How to Start a Small IT Consulting Firm

Running a Small IT Consulting Firm John R. Hoffler Lessons from the Field January 21, 2010 Charlotte, NC

Starting the Business Collaborating with Co-founders Choosing a Business Entity Type Corporate Organization The First Meetings Strategic Planning Determining Fees and Rates

Collaborating with Co-founders Protect everyone with a confidentiality agreement Each participant should sign an agreement with the firm The agreement defines what is considered confidential information and how such information may be used The agreement defines damages and remedies associated with confidential information Establish the value of each person’s contribution to the company Money Contacts and clients Technical expertise Management experience

Choosing a Business Entity Type

Limited Partnership Two types of partners: general partners and limited partners. The general partners manage the business and are subject to unlimited liability; that is, the general partners are personally liable for the debts and obligations of the partnership. Generally, limited partners are not personally liable for the debts and obligations of the company.

Limited Liability Partnership Also called a registered limited liability partnership (RLLP), is a type of general partnership. Frequently businesses that provide professional services, such as law firms. Does not have “limited partners,” but a general partner is nevertheless NOT subject to personal liability for the malpractice of another partner unless he or she participates with or is responsible for supervising the partner committing the malpractice.

Limited Liability Company Has some of the characteristics of partnerships and some of the characteristics of corporations. May be organized to avoid “double taxation” which frequently accompanies a corporation. The owners of a limited liability company are called members. Managed by the members or by managers who may or may not be members. Members enjoy “limited liability.”

Corporation Has legal status or existence that is separate both from the individual(s) who forms it and its owners (stockholders) An artificial entity offering limited liability that protects the personal property of its shareholders

Articles of Incorporation Corporate name – don’t include words like: Cooperative / Co-op Insurance Architect / Architecture / Architectural Engineer / Engineering Registered office and agent Incorporator Principal office

After Articles are Filed Hold an organizational meeting Obtain tax identification number from NC Department of Revenue Obtain tax identification number from IRS Set up a bookkeeping system Open a bank account Find out schedule for ongoing filings: annual report tax withholding

Directors, Officers and By-laws All corporations must have an organizational structure and rules or bylaws by which they are managed. The organizational structure is comprised of directors and officers, which handle the internal management of the corporation. The internal management of the corporation is regulated by the corporate bylaws and the Articles of Incorporation.

Directors Directors are those persons who are responsible for the management of the corporation. A corporation is required to have at least one director, or it may have more. The Articles of Incorporation or the bylaws may contain provisions for electing the directors. The directors are elected or appointed in the manner and for the terms as provided in the Articles of Incorporation or bylaws.

Officers The day-to-day management of the corporation is provided by the officers of the corporation. The officers are elected or appointed as prescribed in the bylaws and their performance is overseen by the directors. If there is no such provision for their election or appointment, the officers are usually elected or appointed annually by the board of directors. The officers usually consist of a president, one or more vice-presidents, a secretary, a treasurer, and any other officer deemed necessary.

Organizational Meeting Meeting of the incorporators Accept certificate of incorporation Accept by-laws Grant stock

Shareholder Meeting Meeting of the owners of the corporation Accept certificate of incorporation Accept by-laws Elect Board of Directors

Board of Directors Meeting Elect chair and secretary of the board Appoint corporate officers Establish salaries of the corporate officers Authorize bank account(s) Authorize debt

By-Laws Establish organizational objectives Establish structure of shareholder meetings and votes Establish structure and process of Board of Directors Number of directors Election, impeachment, and resignation of directors Meetings and votes

By-laws (cont.) Operating committee Define roles Election, impeachment, and resignation of officers Meetings and votes Ad-hoc committees Fiscal and financial policies Amending the by-laws

Strategic Planning Vision Statement Mission Statement Organizational Values Environmental Analysis (SWOT) Long Term Objectives Plan Goals and Implementation Financial Projections and Analysis Critical Success Factors Controls and Evaluation

Billing Rate Honestly evaluate your skill level Research full-time employee salaries and contractor billing rates in your area Calculate annual gross presuming: You pay yourself 60-65% of your billing rate You bill 1500 hours per year or less Think about whether you can live with that number!

Fixed Price Contracts Calculate how long the project will take, given a reasonable number of setbacks. Multiply by your billing rate. Calculate how long the project will take if you are “quite unlucky.” Multiply by a discounted billing rate (e.g. 50%). Calculate how long the project will take if everything goes your way. Multiply by a premium billing rate (e.g. 150%).

Fixed Price Contracts (cont.) These three prices should be in the same ball park If not, the project may be too risky to accept Average the three prices

Contact Information John R. Hoffler, Jr. [email_address] http://www.techalliant.com

How to Start a Small IT Consulting Firm

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