "Many Retired Early During the Pandemic. Many Are Now Returning to Work, New Data Shows," The Washington Post, washingtonpost.com

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

​This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.

Schwab Wealth Advisory™ ("SWA") is a non‐discretionary investment advisory program sponsored by Charles Schwab & Co., Inc. ("Schwab"). Schwab Wealth Advisory, Inc. ("SWAI") is a Registered Investment Adviser and provides portfolio management for the SWA program. Schwab and SWAI are affiliates and are subsidiaries of The Charles Schwab Corporation.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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