How to Start a Consulting Business from Scratch

This business planning tutorial will help you start your consulting company and execute your business plan. Each section will highlight the risks you should address while building a new business. You will also be able to download my Excel Budget Template to see an example of how to track business revenues and control your costs.

Step 1: Don’t Quit Your Job Yet

When conceiving a business idea, you probably plan where you want to be in the next three or five years. However, before you get there, you need to figure out what you are actually going to sell. To start, make a list of the core skills you have to offer. Then, think about structuring them into a service or product that you can advertise and sell.

Don’t quit your job until you have proven that your business can remain profitable. Also, your company needs to generate enough money to sustain its growth in the longer term. Until your business plan answers those questions, don’t let that resignation letter leave your pocket just yet.

My approach to building a new business was to start from the basics. I was a financial analyst, and using spreadsheets was one of the critical skills that my current job required. With that in mind, I visited gumtree.com, a classifieds website, and advertised myself as an Excel tutor. I soon got an email from my first prospective client, a lady who needed help with Excel. We met in a cafe and worked on her work project. She booked a few more lessons afterwards, which seemed to provide my business plan with the first proof of concept.

Step 2: Put Your Business Plan to the Test

Having a few happy clients is encouraging but is still not proof that your business will succeed. When starting my consulting company, I first thought that most of my clients would need long term tutoring. It was an assumption based on a business model similar to teaching a foreign language. As my customer base slowly grew, I noticed that many of my students didn’t need extended Excel training. Instead, they wanted a quick refresher for an interview or to prepare themselves for a new job.

As a result, I started advertising my services as intensive training covering the basics of using spreadsheets. I was planning to offer the initial intensive lesson at cost, aiming to generate profit from the follow-up sessions. If my students made no more than a few bookings, my business plan was in trouble.

With the money earned so far, I could afford to test my services with a broader audience. I set up a google ads account and ran a trial campaign. The demand was overwhelming, and soon I found myself travelling around London from one place to another. I met my clients in coffee shops, offices or even a pub.

Step 3: Create a Sound Advertising Strategy

Research your field and competitors and come out with an advertising strategy. As a newcomer, you will most likely face competitors who have more experience and bigger marketing budgets. Don’t let that discourage you. Think about what makes your services distinct and how you can stand out among your bigger competitors.

When starting a consulting business, my initial findings confirmed that most of my customers were ‘job seekers’. However, I also realised that now my competition was course providers rather than other tutors. That allowed me to play with the pricing model. The one-to-one nature of my business made me distinct from the group lesson providers to change my rates and remain competitive.

I increased the ‘job-seekers pricing and introduced discounted packages for customers who wanted to book more than one lesson upfront. As a result, the demand for my intensive lessons decreased, but the higher rates allowed me to offset any loss in revenue. The change gave me more time and energy to focus on targeting longer-term clients.

Step 4: Get to Know Your Customers

As you’re expanding your customer base, it’s important to keep track of your customers. Set up a simple spreadsheet to note down your client name and what services you provided. Keep track of generated revenue, the number of hours spent with the customer, and how they heard about you. Also, write down if the client was new or returning, and some general information such as customer feedback.

If you need to take a longer commute, note the time it took you to get to the meeting place. Note the cost of the journey and any other expenses you incurred.

Create a separate sheet to track your marketing spend by advertising channel. Try to update that sheet regularly, for example, once a week. The information will help you allocate the marketing spend to your clients, calculate the cost of acquisition and calculate overall profitability. For an example of a marketing spend spreadsheet, download my Monthly Budget Spreadsheet Template.

Step 5: Use Metrics to Evaluate Your Business Plan

Analysing the revenues and expenses per client will help you calculate the profitability of your services. It will also be a great source of information about your audience and the profile of your clients. The data about your customers and products will help you evaluate and adjust your original business plan’s assumption.

Download my Monthly Budget Template to see an example of how to create a budget in Excel for your consulting business. The ‘Clients’ tab is the sheet you can use to record your clients’ activities. This sheet will allow you to group your clients, calculate generated revenues and allocate marketing to each sale. The ‘Marketing’ sheet will help you keep track of your marketing cost by advertising channel and allocate it to a specific week or a month.

The customer and marketing data is brought together in the ‘Budget’ tab of the template. The bottom part of the spreadsheet list the business performance metrics. They are revenue per customer/booking/hour, cost per acquisition, and a gross margin per client. They will help you try to analyse a customer’s contribution to the business’s overall profitability.

Step 6: Execute Your Business Plan with a Budget

Using the business’s actual performance versus your budget will enable you to contrast your business plan assumptions with reality. As a new business, you have more control over the costs, so focus on that part of the budget first.

Download my Excel Budget Template to see an example of how you can plan and control your business expenditure. The direct costs in the spreadsheet consist mainly of marketing spend. The budget splits the cost into marketing channels, which will measure the effectiveness of your advertising spend. Look at the margin and cost per acquisition to decide which advertising campaigns generate the best returns.

To control the fixed costs, don’t make any long term commitments before you start generating a steady revenue stream. Having a phone and a website is a must for a consulting business, but do you really need an office? If you have a consulting company, you will need a website, but nothing too expensive. For instance, you can go to WordPress and create your online presence for free.

Step 7: Stay Conservative When Projecting Revenues

When starting a new business and building a budget, err on the conservative side when extrapolating your revenues into the future. Remember that having one or two clients does not prove your business plan. You want to see a sustained level of demand before extrapolating the customer numbers into the future. Download my Monthly Budget Spreadsheet Template for an example of how to forecast your business revenues.

Don’t establish a gambler mentality when you see that your marketing investment is not paying off. If an advertising channel continues to underperform, then you need to cut it off. Don’t spend any more money on it, hoping that your business’ performance will somehow improve.

Even if your marketing campaigns perform well, don’t assume that doubling the marketing budget will generate twice as many customers. Instead, gradually increase the marketing spend and monitor if you can sustain healthy returns.

Step 8: Diversify the Sources of Your Business Revenue

Starting a new business doesn’t always go according to the plan, but that’s just part of the process. Take a step back, look at your customer data, and evaluate which part of your business works well and where you need to find an improvement. Download my Budget Spreadsheet Template to keep track of your business performance and identify where you can improve.

If some of your direct marketing channels don’t generate enough revenues, don’t despair. Consider other venues to attract new clients. Start writing blogs and think about giving free workshops in business hubs or local community centres. While not resulting immediately in revenues, those activities will diversify and increase your audiences. They may also become a great free source for your long-term clients and sustainable income.

Summary: From a Business Plan to a Budget

Leaving your job to start a new business is a brave decision. Therefore, make sure you get as prepared as possible before you take the step. In “Business for Punks”, James Watt writes that every new business has an eighty per cent chance of failing. So, make sure you have as much control over the remaining twenty per cent as you can.

Before spending money on advertising, think about other means of attracting customers. Vary your costs, make sure you have a good business plan, and be ruthless when cutting your expenses. It’s easy to get carried away with your business’s initial successes, but stay conservative when forecasting the revenues. Finally, download my Monthly Budget Template in Excel to see an example of how you can plan and keep track of your revenues and costs.

If some of your initial assumptions are not working, don’t despair. Take a step back and think of other ways of growing your business. Focus on developing a sustainable plan, not on scoring short-term wins. Get some sleep, buckle up, and enjoy the ride ahead!

Download: Excel Monthly Budget Template

Click on the button below to download my Excel Budget Template for an example of how to track your business’s actual performance and use it to forecast your future earnings. The spreadsheet is split into two sections: the ‘Actuals’ and the ‘Budget’.

The Actuals reflect the current business performance, and the Budget projects future revenues and costs:

• The top section of the budget sheet starts with the breakdown of business customers and sales. It then splits the revenue by customer type. The ‘Direct Marketing Cost’ below in the section below shows your advertising expenditures’ breakdown by their marketing channel. The revenues and the direct cost is the basis of the gross margin calculation.
• The remainder of the Budget Template splits the business’ fixed costs into salaries and general operating expenditure. To calculate the Net Margin, it subtracts those costs from the Gross Margin. The Profit calculation deducts estimated tax and other relevant expenses such as amortisation, interests, or depreciation.
• The Metrics spreadsheet will help you evaluate your business performance. It includes such indicators as revenue per user, sale or hour, cost per acquisition, and a gross margin.
• The Clients sheet is where you can record your customers’ details. The Marketing sheet is an example of how you can keep track of your marketing expenses. The ‘Budget’ tab aggregates the data and presents them as monthly marketing spend.

The Budget takes the data from the Clients sheet and aggregates them as monthly sales. The current example displays six months of actual data and uses them as the basis to project future sales and expenditure. You can adjust the forecast by changing the assumptions highlighted in yellow.

 

Get in Touch

Hi, my name is Jacek, and I love Excel and Financial Modelling. I hope you’ve enjoyed reading this tutorial as much as I enjoyed writing it! If you have any questions about financial analysis in general or any topic in particular, don’t hesitate to get in touch.

If you would like to learn more about Cash Flow Forecasting, find out more about my One-to-One Financial Modelling Course. For more free Financial Analysis Tutorials, click here. Or for more info about my Financial Modelling and Cash Flow Forecasting services, visit this page.

 

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