Banking

Building the free agent's infrastructure

Becoming an independent consultant involves more than a leap of faith. It means understanding every aspect of business that an employer would normally cover. Read on for some valuable sales and accounting advice for the free-agent consultant.


As an employee, it’s likely that your job can be categorized by one of four basic functions:
  • Planning
  • Selling
  • Delivering
  • Tracking

As a free agent, however, you must build an infrastructure (support system) to take care of all four.

The good news is that you don’t have to do all of the activities yourself. Just as a manufacturer must decide whether to make component parts or buy them, you can either learn to perform each of these functions or pay someone else to do them for you.

Here’s an illustration to help you understand how various jobs are related to each function:



When you’re planning your business, keep in mind that your goal as a free agent is to provide services to customers, not to build an infrastructure for yourself. The only reason to spend money—on infrastructure or anything else—is to make money.

In this article, we’ll take a look at two job functions—sales and accounting—and give you some options for either “making” or “buying” them.

Second in a series
This article is part of a series that examines what employees must do to prepare themselves to become independent consultants. The first installment in this series explored the risks and reasons involved with going out on your own. Our next article will discuss the kinds of capital you’ll need to set aside to start your business.

Buying sales
If you worry that relying on your own sales ability might just lead to starvation, it’s time to find a broker to represent you. Finding the right broker made all the difference in the world to Paul Turley, a free-agent IT trainer in Seattle. He discovered that most contract training business goes through brokers and that finding the right broker is the key to keeping busy.

“I’m not a very good salesman; I’m not very good at asking people for money,” Turley said. “You have to know your limits so you can use other people well.”

But not all brokers have your best interest in mind. Larger companies with hired account reps work at getting the highest rate from the client and the lowest rate from the consultant.

“The best brokers I’ve worked with...get a cut from your rate, so they’re on your side,” he said. “You bill the client; then pay a commission.”

This is a departure from the world of the employee. I was always told to avoid recruiters who charged you instead of the employer for their services. But to a free agent, paying the broker is a tax-deductible cost of doing business. Plan on paying between 10 and 15 percent of the gross for the job to the broker.

But how do you find a good broker? Talk to other consultants. They may be hesitant at first to bring more competition into the market, but if you’re in a different niche, you can get recommendations.

Turley suggests that free agents be willing to both give and take: “If a training center manager comes to me, I might call other trainers and ask them if they want the job. Then, someday when I need a favor, I can ask, ‘Remember when?’”

Making sales
Others, of course, prefer to handle their own sales and marketing. Mike Culver, a freelance trainer in Seattle, recommends touting your skills by speaking at symposiums and using the Web to drum up business.

“There are a lot of headhunters out there trying to place people, scanning the Web for resumes,” he said. “They’ll search for something like SQL Server, and I’ll get calls [from] them, wanting to set something up for me.”

If you’re choosing to do your own sales, there are several good resources. One of the most convenient is The Contract Employee's Handbook by James R. Ziegler. The appendix of this free online report contains more than 75 pages of resources for marketing and self-promotion.

The business section of your local bookstore has no shortage of sales and marketing books to help you learn the craft. Here are two that I have found personally helpful:
  • Selling the Invisible: A Field Guide to Modern Marketing by Harry Beckwith—The "invisible product" referred to in the title is services, and Beckwith’s advice covers everything from creating a compelling sales message to nurturing and keeping clients once you have won them.
  • The Brand You50 by Tom Peters—In this follow-up to The Circle of Innovation: You Can't Shrink Your Way to Greatness, Peters translates his experience at professional-services firm McKinsey into practical advice to help you re-create your career as a brand.

Both books consist of short chapters describing a single key idea. They make perfect briefcase books that you can use to turn otherwise wasted minutes into learning opportunities.

Buying accounting
At some point, you might think it wasn’t so bad having an employer: They invoiced clients, collected the money, paid taxes, and gave you a regular paycheck. As a free agent, you don’t have to work for an employer, but you can hire one. Such companies are called “pass-through agencies.”

(Meredith Little reviewed three of these agencies in an article for TechRepublic.)

By employing the services of these agencies, you become the manager of your own profit center, responsible for finding clients and delivering services. The agency collects from your clients, deducts taxes and their processing fee, and sends you the rest. At the end of the year, your accounting is the same as any employee: Attach a copy of your W-2 to your tax return.

Another benefit of this approach is that you have an unbroken employment history when it comes time to apply for a mortgage or auto loan. It can take several years as a full-time free agent to build an equally strong credit history.

The downside is the cost. Pass-through agencies will skim up to 10 percent of your revenue off the top (before taxes) for providing their services.

Making accounting
Besides keeping good records, running your own accounting office involves complying with a bewildering array of federal, state, and county regulations. Don’t go it alone: Get help. Start with a good accountant, preferably one who has other free-agent clients, and then buy a copy of the software package they use. Two of the most popular accounting software packages are QuickBooks Pro and Peachtree Complete Accounting.

Another option is to employ an application service provider (ASP) and use a Web-hosted accounting system. ASPs have the powerful server hardware, uninterruptible power supplies, licenses for the software, and the staff to keep it all running. You pay a flat monthly fee, which is easier to budget for than buying your own infrastructure.

Using the ASP model, I’ve decided to go with Oracle Small Business. It includes accounting, payroll, and other modules you can choose to use either individually, starting at $19.95 per month, or as one integrated package for $99 per month. My accountant can log on from his or her office to review my books and run reports, and I can log on from the road and use otherwise unproductive hotel time to log my time and create invoices. Plus, I can issue restricted logons for my clients to enable them to see their account status at any time. That’s the kind of customer service I want to provide, and it tilted my decision in favor of making my own accounting instead of buying it from a pass-through agency.

How have you set up your office?
If you’re an independent contractor, how have you set up your office? Which functions do you keep in-house and what have you outsourced? Share your strategies with us in a discussion below or in an e-mail.

 

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