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You're a great consultant, but do you understand the day-to-day legalities of running your business?
New book offers the legal essentials every consultant should know.
San Francisco, California - Consulting continues to be a fast growing industry. And with the profession in high demand, consultants can be so busy taking care of their clients' needs, they forget their own. They get sloppy, skip steps, and forget to pay attention to the details of running a business. When consultants pay more attention to the business services they provide than to servicing their own business, mistakes occur that can lead to client problems - even litigation.
"With the consulting profession growing at such a rapid pace, malpractice suits are on the rise. Consultants, therefore, need to understand the legalities behind running a consulting business," advise Elaine Biech and Linda Byars Swindling in their new book, The Consultant's Legal Guide (Jossey-Bass/Pfeiffer, November 1999, ISBN: 0-7879-4763-6, $49.95, Hardcover with Disk, 320 pages). "You would be surprised how many client problems, lost revenue and lawsuits that can be prevented by simply following some of the basics. And many consultants are still not taking the proper steps to protect what is legally theirs - their intellectual property - from other consultants and their own clients."
Biech and Swindling engage their readers with firsthand consulting knowledge and practical legal experience by providing an abundance of sample documents, worksheets, exercises, letters, checklists and real-life scenarios. The book also comes with a diskette so you can print sample contracts, proposals, or legal agreements. Additionally, the book gives detailed information on how and when to hire an attorney, as well as the questions you should ask an attorney before hiring one.
By following just a few basic guidelines that are often overlooked by consultants, you can avoid costly litigation. Here are some important business issues to review as you establish and grow your consulting business:
Decide on a business structure. When you decide to "hang out your consulting shingle," there are five types of business structures to consider: sole proprietorships, partnerships, corporations, limited liability companies and limited liability partnerships. It's a good idea to consult an attorney and an accountant to help you determine which structure is best for you. And when selecting advisers to help you, remember to choose professionals that have experience in working with consultants. Remember, if you are a sole proprietorship and you get sued, your personal assets could be taken to pay any judgment against you. Incorporation will protect your personal property and assets. Develop your own code of ethics. Nothing works better in preventing client problems and lawsuits than being professional and above reproach. Keep a list of your ethics handy so you can refer to it and remind yourself of your commitment to professional standards. This will set you apart from other consultants and grow strong client relationships. Once you gain an ethical reputation, your peers will characterize you as someone with whom to conduct joint projects or to whom they would recommend their own clients with conviction. Your code of ethics may contain some of the following points:
(Exhibit 2.1 in The Consultant's Legal Guide expands upon this list) Your home can be a great place to run a business, but there are many important issues to consider. Be careful about meeting clients at your home. In addition to the possibility that it may seem "awkward"-you might be subject to government requirements for bathrooms, wheelchair ramps, fire exits, business permits, etc. You may also require special insurance if your general homeowners' policy excludes commercial use of your home and your neighborhood may have restrictions. Lease office space - it's a big commitment but usually worth it. Having a nice office adds to your appearance as a professional. You also may feel more professional since you actually leave your home every morning for the workplace. In addition, in the right building, you may receive referrals. It also is a big decision, one that should come after much thought. A cost effective alternative is to sublease your office space or rent conference space when you need to meet a client. Perhaps your accountant has extra space or your banker knows a company that would welcome someone to subsidize a portion of the rent. When you sublease, it is important to maintain your own separate identity for legal and professional reasons. For example, does the space have its own entrance for your clients? Can you add an additional sign to distinguish yourself from the lessor? If you decide to sublease, be sure to get written permission from the landlord and forward a copy to the business owner. Good relationship-building skills are a valuable asset. As a consultant, you are used to building relationships with clients, but as a business owner, you may not be quite as familiar with building relationships with your service providers. These relationships are just as important. Good working relationships with your providers can save you valuable time and money when things go wrong. Consider some of the following service providers and how crucial a good working relationship would be if a service was interrupted: advertising, telephone, copier and printer maintenance, couriers, security, leasing of office equipment, postage meter, cleaning, and possibly even landscaping and yard service. These people help your business run smoothly. Be sure contracts and agreements are carefully and precisely written and understood to avoid problems that interrupt the smooth functions of your consulting business. As your consulting firm grows, you may need to hire employees. You'll have to consider a lot of legalities when you bring on employees-from hiring and firing to confidentiality policies. You have to make decisions regarding hours, breaks, vacation time, rules, discipline, safety, dress codes, interaction with clients, and many other issues that arise when you hire staff. An employee handbook or policy should be created- one that sets clear standards for behavior. Also, make sure you don't classify them as independent contractors if they are truly employees. Subcontracting with other consultants is the trend. As your business grows, you'll probably decide to subcontract with other consultants on a job. How will you prevent the subcontracting consultant from marketing to your client? Some consulting firms ask their subcontractors to sign non-compete agreements. For instance, some consultants have an agreement that states that their clients are not "fair game" and should not be approached by the subcontractor until at least two years past the final contract date. One of the best reasons to have a non-compete agreement is to clearly define what behavior is considered against the rules or "unfair" by the parties. Don't be shy about having other consultants you subcontract with, even those you know well, sign a non-compete agreement. And be sure you've protected your intellectual property legally so there is no confusion as to who legally owns the materials you base your consulting business on. Set your fees accurately and stick to your fee structure. Many consultants don't know what to charge for services. Some use the "three times rule." This rule, used by many major consulting firms, gives you a close estimate of what you need to charge in order to make the salary you have planned for. In short, you must bill (or generate, or sell) three times your desired salary in order to cover expenses such as (but certainly not limited to) rent, insurance, FICA, taxes, telephone, supplies, clerical support, holidays and preparation time. Other firms charge according to what is competitive for their market. You should not negotiate the amount of your fee unless you change the structure of the original proposal. It is also unethical to state one fee and then reduce it for one client but not another. You cannot justify charging two different prices for the same service to two clients, and it is unprofessional to quote a fee and then simply "change it" because the client asked for a reduction. Eventually the client will wonder why you were charging the higher fee in the first place. Agreements with clients should be thorough and structured to answer several basic questions. Your agreements should include:
It is important that you make sure that the information you have spent years developing is not "taken" by someone else. Basically, your information may bring someone "up to speed" on your special consulting process with little or no investment on that person's part. Once you determine what information you have that has value (your intellectual property), you need to decide what you can lawfully protect. There are three types of protection for intellectual property: copyrights, trademarks and patents. Copyrights protect intellectual expression; trademarks protect the marketing and goodwill that is identified or associated with your name or logo; and patents evidence a long recognized relationship between the inventor and the government. Think twice before signing a non-disclosure agreement. Make sure you understand the terms-first and foremost. What one company may consider confidential may be information already available in the public or within your expertise. By signing such an agreement you may be subjecting yourself to liability. If you do sign a non-disclosure agreement with your client, make sure it clearly spells out what you can and cannot reveal. Get paid in a timely fashion so that you can pay others in a timely fashion. First, don't let receivables get out of hand. Make sure your invoices look professional and go out in a timely fashion. Besides getting your bill in the system to be paid, it's good to bill while the services you have performed are fresh in the client's mind. At the very least, bill and collect on a monthly basis. Add a sentence on your invoice that tells when payment is expected. If you simply put "due upon receipt," companies may automatically add 30 to 60 days. Be sure to contact your client as soon as the first payment is late and don't be afraid to take the matter to someone "higher up" with more power over the checkbook. If you are having trouble getting paid, you can take a few initiatives on your own before actually filing suit. You can have your attorney call the client or place a phone call yourself (up the chain of command) to show you are serious about the situation. A well-drafted letter to the company president can also be effective in getting paid. You can also reduce the amount owed, negotiate for payments, or hire a mediator to settle the matter. Consultants can also barter for services or equipment. Just remember, there are plenty of options to take before jumping into litigation, which destroys relationships and can be harmful to your reputation (even if the situation isn't your fault). Consider carrying professional liability insurance. Saving a few dollars in the short term by not buying insurance and leaving your business without protection can be devastating to your consulting business in the long run. Professional liability is the most common and valuable insurance for consultants whose main product or service is "advice." If your advice turns out to be bad and causes injury, the insurance carrier should provide a defense attorney, pay court costs and costs of litigation, as well as pay any settlement agreement or judgment. There are, however, many different types of insurance for your own particular situation. Do your homework! Consulting can be tricky in the legal world-you're not selling something tangible so you must take extra precautions. As a consultant, you work hard to build personal relationships with your clients. But this can be a detriment if you overlook legal details because of a friendly relationship you've built. For example, you may let contracts go unsigned for special clients, but if trouble does arise, you must have all your ducks in a row. Paying attention to the daily legal details of your consulting business is essential for a successful practice. "Your goal," warn the authors, "should be to avoid litigation wherever possible. You know you need an attorney for business dealings, contract review, complaints and a host of other issues. Be sure to stay in touch with your attorney and let him or her know how your business is changing so that you can limit your liability as your firm grows." ###
About the book: The Consultant's Legal Guide, by Elaine Biech and Linda Byars Swindling (Jossey-Bass/Pfeiffer, November 1999, ISBN: 0-7879-4763-6, $49.95, Hardcover with Disk, 320 pages) is available in bookstores nationwide, by calling 1-800-956-7739 or via www.josseybass.com and other major on-line booksellers.
About the authors:
Elaine Biech is President and Managing Principal of ebb associates, a human resources development firm that creates custom-designed training programs and also the author of the bestseller, The Business of Consulting (Jossey-Bass/Pfeiffer).
ebb associates serves as management consultants to clients in both the private and public sector including Land O'Lakes, McDonald's, Lands' End, the American Red Cross and the U.S. Navy. The firm has offices in Norfolk, Virginia and Portage, Wisconsin.
Linda Byars Swindling is an attorney-mediator with a North Texas law. A consultant and professional speaker, Linda helps managers and business owners increase their negotiation skills while avoiding legal disputes. Trained in advanced mediation and negotiation through programs with the University of Houston and Harvard Law School, Linda trains and speaks on avoiding legal issues and negotiations to national organizations and businesses.
She is the creator of Peacemaker Productions which offers multimedia programs on Managing Without the Legal Hassle, Hiring & Firing the Legal Way, Violence in the Workplace and Employee Retainment-Keeping Your Key People. Organizations who have benefited from Linda's presentation include the Dallas Convention & Visitor's Bureau, American Heart Association, The Associates, Tandy Corporation, the Associated General Contractors of America-Dallas, the National Catalogue Operations Forum and Meeting Professionals International.
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