Self Employed Engineering Consultants: How you make it

Engineering Potpourri Business Practices & Ethics
#1

by imagitec:

I started consulting part time (moonlighting) in 2006. My first client was a former employer that I had left in 2004. I used one of their available SolidWorks licenses to do the work. Building and maintaining excellent relationships with colleagues, employers, vendors, clients, and other contacts that you make during your career will be critical to your success and longevity as a consultant.

I have very specialized and deep expertise (in precision machine design and optomechanical engineering) that I apply to a variety of industries (horizontal specialization). Specialization will be key to your success and longevity as a consultant.

In 2008, I formed an LLC and purchased my own license of SolidWorks Premium (still my biggest single investment). The amount I consulted varied wildly in the following few years (by my choice).

I started consulting full time in 2011 and couldnā€™t be happier with the life it has enabled me to lead, despite typical ups and downs.

Even though my first job as a consultant paid better than any salaried job I held then or since, I was undercharging. My rate increased steadily through that period. Itā€™s more than 2X what I started at. I suspect it would be higher than if I didnā€™t still succumb to the classic dilemma of neglecting marketing/business development to do fulfillment, but Iā€™m getting better. I am also experimenting with value-priced services that have a much higher effective rate while still providing tremendous ROI for clients. Understanding the value you provide and charging accordingly will be critical to your success and longevity as a consultant.

Consulting is incredibly cash-flow positive and profitable. And you will get yourself into trouble if you do not manage that cash flow; set money aside for the eventual big tax bill; set aside money for large, necessary future purchases (e.g., software renewals); avoid unnecessary large purchases that you tell yourself are necessary or will really help you grow your business but arenā€™t or wonā€™t; and avoid unnecessary small purchases that can really add up. Doing so will be critical to your success and longevity as a consultant.

To help implement that last point, I recommend Profit First by Mike Michalowicz. While many of the examples in the book relate to businesses who charge too little and spend too much, as noted above, that likely isnā€™t the problem youā€™ll face as a consultant. But the book is helpful in getting you to think like a business should think and to distinguish between:

  • Profit (the reward for the risk you take as a business owner) and the purposes it is meant for
  • Compensation (the money you get for doing the work in your business
  • Money set aside for taxes and other big, irregular needs
  • Expenses - The money you allow for yourself to use to operate your business

In 2012, my largest client at the time declared bankruptcy on very short notice, not long after they had asked me for even more of my time, which I obliged to do, while falling behind on my invoicing. So many painful lessons in that one experience. Once the bankruptcy court was through, they actually asked me to pay them a substantial amount, never mind what they owed me for work done and expenses accrued in their name. You obviously want to avoid being in that situation, and you want to have a contingency fund.

I rambled on a lot more than I planned to. I hope itā€™s coherent.

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#2

I started MuleShoe Engineering in 2003 (sole proprietorship, since incorporating did not protect me from a lawsuit against my license, my lawyer and I felt that the cost of setting up an LLC and the reduction of financial flexibility were not worth it) and have made way more money than I ever thought possible. Robā€™s point about putting money aside for taxes is crucialā€“the first time I got a $100k+ tax bill I was REALLY glad that I had about 5% more than I needed in my tax account.

Iā€™ve found that the only way to grow a very specialized engineering consultancy is through personal relationships. Iā€™ve tried a bunch of search engine optimization (SEO) techniques and none of them are terribly effective for a very technical business. My approach was to put high quality content on my web page (http://www.muleshoe-eng.com/Samples.html) and let word of mouth carry my name. I get about 200 hits on my web page a day, effectively zero by Amazon standards, but a pretty huge number for a one-man firm. I also give away a bunch of my time. I get cold calls every week from people who want specific answers to their questions, and I do my best to answer them, many of them turn into clients. I also get a lot of calls from people who want to argue with me about positions I take in my book or magazine articles, Iā€™ll spend hours accommodating them and occasionally Iā€™ll change an opinion, and sometimes theyā€™ll turn into clients.

Unless your business is focusing on retail (which seems to be a great way to starve to death), stay away from Yellow Pages, Yelp, Google, etc. I paid a bunch for those sorts of services for several years and got a LOT of calls from people who wanted to pay $25 for $50k worth of work because we all know that ā€œthe definition of ā€˜easyā€™ is ā€˜someone else has to do itā€™ā€.

I worked for a major Oil & Gas company for 23 years after completing 6 years of military serviceā€¦ I feel like those nearly 30 years were simply my apprenticeshipā€“time spent getting qualified for what I was meant to do. I would encourage anyone willing to pay their dues to do it. There have been engineers who got their P.E. at the very first opportunity (about 5 years out of college) and immediately started engineering firms. Most have not ended well. Some have.

David Simpson

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