Figuring Out Your Billing Rate as an Independent Consultant

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Figuring Out Your Billing Rate as an Independent Consultant

Too many solopreneurs undercharge for their expertise. They don’t know to add a hefty margin to cover things like self-employment tax, business expenses, health insurance, and nonbillable time spent on business administration. Or they haven’t raised their rates consistently over time, or they haven’t switched to a fixed fee. This article explains how to determine your “base rate”, and the external factors that will impact your pricing. …

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5 Steps to Becoming a Millionaire as a Solopreneur

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5 Steps to Becoming a Millionaire as a Solopreneur

Financial stability is one of the top concerns when considering self-employment. Cash flow will be erratic, and it takes time (sometimes years) before you feel confident about making a living as a solopreneur. Becoming a millionaire while self-employed can seem unlikely, yet I did it without really trying. Here are my five steps to becoming a millionaire as a solopreneur.

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To Boost Your Business, Track Your Time (Nearly All of It!)

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To Boost Your Business, Track Your Time (Nearly All of It!)

Management guru Peter Drucker once said “you can't manage what you can't measure.” I prefer to say, “Anything that’s measured can be improved.” By tracking (measuring) how you spend your time, you can increase your effectiveness, your income, and even your quality of life.

Time is one resource that’s truly irreplaceable...once it’s gone, it’s gone for good. Read more for tips on why you should track your time, what time to track, and how to make it happen.

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Now is the Best Time to Raise Your Billing Rate

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Now is the Best Time to Raise Your Billing Rate

The best time to raise your billing rate is on the cusp of something new — a new year, new project, new client. With the new year just around the corner, now is an excellent time to inform your clients. This article offers explains how to raise your rate, as well as some sample language …

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The PRO Act Will Limit Your Ability to be a Self-Employed Consultant!

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The PRO Act Will Limit Your Ability to be a Self-Employed Consultant!

If you’re self-employed, or thinking about it, or you know someone who is self-employed, THIS IS IMPORTANT! We need to take action now to protect our right to be hired and paid on a business-to-business basis as independent contractors.

On March 8, 2021 the U.S. House of Representatives passed the PRO Act that includes the “ABC Test” that’s part of the controversial California law AB-5. The ABC Test is a huge problem for us as independent consultants because part B states that an independent contractor must perform work that is outside the usual course of business of the hiring entity. This means that as an independent consultant, you can't subcontract to another consulting firm, nor can you hire subcontractors to help you with your own consulting work. Instead, you would have to be hired (or hire others) as a temporary employee on a W-2 tax basis, not on a 1099 tax basis. This is a big deal for us as self-employed professionals because how you are paid affects how much tax you owe…

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The Perfect Time to Raise Your Consulting Billing Rate

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The Perfect Time to Raise Your Consulting Billing Rate

The easiest time to raise your rate is on the cusp of something new — a new year, a new project, a new client. With the new year just a few weeks away, now may be the perfect time. This article offers ideas of how to do this, as well as some sample language to use when notifying your clients.

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Cash Flow Relief for Independent Consultants: the CARES Act & Other Ideas

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Cash Flow Relief for Independent Consultants: the CARES Act & Other Ideas

We’re in an unprecedented situation because of the COVID-19 coronavirus, and the economic fallout has been drastic for many business sectors. For us as consultants, the effects are likely to be more gradual but our income will likely be affected.

This article explains your options for cash-flow relief, whether you need it immediately or in the near future, and how to get it. I have summarized how the new Coronavirus Aid, Relief, and Economic Security (CARES) Act applies to self-employed management consultants, whether you’re a single-person entity (sole proprietor, LLC or S-Corp) or if you’re a small business with employees or subcontractors. However, lawyers and accountants are still reviewing this 880-page law so it will be some time before we know all the specifics. Moreover, how it applies to you will depend on your specific situation. Nonetheless, this summary should help you decide whether to consider pursuing any of these options.

There are several ways to get some cash-flow relief to help you pay your bills in the near term as a result of the $2 trillion CARES Act…

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Avoid W-2 Status and Extra Tax: Become a Licensed Business

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Avoid W-2 Status and Extra Tax: Become a Licensed Business

One of the benefits of being self-employed is paying less tax than you would if you were paid like an employee on a W-2 tax basis. If you’re smart, you’re getting paid on 1099 tax basis, deducting your business expenses, and contributing to your own retirement plan to lower your tax bill. (This two-minute video explains how this works.)

But California’s new law, AB5, is making it harder to qualify as an independent contractor and get paid on a 1099 tax basis. Even if you don’t work in California but do business with a national corporation, you’ll likely have to follow these new rules because …

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Negotiation Tips for Independent Consultants

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Negotiation Tips for Independent Consultants

Negotiating is typically hard for everyone, but it’s especially tough for consultants. It’s our nature to make the client happy, so negotiating for a higher rate feels awkward. But when you’re self-employed, even the smallest increase in your rate can translate to big bucks, particularly if the rate is for a long project, or if you’re working with an ongoing client.

I recently discovered a series of practical tips on Instagram, of all places, by following Johanna Voss, owner of a boutique talent agency for female influencers and keynote speakers. With her permission, here are her three essential negotiation tips that every consultant should know.

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Is It Time to Consider a Fixed Fee for Your Consulting Services?

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Is It Time to Consider a Fixed Fee for Your Consulting Services?

Generally, the more experience you have as an independent consultant, the more likely you should move from billing by the hour to a fixed fee. At some point you’ll master your specialty and work much more efficiently than others. This means to earn what your services are truly worth, you’ll have to keep raising your hourly rates. But at some point, you’ll reach an invisible rate ceiling when clients think you’re too expensive, even if it takes you half the time to do the work.

When you reach this point, it’s time to start thinking about billing for your services by the project instead of by the hour or day. The idea is to price the project as if you’re going to do it from scratch, even though you know you’re going to adapt plans and materials from prior projects. By doing so, you’ll boost your income per hour.

Here’s an example…

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How and When to Raise Your Consulting Rate

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How and When to Raise Your Consulting Rate

The easiest time to raise your rate is on the cusp of something new — a new year, a new project, a new client. With the new year just a few weeks away, now might be the time. This article offers ideas of how to do this, as well as some sample language to use when notifying your clients.

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What To Do If Your Client Doesn't Pay

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What To Do If Your Client Doesn't Pay

It was bound to happen. After 15 years and hundreds of contracts, I finally had a client that didn’t pay, and didn’t pay, and didn’t pay. For six months there was one lame update after another. “We’re working on it,” or “We’ve switched to a new process.”

Yesterday, my bank finally received the wire transfer. Here’s my story, what I learned along the way, and steps you can take if you find yourself in the same situation.

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How I Became a Millionaire as an Independent Consultant

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How I Became a Millionaire as an Independent Consultant

Recently I logged into my retirement accounts and was surprised (and pleased!) to see that I had crossed the million-dollar mark. I don’t consider myself rich. In fact, money is usually tight at the end of the month. Yet my bank account says I’m a millionaire.

How did I do this? How can other self-employed consultants become wealthy too? Reflecting on my years as an independent consultant, I’ve boiled it down to five keys to success. (Sidebar: People define success differently. To me, having a million bucks in retirement savings is only one part of my total wealth. I also have a comfortable home, I’m healthy, and I have terrific relationships with family and friends. But I digress.)

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How to Figure Out Your Consulting Bill Rate

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How to Figure Out Your Consulting Bill Rate

Dear Liz, 

I have a quick question. I know a consultant who is going to do some work designing a company’s program for high-potential employees. The consultant has talent but not much experience. What hourly rate would you consider low, fair, too high? Can you ballpark this for me?

- Louis

Although the question is brief, a helpful answer is not. Pricing consulting services is notoriously difficult, particularly for self-employed consultants. You need to consider the real and perceived value of your services, expertise, and experience, as well as geography and market conditions. Several factors need to be considered:

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How Tax Reform Affects Independent Consultants

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How Tax Reform Affects Independent Consultants

Everyone has questions about the sweeping tax reform that became law at the end of last year. As a coach and champion for independent consultants, I went on a fact-finding mission to answer two important questions: 

  1. Are self-employed consultants still better off being paid on a 1099 tax basis as a business or on a W-2 tax basis through a third party?
  2. Is there a tax advantage to how independent consultants structure their businesses — as a sole proprietor, LLC, S corp or C corp?

Here’s what I learned after too many hours of research and talking with two CPAs and a lawyer. (Disclaimer: I am neither an accountant nor a tax lawyer, so I’m not qualified to give tax or legal advice. I’m simply trying to help self-employed consultants understand how the changes in tax law may affect them, so they — you — can have a more productive conversation with your tax professional.)

Key Findings

A. The answer to my first question is yes. It’s still better to be paid on a 1099 tax basis because you can still take business-owner tax deductions, possibly in addition to the new 20% deduction (more on that below), and you can still take advantage of better retirement options like a SEP-IRA to lower your taxable income. (See “Friends Don’t Let Friends W-2”TM for more information.)

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Why Friends Don't Let Friends W-2

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Why Friends Don't Let Friends W-2

As an independent consultant, does it matter how I get paid?”

Absolutely! In the U.S., being paid on a 1099 tax basis as a business instead of on a W-2 tax basis like a temp worker makes a huge difference to your profitability for two key reasons:

  1.  You pay less tax.
  2.  You save more for retirement.

Here’s how I figured this out.

Several years ago, as an independent consultant I did my taxes two ways using TurboTax® software. The first used my legitimate tax return that showed I was paid on a 1099 basis. In other words, I had received 1099 tax statements from my clients for that tax year; I did not have any W-2 tax statements. On this tax return, I took standard business deductions (for example, for my home office, supplies, and mileage), and I factored in my retirement contribution to my SEP IRA (Simplified Employee Pension).

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Setting Up a Foundation for Consulting Success

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Setting Up a Foundation for Consulting Success

This article covers two sides of the same coin for independent consultants: how to set up your business for success and what expenses to track to pay less tax. They're interrelated. Let’s tackle the tax question first.

What do I need to keep track of so I pay less tax?

Here’s a short list of the most important things and some tips to make it easier.

  1. Have a dedicated credit card that you use only for business expenses. Use this card for anything you can think of related to your business, such as parking, tolls, cell phone, internet, office supplies, etc. Even if you work from home, what would you normally buy if you were in an actual office? These business expenses will be deducted from your gross earnings to lower your taxable income. If you can, pay your health insurance with this same card since it too will be tax deductible.

Tip: Download the credit card's year-end summary so you have a spending breakdown by category. Or you can download the transactions into a tool like Quicken each month and categorize the expenses there. (You’ll have to break them out by category on your tax return.)

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Self-Employed? Lower Your Tax Bill!

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Self-Employed? Lower Your Tax Bill!

Tax season is probably the most important time for independent consultants to think like business owners. This especially means being smart about how we handle our money. Our motivation is simple: pay as little tax as possible, ideally without triggering an audit. We all should be asking ourselves (and our accountants) this question:

As a business owner, what can I do to lower my tax bill? 

The answer is to maximize your tax deductions for this year and take steps to reap tax saving benefits every year. This article touches on the first and explores the second in depth.

For the Near Term: Take Standard Business Owner Deductions

You don’t have to have a legal business structure like an LLC or S-corp to take advantage of standard business-owner tax deductions. Sole proprietors qualify for deductions too, even if you only consult part time.

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