Banking

Contingency planning tips for independent consultants

Independent consultants can mitigate the consequences of an extended illness or a disability by implementing a contingency plan. Here are tips on what to consider.

As an independent consultant, I love the fact that I don't need to depend on anyone else to do my work. Oh sure, sometimes clients put obstacles in their own way, or they rely on a third-party to provide some key ingredient, but as far as what they expect me to produce, it's all up to me. I don't have to pay salaries and benefits or deal with employees' excuses or personal problems, government-imposed employment rules, or hiring and firing. But this freedom comes at a potentially enormous cost.

Since the whole business rests on me alone, it would literally cease to exist if something tragic happened to yours truly. If I experienced an extended illness or disability that prevented me from working, I have nobody who could keep things going until I returned. My clients would just have to wait, or find somebody else, and there's no guarantee that they would welcome my return by bringing their business back to me.

TechRepublic member reisen55 suggested that I write about this topic because he recently experienced a severe medical emergency that took him out of commission and essentially shut down his business. So in addition to recovering physically, he must also recover the attention of his customers.

How could we independents go about mitigating the consequences of such a contingency? Here are tips about what to consider when you're creating your contingency plan.

  • Mentor a protégé or train some of the client's employees: Nobody lives forever, so you want to groom someone to take your place eventually. That person can also fill in for you when you're out of commission. The only trouble is, how do you retain such a person? If you hire them, then you have all the hassle and expense of being an employer. You could subcontract some work to them, but either you might not have enough to keep them busy or you might go crazy with the project management aspects of the arrangement. I've opted instead to try to bring people in my clients' offices up to speed enough to cover for me until I get back -- but your client has to agree to that use of their resources, and the possibility that you could make their employee worth more than the salary your client can pay them.
  • Ask a colleague to cover for you: Some kinds of consulting work can be handed off fairly easily, so if you know someone else in the business who could cover for you for a bit, that can work. If they're your friend, they won't try to steal the customer permanently, and you could reciprocate in a converse situation.
  • Keep funds in reserve: For most of my tenure as a consultant, my finances have been right on the edge of insolvency. Month to month, I'd collect the checks and hand them over to my creditors. That strategy is doomed to failure. Besides feeling like you're getting nowhere, one hiccup in the cash flow could torpedo your whole operation. While I still have nowhere near enough set aside to be able to take a year off (the ideal), I have managed to create enough cushion to get through a short-term disaster. It wasn't easy though. My good friend and mentor Ken Lidster once told me, "It doesn't matter how much money you have, it's never enough." He was right. You can only save for a rainy day by exercising discipline and going without some of the things that you "need" to have until later.
  • Insure: I resisted buying any insurance for a long time, because it's obviously a racket. You will likely pay much more over the long term by having insurance than by going without, but insurance eliminates the sudden, devastating expenses from which you might not be able to recover. Health insurance is a must. If you're down and you can't generate any revenue, you certainly can't afford to pay thousands in medical costs. Disability insurance is also worth considering, if a disability could prevent you from working. For me that would be eyes, hands, and brain -- though my wife might argue that some or all of those are already compromised.
  • Communicate: Most importantly, if something does interfere with your work, make sure you let your clients know about it. Give them an honest estimate of how long you'll be unavailable, and work with them to form a plan for how they'll get along without you. Taking care of their needs when you're in trouble is the best recipe for getting their business to snap back when you do.

Have you ever experienced this kind of situation? What did you learn from it for the next time? Do you have a contingency plan?

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

18 comments
PMPsicle
PMPsicle

Aft gang agley! I've always put as much away for a rainy day as I possibly could. (Measured in terms of years usually ...) Despite that I've had to learn the hard way why it's so important to have contingency plans. I've had two experiences ... one about 14 years ago when I was in a car accident. I spent almost 6 months in a wheelchair. (Actually 4 months ... the first 2 were too painful to get me into one). I was fortunate in that a client put me to work despite the trouble -- for either of us. Between that and my car insurance I was able to survive. That taught me the importance of maximizing my savings and keeping my salary well below my earnings. Unfortunately, when I investigated insurance I discovered the only disability insurance I could get required me to be an employee. Then about 5 years ago my blood went septic. I spent almost six months before they were able to identify the problem and another 6 months plus in the hospital. Again my savings saved me. In the meantime rules have changed and disability insurers now have plans for ICs. My business partner's disability has recently become severe. His insurance has saved him ... and he's doing a heck of a lot better than I did. His savings are more or less intact. So the lesson from the old fogey's ... get insurance while you're young ... even if you don't need it. Make sure you've got disability insurance. Make sure you've got a nest egg. And always, always, have a least two more ways out.

www.indigotea.com
www.indigotea.com

I've experienced this scenario in a smaller degree earlier this year, due to a bout with pneumonia. After one of my small business clients went through a similar scenario, I wrote an article to help other small businesses create their own business continuity plan: http://blog.indigotea.com/post/Business-Continuity-Planning-How-to-Prep-for-Business-Unusual.aspx I appreciate how your article brings a focus to identifying where to draw your delegates from at the client site itself, and the financial aspects of keeping a "cushion" on hand. Thank you!

reisen55
reisen55

Many thanks. I am stil alive and still with clients, and I had one new client that came on with me only a few weeks before my hospital stay, and they stayed with me!!! I was diagnosed May 6th with congestive heart failure and was shot form cardiologist office to hospital in 20 minutes flat. No chance of going home. So for about 6 days my blood pressure was dramatically reduced, no kidney damage and I had a stent inserted into a 95% blocked artery!! Painless by the way. Released on May 12 with the ability to BREATHE WHILE I WAS WALKING. THAT was my hell, I could not walk and breathe. I lost a contract gig prior to this and also had to put on a good FACE before clients even though my chest was collapsing. IN the hospital, my wife asked if I had any new invoices. WHO WAS I ABLE TO SEE???? Egad, stupid question. BUT WIRELESS HELPED ALOT. Within 3 days I had my laptop and wireless access which meant I could remote control a good portion of my work, address emails and actually DO STUFF which, by itself, was a relief. Hospital Advice: Let people know where you are, and phone. Get wireless access as fast as you can. When released, PERSONALLY visit clients so they can physically SEE YOU and know you are still alive. This is important. Make visits fast. Social calls if you have to. Before: have a cash reserve if possible as my business was technically comatose for 3 weeks. And watch the hospital IT too, for the Good Samaritan Hospital in Suffern NY had excellent protocols in place. I have seen horrible at another hospital gig I did in 2006 that damn near DID put in the hospital. And I am very very glad to be here on planet earth too.

AnsuGisalas
AnsuGisalas

Let's see; contingencies, nope. None of those. Cripe. I'm a freelancer; that amounts to a consultant with a low-low pricetag and even worse work flow security. Right now I'm waiting to hear if I'll get cut into a job that'll net me as much as I've made all year. The up side is that I'm not so dependent on my near-to-nonexistant salary as I'd otherwise be :p. I'd add something about spending control: Having adjustable expenses is very useful when the gears grind to a halt. Excess ballast that can be cut easily is nice. On the other hand, foreseeable expenses are usually the exact opposite, but they're nice to have too. In loans I figured a long time ago that the ideal is to do like with investments; build a balanced portfolio. Get fixed rate loans at opportune times, but consider leaving something with a flex rate if return payments are flexible too when need be. This is usually cheaper than the Bank's own solutions to similar effect... at least over here. Then, when you're in trouble you'll have more options.

santeewelding
santeewelding

Sole proprietorship, isn't it? Dizzying, too, when you cast a glance behind and realize also that the only real contingency is, "Poof ( ! )"

Sterling chip Camden
Sterling chip Camden

Interestingly, for the 19+ years I've been independent, I haven't been out of work for medical reasons for more than a couple of days. The consequences of missing work are much harder than willing myself well.

reisen55
reisen55

Remember Q's last advice to Pierce Brosnan in THE WORLD IS NOT ENOUGH.. "I've always tried to teach you two things 007. First, never let them see you bleed. Second, always have an escape plan." Desmond Llewelyn, RIP

Sterling chip Camden
Sterling chip Camden

Your linked post has some good thoughts about other contingencies like loss of equipment, software, data, and communications. Good read.

Sterling chip Camden
Sterling chip Camden

... and one I've also been working on for some time now. As I've increased my regular revenue, I've decreased my recurring expenses. That takes a lot of discipline, as well as attention to making sure you're getting the best deal. Ideally, save and pay cash for things rather than taking out a loan. You know when you can afford to plunk down that big chunk, but if you commit to a regular payment then you've just narrowed the gap between what you make and what you spend on a regular basis.

Sterling chip Camden
Sterling chip Camden

Yes, and after the "poof" what will remain? -some pages on the web (for a while) -a slowly fading contribution to various pieces of software -other people's memories, which become false almost immediately

reisen55
reisen55

As independent consultants, we are often traveling between clients and cannot BE ON SITE when something bad happens. This is not a medical issue at all, but just schedule conflicts. My consideration for my clients is to presume that this will happen, and it has, and plan accordingly. Always have an ESCAPE PLAN and consider critical failure points and how to have a method in place AND TESTED so that a crisis can be managed while YOU are in transit or next transit point. For my medical house, I have a copy of the base patient management database copied to a local up-front station every morning. In this way, IF the server fails or IF the primary router fails or IF power goes out, this SINGLE FRONT COMPUTER, ON A UPC DEVICE, CAN manage their business for a SHORT period of time. Until I arrive onsite to begin heavy duty lifting.

joe
joe

I have been independent for around 15 years and this year I found out there is something worse than being sick. I do mostly Active Directory, router and firewall work and in most cases I am working from my office at home so even with a bad flu I can usually struggle through and still serve my clients. This year my brother became extremely ill and required a lot of attention. I had always figured I could tough out my own illness but when you have to care for someone else your world pretty much comes to a stand still. The constant attention he needed meant I could never get more than an hour or two of uninterrupted time to do my work. Needless to say this is not a way to run a business. On Tuesday night his suffering ended, in a week or two I will be able to get back at the grind of business, I will miss him dearly. There is no way to plan for this type of thing. My advice to all independents is assume the worse possible thing can happen and save your cash so you can get through an unplanned event. No matter how well you plan something can come up that is totally unexpected and take you away from being able to earn a living. How well have you really planned? Ask yourself if something prevented you from doing any billable work for 6 months could you survive? If the answer is no then you might want to focus on building an emergency fund.

PMPsicle
PMPsicle

And never, never drive a sports car too quickly on a coastal road in England! Whoever the writer of that bit was ... he obviously had experience as a project manager!

reisen55
reisen55

I was considering this issue yesterday and the enforcements of a hospital stay are entirely unique. Any other medical outage generally is a doctor's office visit and that you can modify or escape from. Then if you have to recover, you generally do that at home and THAT is a good thing. A hospital takes you entirely OFF THE GRID with no options. You cannot leave, really communicate, worry about bills, nothing. The hospital controls EVERYTHING. A wireless connection on a laptop is a godsend. First off, it is NORMAL stuff, not the weird life the hospital provides. That alone is a help. Contact with the outside world is a great help. Secondly, I was able to do remote support work for clients and that ALONE put me into a better frame of mind too. My clients were amazed I was actually WORKING in the hospital. It is a great time to do the boring work for clients that one would normally avoid. Might as well enjoy it. Financial Note: when you are taken off the grid, your existing invoice set is still out there and checks come in. It is not until 15 to 30 days that the enforced period of inactivity sets in and SUDDENLY all the checks stop. I have scrambled a bit of late but it comes back to normal. Life Change: I also took the opportunity to cut down on coffee (consultant's best friend), organize my file cabinet fully, junk tons of it that I did not need, organize the systems I support on my home network. It is a great time to set everything in place nicely. Perhaps the most important post-release thing to do is physicallY VISIT YOUR CLIENTS so they can SEE you again. That by itself proves that you are a viable person and capable of supporting them.

AnsuGisalas
AnsuGisalas

But people who can buy their home without a loan probably won't need a contingency, unless they get a serious case of the Murphies.

Sterling chip Camden
Sterling chip Camden

... which comes, as usual, from hard experience. My condolences on your loss.

Sterling chip Camden
Sterling chip Camden

... though eventually, I'd like to be able to own my home outright, that's one loan I still owe. I was thinking more of smaller large purchases like car and equipment. We're at the point now where we have no car payment or any other loan besides our mortgage, and I plan to keep it that way.