Over the years, I’ve had a lot of industry friends, colleagues, and professional contacts ask me how to start a talent development consulting business. Most people think it’s an easy jump from an internal job or even one in consulting because they have talent, a lot of experience, and a wide network of contacts. Indeed, consulting sounds intriguing. What could be better than working from home or a shared office, doing work you love with people you like, and making a lot of money?

Unfortunately, many people make the jump, only to realize they are not very successful or happy. The primary reason for the lack of success is that most new consultants haven’t figured out whether they want to establish a small one- to two-person practice, create a small firm, or build a larger business. Starting a one-person practice or a small consulting group that may sometimes rely on other independent contractors to assist with client work is different than building a full-fledged business or company. They require different approaches and experience levels.

Indeed, the differences are quite large. It’s critical to know this before setting out on your journey. Here are some important questions to address as you think about the business you want to establish.

How do you acquire business?

Perhaps this goes without saying, but you won’t get any business if you don’t seek it out, regardless of whether you have visions of creating a one-person consulting practice or establishing and growing a larger business. If you’re not a strong promoter, which is true of many consultants, what’s your course of action after all your friends, colleagues, family, and initial contacts dry up? The long-term advantage of forming a larger firm is that you will ultimately need to create a business development engine with other people who can market and sell your offering. But this is much more difficult to do as a private consultant, given that your focus will be working on projects, rather than drumming up new business.

Your best sales tool is doing a great job for your clients in the hope of attracting additional business. But clients don’t necessarily have you in mind when they’re developing their annual budgets, unless you are working on a long-term retainer. In a private consulting practice, you are basically on your own and must rely on creating a presence (through a website, social media, or other networking tool) to attract new leads. Creating an organization with a separate sales and marketing team, with lead generators, sales reps, and account managers, is one key difference between setting up a private consulting practice and building a full-fledged talent development firm.

You also need to be clear about the clients and type of business you take on. You want to focus on your areas of interest and on your passions. If not, you could end up doing less-than-quality work and undermining your brand. Also, don’t take work for someone else’s benefit, and know when it is OK to say “no, thank you.” These are difficult decisions you will need to make when acquiring business.

Do you want to manage others?

Do you want to hire people or contract with others and become responsible for everything they say and do on your behalf? Is being on your own what attracted you? If you love managing people and are good at it, it can be a drain on the time and resources you need to build the business. Instead, you will likely need to hire people to manage your staff while you establish an infrastructure that can support the business in its current and future forms.

Not surprisingly, many consultants start out on their own and subsequently build bigger businesses only to learn that managing them is the last thing they want to do. In many cases, they aren’t very good at doing it. If you’re in this situation, you have two choices: Either fold back the company to a more manageable venture or hire someone who is operationally competent to grow the business while you continue to consult with clients. This often becomes the tipping point for firms in the talent development supplier industry and makes quality hiring decisions crucial to long-term success.

Are you prepared to understand and manage financials?

If you are not good at both understanding and overseeing the numbers, you are going to have to rely on someone else to do this for you. Although small business software packages are readily available, they don’t magically fill themselves with data. You, or someone else, must do that. We all know of businesses that appear to be very successful on the outside but are hemorrhaging financially on the inside because they don’t really understand the dynamics of running a sustainably profitable firm.

The problem might be amplified if you are a capable consultant in your particular area of expertise, but don’t have a knack for pricing out work and staying on budget. Before long, you end up working more hours than justify your financial return. This is why it is critical for you to fully comprehend how your business is going to make money. For example, as an independent consultant, how much will you pay yourself, and how will you go about doing it? How will you plan around an often inconsistent cash flow? How will you accrue for taxes you owe, because most of your work will be through 1099 contracting that pays gross fees and doesn’t account for deductions? If you stay independent, you will have to figure this out because you may not be able to afford the type of financial help you really need.

Certainly, financial issues become more complicated the more you grow your business. You can rely on competent external resources to assist you with the financial expertise and systems you need until you can hire the appropriate internal staff. If you want to build a business, you will need certified financial professionals to help you navigate these issues, maybe even as full-time employees. In either case, not understanding how the business makes—and loses—money is perhaps the most fundamental mistake any entrepreneur makes.

Note: This article is excerpted from The Complete Guide to Building and Growing a Talent Development Firm by Stephen L. Cohen. 

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