- Business consultants help companies overcome challenges, increase revenue or grow.
- It's important to ensure business consultants have experience and previous success with companies like yours.
- Business consultants may charge by the project, the hour, or daily or monthly retainers.
- This article is for entrepreneurs and small business owners considering working with a business consultant.
Running a small or midsize business is challenging simply from the sheer number of tasks it takes to succeed. From accounting to human resources to technical support, it's almost impossible for business owners to do it all themselves. But, thanks to the ease of hiring consultants today, they don't have to figure everything out on their own. Here's what a business consultant is and how one can help your business thrive.
What is a business consultant?
A business consultant is an individual with a wide array of skills through education and previous experience, assisting business owners with their endeavors. In addition, business consultants provide management consulting to help organizations improve their performance and efficiency. These professionals analyze businesses and create solutions while also helping companies meet their goals. Business owners should consider hiring business consultants when they need help or perspective on their chosen path or a catalyst for change in their companies.
What does a consultant do?
There are several reasons business owners should consider hiring consultants. Consultants offer a wide range of services, including the following:
- Providing expertise in a specific market
- Identifying problems
- Supplementing existing staff
- Initiating change
- Providing objectivity
- Teaching and training employees
- Doing the "dirty work," like eliminating staff
- Reviving an organization
- Creating a new business
- Influencing other people, such as lobbyists
The first step for any business consultant is the discovery phase, where the goal is to learn the client's business. A good business consultant takes the time to learn as much as possible about the business from the owner and employees. This can include touring the facility, meeting with the board of directors and employees, analyzing the finances and reading all company materials. During this process, the business consultant will uncover the details of a company's mission and what operations are in place.
Once the business consultant has developed an in-depth understanding of the company, they enter the evaluation phase, where the goal is to identify where change is needed. This phase includes identifying the company's strengths and weaknesses, as well as current and foreseeable problems. These issues can include problems that ownership and management have already identified, as well as new problems the business consultant discovers as a result of their objectivity. A business consultant should also identify opportunities to grow the business, increase profits and boost efficiency.
In addition to identifying these problems and opportunities, a business consultant should develop solutions to problems and plans for capitalizing on opportunities. Perhaps a company has a particularly strong sales department but a weak marketing department. This is an opportunity for the company to increase marketing resources and capitalize on the sales staff. During this phase, it's important for the consultant and the company's employees to maintain open, clear communications.
It's important for a business owner to take the business consultant's advice at this stage as constructive criticism. The owner should not take this criticism personally, as the business consultant brings objectivity and a fresh viewpoint. The owner may be personally close to the business, which can be an obstacle to positive change and growth. The owner should have feedback and provide opinions to the business consultant, which the business owner should consider and revise plans as necessary.
Once the owner and the consultant agree on a plan, the consultant should enter the third phase of consulting. This is the restructuring phase, or the implementation of the plan. In this phase, the consultant builds on assets and eliminates liabilities. They also monitor the plan's progress and adjust it as needed.
Types of business consultants
Strategy and management
These business consultants can bring industry expertise to your business to help you scale, acquire new opportunities and drive revenue. Consultants with a focus in strategy and management can help your business by:
- Expanding into new markets or increasing awareness in your current market.
- Reorganizing your business model to create a cost-effective strategy.
- Increasing your business's capabilities.
- Acquiring a new business venture.
- Merging with another business or changing your business's structure.
- Standing in as middle management during a transition period.
Business consultants with an operations specialization can help business owners improve the quality of their day-to-day processes. These business consultants take inventory of your current business model and figure out the best way to produce the same high-quality results at a fraction of the cost and time. Other ways these consultants help is through quality control and understanding how to tweak and optimize your production for better results.
A financial consultant can show you the wider scope of the financial health of your business. They mainly assist in investment decisions and helping business owners find the best way to handle their assets and debts. Financial consultants can also provide even further specializations, including financial planning where they advise clients on their taxes, daily expenses and retirement plans.
There are a number of HR consultant firms and independent contractors that can assist business owners in their HR needs. These consultants can take over the day-to-day HR tasks such as recruiting and retaining new employees, managing payroll, administrative tasks and performance management.
Marketing consultants help businesses to identify their strengths as a brand and expand upon them to create brand awareness and exposure. Whether your business needs a new logo or a social media strategy, a marketing consultant can be an asset in expanding your business' reach.
How to find a business consultant
Finding the right business consultant may be the most difficult part for the owner or management. The consultant should have a passion for their work, a drive for excellence and an eye for organization and detail. It's important to find a consultant who has expertise in your industry or experience with the kinds of problems your business faces. Also, make sure they have solid referrals.
In addition, ensure the business consultant has any necessary certifications that are relevant to your industry. You should vet the consultant through their website and materials. Look for professional images and well-documented information about their services and thoroughly review contracts and consultancy fees. It's a good idea to request examples of past successes and to speak to those businesses.
What is the typical background for a consultant?
The right background for the consultant you choose depends on your industry and needs. The U.S. Bureau of Labor Statistics notes that consultants can be management (business), scientific or technical. For example, if you want someone to help your company develop new proprietary software or computer-based workflow, you may engage a technical consultant. Outside of specific needs, companies usually work with management consultants to improve their bottom line, customer satisfaction or employee morale.
Regardless of the type of consultant you work with, their background is critical. It helps you understand how likely they are to improve your business. Here's what to consider when reviewing potential consultants:
- Do they have hands-on experience? This can be especially important in the business world. If someone came directly out of college labeling themselves as a consultant, do they really know anything more than you do? Consider looking for consultants who have successfully owned or run small businesses, enterprise organizations or specific departments.
- Is their experience applicable? A former bank CEO may seem impressive, but do they have the knowledge and experience to turn your cupcakery into a profitable small business? They might, but if you're also considering a former restaurant owner who now makes a living successfully helping small eateries grow, this consultant may be a better match for your business. Look for consultants who have worked in your industry and with businesses that match yours in style, size, needs and goals.
- What's their track record with consulting? You don't just want a consultant who has the right experience; you want a consultant who has demonstrated success with companies like yours. Ask for a portfolio or list of brands the consultant has worked for, and request references. Look for a consultant who has helped businesses overcome the types of challenges you're facing or who has grown businesses very similar to yours, and reach out to those companies to find out if they were satisfied with the services.
Business consultant FAQS
How much do business consultants charge?
According to the Bureau of Labor Statistics, management consultants make an average of $150,000 per year (or $62.93 per hour). But that's what the person "takes home" as income, and consulting charges are typically higher to cover business expenses. Consultants don't always charge by the hour. According to a consultant fee study by Consulting Success, these are some popular fee methods and the percentages of consultants who favor them:
- Per project – 34.2%
- Hourly – 27.3%
- Monthly retainer – 15.1%
- Daily rate – 14.1%
- Other – 9.3%
According to the study, 43% of consultants earn up to $5,000 per project, though some make more than $100,000 per project. Obviously, the size, scope and length of the project determine the cost.
Business consultants are a considerable expense, but their feedback and planning can help you increase business and boost profits while eliminating problems and identifying opportunities to ensure future success.
How do you measure the ROI of a business consultant?
You measure ROI by looking at certain key metrics to determine the worth of the consultancy services. Most companies look at their net profits in the quarter before hiring the business consultant, then evaluate their net profits in the next quarter or two after implementing the consultant's recommendations. You should deduct the cost of the consultancy before calculating the ROI.
Considering return on investment is an important part of hiring a business consultant. If you're paying a business consultant upward of $5,000, you certainly want to see an established ROI after the project. Established business consultants should be able to show their former ROI data to prospective clients. According to the Predictive Index, 27% of surveyed businesses chose not to hire a consultant because the consultant could not demonstrate ROI. This is the most frequent reason for companies not using consultancy services, and it falls on the consultant to use big data to demonstrate past ROI.
How do you know when to hire a business consultant?
Business consultants don't come in one size that fits all. You will need to evaluate your company in these key areas:
- Human resources
- Business strategy
- Compliance and regulations
- Financial planning
If your business struggles in any of these areas, then it's a good idea to seek out a business consultant. Keep in mind that business consultants specialize in particular business areas, so you should seek out a verified expert in the field. For example, don't hire an operations specialist if you need the most help with financial planning.
If you note any declines in profits that you can't explain, this could be another sign that it's time to hire a business consultant, who can pinpoint potential reasons for the decrease and ways to remedy them.