Building a computer consulting business requires a lot of time. It involves going out to meetings and it's shaking a lot of hands. You'll need to make a lot of follow-up phone calls. Display ads and direct mail drops and similar marketing efforts do not replace calling up a potential client to try to establish a person-to-person connection. Because of the required hands-on time, you should be realistic about what it takes to get your computer consulting business going.
Franchises Don't Serve Silver Platters
Even with a franchise operation, the franchiser is not handing you a client list on a silver platter. If you want to be handed a client list on one, don't buy a franchise: you need to buy a current business. And of course, buying a current business is even more capital intensive than a franchise. To buy even a small, thriving IT consulting firm could cost anywhere from a few hundred thousand dollars to a few million dollars… pretty much some multiple of its annual sales.
What Are Your Computer Consulting Business Start-Up Costs?
On the other hand, you can start your own consulting firm generally for as little as a few thousand dollars. What do you need? You need a business phone number and voice mail. You need a cell phone. You need business cards and legal licensing registrations. And you probably want to meet with an attorney and an accountant. You'll need some insurance. In many cases you can get started working out of your home office. Start-up costs are certainly higher with a franchise.
Franchises Aren't for Control Freaks
Another downside of franchise can be a loss of control. You have to do things a certain way and according to the established rules. And you can't step too far outside of that. Again, your company would be paying the franchiser a percentage of your company's revenue indefinitely. And you won't have as much flexibility in taking your business in a lot of different directions that you may want to.
The Bottom Line on Computer Consulting
Computer consulting has a few different options for start-up. You can start an independent business, buy a franchise or buy an established business, depending if you want to start from scratch or be handed a client list. A start-from-scratch computer consulting business requires more sweat equity than money.
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Computer Consulting: A Business of Time and Sweat Equity
“The Cons of a 50/50 Equity Business Partnership.”
This article could have been titled “The Pros and Cons of a 50/50 Equity Partnership”, but the cons far outweigh the pros. When partnerships are formed, the obvious concerns are addressed. How do each partner’s skills-set and experience complement each other? How much will each partner contribute to get the business going? How long will they grow the business until they entertain selling it? Is that it? … hardly.
Once the business gets going no doubt economic and industry variables change which affect the business. Each partner’s perception of the direction the business should go changes as well. There are constant decisions with regards to the mixture of product and service offerings … the decision to get into another line of business or get out of one. Should the focus be on a higher volume, lower profit margin business model or vice versa? What about a shift to a more capital intensive model. If the business becomes a success, many times potential investors creep in, whether an angel investor or venture capitalist. Both partners need to agree on the investment proposal.
What if one of the partners acquires an asset for the business whether it’s land, a building, a small data center, a thousand servers, or to complicate things further contributes an intellectual asset of some sort. When the company is going to be sold, what is the value of the partner’s contributed asset? Who is supposed to value it? This can become an insurmountable hurdle. Most buyers know not to value any one piece near what it’s worth by itself.
When it’s time to sell the company, the financial situation of each partner has no doubt changed since the company was founded. The consideration for the company could be all cash, all stock or a combination of cash and stock. The tax implications of each of the three scenarios are different for each partner. I have seen the process of divesting a company go up in smoke too many times because the partners didn’t agree on the proposed deal. They spent years growing the business then totally disagree about when to sell, who to sell to, and/or how much to sell it for.
Business is about return on equity, not “all for one and one for all”. My suggestion … one ship, one captain.