The Charge as a Consultant

If you owned a retail store, a restaurant, or sold products online, figuring out pricing would be relatively straightforward: take the price you pay for the product, add in all of your indirect overhead costs, and add in your profit margin. If you expect to make a 50 percent gross margin, and your total product cost is $20, the retail price would be $30. Simple, right?

But if you’re selling a service, it’s different. You aren’t buying a product and reselling it. You’re not paying a set amount for something, so it’s not nearly as easy to measure your costs. Your “cost” is the value of your time and knowledge and/or your staff’s time and knowledge. That’s all well and good, but placing a value on time and knowledge is pretty subjective.

The Numbers

Despite the subjective nature of service pricing, we still have to look at our numbers. No matter how small your business is, you have overhead costs. Service industry business owners might not be so vigilant controlling costs when its’ only small amounts of money. But the costs of doing business can be quite significant when you add them all up.

Paying $20 per month to use an email marketing service is a relatively inconsequential amount of money, for instance, but what about all those Chamber of Commerce and other small business association memberships? You’ll have ongoing expenses, too, for your phone service, Internet access, and office supplies. You might have to take clients out to dinner, upgrade your software, or have a computer repaired or replaced. And what about the money you pay an employee or virtual assistant to answer your phones, send out invoices, and do other chores? These and other costs of running and managing your business all need to be accounted for, even though they can’t be allocated to any one job.

The bottom line is that you’re not as different from product oriented business owners as you might think. You, too, need to keep track of and control costs.

First, Set Goals

How much do you want to make annually and how many formal hours do you want to work to reach that goal? This is more of an “in a perfect world” type of goal but it will at least get you started. If you want to make $75,000 this year and you want to work 40 hours, and don’t plan to take any time off for vacation or holidays, you only have to charge about $36 an hour to reach that goal.

Does that seem a little low? If you have specialized knowledge, and charge $90 per hour and worked 40 hours per week, that’s almost $184,000 annually. Much better.

SEE ALSO: How to Land Your First Consulting Client

Second, Look at Industry and Regional Trends

Every professional organization keeps detailed data on industry trends. You can find information on plenty of blogs but if you’re in a professional business, you should belong to your industry’s professional organization. Ask them for these figures.

If the market and your geographic location (if you work locally) will support $90 per hour, you know that making a six-figure salary is within reason.

Third, Think About Non-Billable Hours

If you’re charging by the hour, time is money. Non-billable hours include anything you do with your 40 hours a week that can’t be billed to your client, and therefore produce zero income. Some examples: paperwork, traveling, networking to market your business, talking to vendors or partners, etc. These non-billable activities can easily take up as much as 50 percent of your time. If that’s the case, your $184,000 salary just got slashed to $92,000 before you account for any out-of-pocket costs for running your business.

Who are Your Clients?

Let’s look at two types of service-oriented entrepreneurs. The first is somebody who owns a house cleaning business. He works with busy professionals that want somebody else to clean their home instead of committing precious time to doing it themselves. Most of his clients are people slightly above the average American income.

Second, a corporate IT Consultant that advises businesses on network security. Her clients are larger businesses that rely on her to keep its data safe.

Obviously, the first entrepreneur can’t charge as much because his clientele is more money conscious. If he tried to charge $150 per hour, he would have very few clients. The IT consultant’s clients are people who understand that losing data is far more costly than the money spent to protect it. She can charge a lot more. Consider your client base.

SEE ALSO: Six Strategies to Get Paid What You’re Worth

Your Experience

As you gain experience and notoriety, your prices will go up but understand that at the beginning, you probably won’t be paid what you’re worth. Most consultants will start at a lower cost than the average and slowly raise prices. Don’t get too greedy too soon but don’t undercut yourself either.

What is Your Main Business Goal?

If you’re charging by the hour, your consultancy service is likely your main source of income but if you’re using your consultancy business to sell other products, you might charge a lower rate on the service side to make sales on the product side.

Service oriented people know that diversifying their offerings allows for better price control. If you’re being paid to speak at events, write books, and you’re selling products related to your service, you know what seasoned service pros already know—charging by the hour is a hard way to make money and their hourly prices have to be higher.

Finally

Sometimes it comes down to knowing the market, knowing your competition, and falling in line with industry averages. Then, you organize your business around those rates. Each service field is different with some fields more price conscious than others. Know your industry, keep up with current trends, and you’ll reach your goals

Some Common Causes of Prevalent Tax Mistakes

Whether you’ve filed for an extension on your taxes this year, have waited until the last minute to complete paperwork, or want a better strategy for the future, chances are you could be doing a better job throughout the year to save on income taxes, says seasoned investment advisor Paul Taylor, a member of the National Ethics Bureau.

Forty-nine percent of Americans think they personally pay more than their fair share in taxes, according to 2013 Rasmussen reports.

“Come tax time, many of the other half could be doing more to legally and strategically save money,” says Taylor, an architect-turned-founder and owner of Capital Advisory Group & Tax Planners of Lake Norman and Capital Investment Advisors, Inc. (www.CapitalAdvGroup.com).

He cites mistakes that many taxpayers are liable to make now and in future years.

• Not knowing which tax deductions are available. Tax reform measures are enacted frequently by Congress, which makes it hard for U.S. taxpayers to know which deductions are currently available for maximizing savings. One of the most overlooked deductions is state and local sales taxes. Taxpayers may be able to take deductions for student-loan interest, out-of-pocket charitable contributions, moving expenses to take a first job, the child care tax credit, new points on home refinancing, health insurance premiums, home mortgage interest, tax-preparation services and contributions to a traditional IRA.

• Misunderstanding deduction value for medical expenses. The Affordable Care Act has altered the guidelines for tax-deductible medical expenses. Effective Jan. 1, 2013, the new policy increased the threshold for the itemized deduction for unreimbursed medical expenses from 7.5 percent of adjusted gross income to 10 percent of adjusted gross income for regular tax purposes. The increase is waived for individuals age 65 and older for tax years 2013 through 2016.

• Confusion when taxes must be paid on IRA and employer-sponsored retirement funds. Traditional IRAs and most employer-sponsored retirement plans are tax-deferred accounts, which mean they are typically funded with pre-tax or tax-deductible dollars. As a result, taxes are not payable until funds are withdrawn. Exceptions are the Roth IRA and the Roth 401(k) and Roth 403(b). Roth accounts are funded with after-tax dollars. That’s why qualified distributions – after age 59½ and the five-year holding requirement has been met – are free of federal income tax.

• Overlooking tax-advantaged investments. Tax-advantaged investments can include real estate partnerships, oil and gas partnerships and suitability, which refers to how appropriate an investment may or may not be to an investor. Two of the most common types of real estate partnerships, for example, are low-income housing and historic rehabilitation. The federal government grants tax credits to those who construct or rehabilitate low-income housing or who invest in the rehabilitation or preservation of historic structures.

• Uncertainty when accounting for gift taxes. The federal gift tax applies to gifts of property or money while the donor is living. The federal estate tax, on the other hand, applies to property conveyed to others, with the exception of a spouse, after a person’s death. There are several exceptions to gift taxes, including gifts of tuition or medical expenses that you pay directly to a medical or educational institution for someone else, gifts to a spouse who is a U.S. citizen, gifts to a qualified charitable organization and gifts to a political organization

Finance a Start Up Business

If you have been in the market recently seeking some type of financing for a new, start-up business, you are probably a little frustrated by now.

The thing is: Banks and most other non-bank or private lenders just do not lend money to start-up businesses. That is just the way it is.

They claim that the risk is just too high and their regulators or investors agree with them.
In fact, very few businesses last more than three to five years – the typical loan term for a standard business loan.

But, just like many businesses before you, there are ways to finance your new start-up:

First – always look to personal assets or personal means. Now, I know that you don’t want to hear this but if you don’t have any other choice and you truly believe in your business – then why not use your own assets or cash to get that business off the ground and making money?

You want a bank or lender to take a risk on you but you won’t take a risk on yourself – just does not seem fair.

Plus, I can guarantee you this: If you have your own assets at risk you will work harder and longer to make sure your business does succeed (which is the end goal anyways).

Second – other bootstrapping means. There are many ways to bootstrap your business besides using your own personal funds or assets. You might look into:

Crowd funding – while this might not provide a huge amount of money, it might provide enough to get started. Once started, other financing avenues will begin to open up.

Friends and family loans – your friends and family know you best and if you can’t sell your business concept and benefits to them then you will never be able to sell it to paying consumers. Even if your friends and family can’t or won’t invest in you, they may know of others who will – you just have to ask.

Micro credit lenders – backed by the SBA, these lenders provide more than just small amounts of capital – usually up to $35,000 with the average loan being around $13,500 – they also provide advice and guidance to help you better manage and grow your operation.

Third – Look to partners or investors. If your business concept is not in a huge market, has high and quick growth potential or has a lot of proprietary assets, then you will have to look locally. Get out and network in your community for other business owners or local investors.

You would be surprised at how many local or retired business owners just want to give back to their community and can provide more than just capital but can open up many other doors to you and your business. You just have to get out there and talk to everyone who will listen. And, don’t be afraid to ask. If you don’t ask, you will never get what you want!

While you might hear of others business owners landing some type of bank debt or professional investment to get their business started; also know that there had to be some outstanding circumstance or reason for it – like their uncle being the president of a national bank or as a favor to a well known family member or just simply that they have other sources of outside income that qualifies them for the loan.

The bottom line is that banks and other lenders just do not lend to start-up businesses.

In your early days, you really do have to go it alone. But, make it a challenge. Make it one of your goals to eventually qualify for that coveted business loan. This not only will help you financially manage your new business better (keeping items like cash flow, collateral, credit and debt ratios in mind) but, when you do get approved for your business loan, it will really let you know that your business has made it to that next level and on the right path to further success.

A true entrepreneur does not look at a failure to secure outside financing as a fatal obstacle to starting their new business but, in focusing on the long-term potential gains that business could provide, would easily utilizes these three steps and other self-funding means to get up and running as soon as possible.

As your business grows, more financing opportunities will open to both it and you – you just have to get started