How to start a consulting business

How to start a consulting business

If you want to learn how to start a consulting business and what business consultants do, ERGO NEXT walks you through what a business consultant is (and isn’t), and essential business operations logistics like licensing, permits and business insurance.

What is a business consultant?

A business consultant is a professional who provides expert advice in a specific field to help organizations solve problems, improve performance or reach specific goals. They share their specialized knowledge and experience to guide their clients toward better decisions. If you have expert-level knowledge and real-world work experience with a proven track record of success, this knowledge could become the basis of your consulting services.

You can work independently, setting up your own operations, or through a business consulting firm, depending on the scope of the work and the clients.

What does a business consultant do​?

Consultants help organizations identify challenges, evaluate opportunities and recommend strategies to improve how a business operates. The specific work varies widely depending on the consultant’s expertise and client needs.

These are a few common examples of what business consultants and business consulting firms do.

General business consultant

Business consultants work with large and small businesses to improve business strategy, efficiency and overall performance. Their work may include setting up a new company, business administration, operational processes or consulting on growth opportunities, based on the client’s needs and goals.

For this type of consulting work, you’ll typically need a business degree, the right connections and an impressive resume with cross-functional business expertise. However, once you establish your presence, the work can be lucrative.

Human resources (HR) consultant

HR consultants advise businesses on workforce-related issues such as hiring practices, compliance and employee policies. They’re often hired when a company is growing, restructuring or needs help navigating employment requirements.

Many HR consultants have prior experience working in human resources roles and may also hold relevant degrees or industry certifications.

Information technology (IT) consultant

IT consultants help organizations assess, build and maintain technology systems and networks. They may be hired to support system upgrades or technology transitions, drawing on both technical knowledge and problem-solving skills.

Clients will want to see your experience and background. A tech-related bachelor’s degree, such as computer science or software engineering, plus real-world experience and a portfolio of successfully completed projects for other companies is expected.

Education consultant

Education consultants work with educators and institutions to improve learning experiences and educational outcomes. Most consultants specialize in specific areas like college admissions, curriculum development or support for students with special needs. It’s likely that business consultants in this role will also do some work with students, families, teachers or professors, and school administrators.

Consultants tend to have an educational background and teaching credentials. Many also earn a Master’s degree in a specialized subject or field.

Marketing consultant

Marketing consultants help businesses plan and execute marketing positioning and strategies, particularly during launches, growth phases or transitions. This often involves research, campaign planning and analyzing the results of their marketing efforts.

While professional accreditation is not a necessity for the role, some marketers choose to earn a certification through the American Marketing Association or another specialized platform specific to marketers.

How to become a business consultant​: Five steps for licensing and permits

No matter what type of business consultancy you choose, how you operate your business speaks volumes about your credibility, expertise and professionalism. Setting up your consulting business legally means that you must meet federal, state and any local licensing or permit requirements.

1. Get licensed and/or certified if required

There’s no single official consultant license required to become a business consultant. However, depending on your state, county or city, you may need a general business license or permit to operate legally.

Certification and accreditation requirements can also vary by consulting niche. While some consultants — such as social media or sales consultants — may not need formal certification, others may be expected to show proof of education, credentials, or professional licensing based on the services they offer.

For example:

• Business consultants are often expected to have a relevant bachelor’s degree, and some hold a Master of Business Administration (MBA).
• Accounting consultants typically need to be certified public accountants (CPAs) in their state.
• Engineering consultants may need to be licensed as Professional Engineers (PEs) in the states where they practice.
• Private investigators or investigative consultants are often subject to state licensing requirements, background checks and ongoing compliance obligations.
• Information security or cybersecurity consultants are often expected to have certifications or credentials to handle sensitive systems, data or security assessments.

In general, clients tend to look for consultants who meet similar education or licensing standards they would expect for an in-house role in the same field.

2. Create a business plan

Many consultants start by creating a basic business plan. This document can help clarify your services, pricing, target audience and growth goals. It’s also useful if you plan to seek financing or partnerships.

3. Choose a business structure

Choosing a business structure is another key step. Common options for consultants include:

• Sole proprietorship. A sole proprietorship is simple to set up and operate under your personal name.
• Limited liability company (LLC). An LLC separates and protects the personal assets of the company's owners in the event that the business is sued.
• S corporation. An S corporation offers tax benefits like deducted payroll taxes and dividend distributions at lower rates but requires additional annual paperwork.

Follow the IRS checklist for starting a business, and consider working with a startup attorney and/or a tax professional to make sure you choose the right structure and file everything properly.

4. Set up business operations and taxes

Once your consulting business is legally set up, putting a few core systems in place can help you operate smoothly and professionally. Common areas to plan for include:

• Client contracts and agreements. Many consultants use written contracts to outline scope of work, timelines, payment terms and expectations. Clear agreements can help set boundaries and reduce misunderstandings.
• Invoicing and payments. You’ll need a way to send invoices, collect payments and track what’s been paid. Some consultants start with basic accounting software or simple tools before upgrading as their business grows.
• Accounting and expense tracking. Keeping track of income and business expenses can make it easier to understand cash flow and prepare for tax filing. Organized records can also be helpful if you work with an accountant or bookkeeper.
• Project and client management. Systems for managing deadlines and deliverables can help keep projects on track, especially as you take on more clients.
• Taxes and compliance. Consultants are generally responsible for filing and paying taxes, which may include income taxes and estimated quarterly payments depending on business structure.

5. Start marketing your consulting business

Once your operations are in place, the next step is finding clients. Referrals from professional contacts, former colleagues, friends or family can help you get started, especially early on. Over time, many consultants also invest in marketing to build credibility and attract new opportunities.

A simple website that explains who you are, what you do, and highlights your experience can help establish trust with potential clients. From there, digital marketing or social media may also play a role — as long as the channels you choose align with your audience and consulting niche. The goal is to make it easy for the right clients to understand your value and get in touch.

Business insurance requirements for consultants

Your business insurance coverage needs can vary based on your consulting type, the clients you serve and how you operate. Many consultants carry insurance to help manage potential claims or disputes.

Some of the most common types of consultant insurance include:

Professional Liability insurance

Professional liability insurance — also called errors and omissions (E&O) insurance — can help protect your business if a client claims your professional advice, services or a mistake (real or alleged) caused them financial harm. This type of coverage may help with legal defense costs and damages if a claim or lawsuit is made against you for professional negligence or an omission, such as a mathematical error, a missed deadline or an omission that leads to a financial loss for your client.

General Liability insurance

A general liability insurance policy could help protect you from expenses related to accidental damage to property you don’t own or an injury to someone who’s not an employee. This coverage may help provide help with medical expenses, legal fees and judgments.

Workers’ Compensation insurance

A workers’ comp insurance policy can help cover medical expenses and lost wages if an employee is injured or becomes ill because of their job. In most states, this coverage is required if you have employees.

Commercial Property insurance

Commercial property insurance for consultants can help protect business equipment, furniture and the building itself if your business property is damaged due to a covered event, such as a burst water pipe, theft, vandalism or fire. Property insurance may be able to help your business with replacement costs or repairs.

How is a business consultant different from a contractor?

A business consultant and a contractor play different roles.

• A business consultant usually evaluates a situation, identifies opportunities or challenges and makes recommendations.
• A contractor is usually hired to deliver or execute a specific product or service.

For example, a marketing consultant might be hired to review a company’s marketing strategy and suggest improvements. If that same professional is hired to write and implement the new marketing plan, they would be acting as a contractor.

This story was produced by ERGO NEXT and reviewed and distributed by Stacker.