How to Start a Small IT Consulting Firm


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This presentation give you the information an IT Professional needs to start their own IT Business.

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How to Start a Small IT Consulting Firm

  1. 1. Running a Small IT Consulting Firm John R. Hoffler Lessons from the Field January 21, 2010 Charlotte, NC
  2. 2. Starting the Business <ul><li>Collaborating with Co-founders </li></ul><ul><li>Choosing a Business Entity Type </li></ul><ul><li>Corporate Organization </li></ul><ul><li>The First Meetings </li></ul><ul><li>Strategic Planning </li></ul><ul><li>Determining Fees and Rates </li></ul>
  3. 3. Collaborating with Co-founders <ul><li>Protect everyone with a confidentiality agreement </li></ul><ul><ul><li>Each participant should sign an agreement with the firm </li></ul></ul><ul><ul><li>The agreement defines what is considered confidential information and how such information may be used </li></ul></ul><ul><ul><li>The agreement defines damages and remedies associated with confidential information </li></ul></ul><ul><li>Establish the value of each person’s contribution to the company </li></ul><ul><ul><li>Money </li></ul></ul><ul><ul><li>Contacts and clients </li></ul></ul><ul><ul><li>Technical expertise </li></ul></ul><ul><ul><li>Management experience </li></ul></ul>
  4. 4. Choosing a Business Entity Type
  5. 5. Limited Partnership <ul><li>Two types of partners: general partners and limited partners. </li></ul><ul><li>The general partners manage the business and are subject to unlimited liability; that is, the general partners are personally liable for the debts and obligations of the partnership. </li></ul><ul><li>Generally, limited partners are not personally liable for the debts and obligations of the company. </li></ul>
  6. 6. Limited Liability Partnership <ul><li>Also called a registered limited liability partnership (RLLP), is a type of general partnership. </li></ul><ul><li>Frequently businesses that provide professional services, such as law firms. </li></ul><ul><li>Does not have “limited partners,” but a general partner is nevertheless NOT subject to personal liability for the malpractice of another partner unless he or she participates with or is responsible for supervising the partner committing the malpractice. </li></ul>
  7. 7. Limited Liability Company <ul><li>Has some of the characteristics of partnerships and some of the characteristics of corporations. </li></ul><ul><li>May be organized to avoid “double taxation” which frequently accompanies a corporation. </li></ul><ul><li>The owners of a limited liability company are called members. </li></ul><ul><li>Managed by the members or by managers who may or may not be members. </li></ul><ul><li>Members enjoy “limited liability.” </li></ul>
  8. 8. Corporation <ul><li>Has legal status or existence that is separate both from the individual(s) who forms it and its owners (stockholders) </li></ul><ul><li>An artificial entity offering limited liability that protects the personal property of its shareholders </li></ul>
  9. 9. Articles of Incorporation <ul><li>Corporate name – don’t include words like: </li></ul><ul><ul><li>Cooperative / Co-op </li></ul></ul><ul><ul><li>Insurance </li></ul></ul><ul><ul><li>Architect / Architecture / Architectural </li></ul></ul><ul><ul><li>Engineer / Engineering </li></ul></ul><ul><li>Registered office and agent </li></ul><ul><li>Incorporator </li></ul><ul><li>Principal office </li></ul>
  10. 10. After Articles are Filed <ul><li>Hold an organizational meeting </li></ul><ul><li>Obtain tax identification number from NC Department of Revenue </li></ul><ul><li>Obtain tax identification number from IRS </li></ul><ul><li>Set up a bookkeeping system </li></ul><ul><li>Open a bank account </li></ul><ul><li>Find out schedule for ongoing filings: </li></ul><ul><ul><li>annual report </li></ul></ul><ul><ul><li>tax withholding </li></ul></ul>
  11. 11. Corporate Organization
  12. 12. Directors, Officers and By-laws <ul><li>All corporations must have an organizational structure and rules or bylaws by which they are managed. </li></ul><ul><li>The organizational structure is comprised of directors and officers, which handle the internal management of the corporation. </li></ul><ul><li>The internal management of the corporation is regulated by the corporate bylaws and the Articles of Incorporation. </li></ul>
  13. 13. Directors <ul><li>Directors are those persons who are responsible for the management of the corporation. </li></ul><ul><li>A corporation is required to have at least one director, or it may have more. </li></ul><ul><li>The Articles of Incorporation or the bylaws may contain provisions for electing the directors. </li></ul><ul><li>The directors are elected or appointed in the manner and for the terms as provided in the Articles of Incorporation or bylaws. </li></ul>
  14. 14. Officers <ul><li>The day-to-day management of the corporation is provided by the officers of the corporation. </li></ul><ul><li>The officers are elected or appointed as prescribed in the bylaws and their performance is overseen by the directors. </li></ul><ul><li>If there is no such provision for their election or appointment, the officers are usually elected or appointed annually by the board of directors. </li></ul><ul><li>The officers usually consist of a president, one or more vice-presidents, a secretary, a treasurer, and any other officer deemed necessary. </li></ul>
  15. 15. The First Meetings
  16. 16. Organizational Meeting <ul><li>Meeting of the incorporators </li></ul><ul><li>Accept certificate of incorporation </li></ul><ul><li>Accept by-laws </li></ul><ul><li>Grant stock </li></ul>
  17. 17. Shareholder Meeting <ul><li>Meeting of the owners of the corporation </li></ul><ul><li>Accept certificate of incorporation </li></ul><ul><li>Accept by-laws </li></ul><ul><li>Elect Board of Directors </li></ul>
  18. 18. Board of Directors Meeting <ul><li>Elect chair and secretary of the board </li></ul><ul><li>Appoint corporate officers </li></ul><ul><li>Establish salaries of the corporate officers </li></ul><ul><li>Authorize bank account(s) </li></ul><ul><li>Authorize debt </li></ul>
  19. 19. By-Laws <ul><li>Establish organizational objectives </li></ul><ul><li>Establish structure of shareholder meetings and votes </li></ul><ul><li>Establish structure and process of Board of Directors </li></ul><ul><ul><li>Number of directors </li></ul></ul><ul><ul><li>Election, impeachment, and resignation of directors </li></ul></ul><ul><ul><li>Meetings and votes </li></ul></ul>
  20. 20. By-laws (cont.) <ul><li>Operating committee </li></ul><ul><ul><li>Define roles </li></ul></ul><ul><ul><li>Election, impeachment, and resignation of officers </li></ul></ul><ul><ul><li>Meetings and votes </li></ul></ul><ul><li>Ad-hoc committees </li></ul><ul><li>Fiscal and financial policies </li></ul><ul><li>Amending the by-laws </li></ul>
  21. 21. Strategic Planning <ul><li>Vision Statement </li></ul><ul><li>Mission Statement </li></ul><ul><li>Organizational Values </li></ul><ul><li>Environmental Analysis (SWOT) </li></ul><ul><li>Long Term Objectives </li></ul><ul><li>Plan Goals and Implementation </li></ul><ul><li>Financial Projections and Analysis </li></ul><ul><li>Critical Success Factors </li></ul><ul><li>Controls and Evaluation </li></ul>
  22. 22. Pricing
  23. 23. Billing Rate <ul><li>Honestly evaluate your skill level </li></ul><ul><li>Research full-time employee salaries and contractor billing rates in your area </li></ul><ul><li>Calculate annual gross presuming: </li></ul><ul><ul><li>You pay yourself 60-65% of your billing rate </li></ul></ul><ul><ul><li>You bill 1500 hours per year or less </li></ul></ul><ul><li>Think about whether you can live with that number! </li></ul>
  24. 24. Fixed Price Contracts <ul><li>Calculate how long the project will take, given a reasonable number of setbacks. Multiply by your billing rate. </li></ul><ul><li>Calculate how long the project will take if you are “quite unlucky.” Multiply by a discounted billing rate (e.g. 50%). </li></ul><ul><li>Calculate how long the project will take if everything goes your way. Multiply by a premium billing rate (e.g. 150%). </li></ul>
  25. 25. Fixed Price Contracts (cont.) <ul><li>These three prices should be in the same ball park </li></ul><ul><li>If not, the project may be too risky to accept </li></ul><ul><li>Average the three prices </li></ul>
  26. 26. Contact Information <ul><li>John R. Hoffler, Jr. </li></ul><ul><li>[email_address] </li></ul><ul><li> </li></ul>