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SMART ANSWERS
By Karen E. Klein
APRIL 13, 2000


What Does It Cost to Launch a Consultancy?

You'll find out by doing some legwork. One tip: Avoid long-term commitments until your company is viable

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Q:  I'm starting an e-business that will provide business-process reengineering and supply-chain management consulting. My partners and I need hard data on the costs of all the resources we'll need. I have personnel in mind, but I want to make sure that I'm not missing an important piece of the cost picture.

-- M.M., Richmond, Va.

A:  As a consulting firm selling services, your big expenses will be labor, marketing, and office space -- costs that generally vary from region to region. To get firm figures, you'll have to make the rounds of local providers. There's no getting around doing the legwork, though the Web makes it much easier to find the providers.

You and your partners may not need many employees at first. Experts recommend that you hire temps for such tasks as data entry and answering telephones until your business gets off the ground. (Expect to pay around $10 to $15 an hour). If sales slow down, you can cut back on the temps.

As a consulting firm, you'll have no direct-sales costs because you're offering a service rather than a product. Marketing is likely to be your biggest expense, especially early on. Draw up a marketing budget that identifies your target customers and how best to reach them. You may want to hire a firm to help you devise a marketing strategy.

"You should be able to do some effective marketing initially without spending too much, if you narrow your audience and use a direct approach," says Brad Cashion, managing director of Mentor Group, a financial consulting firm in San Diego. He recommends that you ask small local ad agencies for quotes on direct-mail campaigns, telemarketing, and trade-publication ads.

Unless you're working out of your spare bedroom, a major expense will be office space. Costs vary widely by region, and the only way to get concrete figures is to read the commercial rental listings in your area and call agents or landlords. One thing is for certain -- wherever high-tech businesses have proliferated, rents have skyrocketed.

If you set up shop outside your home, consider renting an executive office suite on a month-to-month basis until it's clear the company will be viable. Plug in the terms "office suites" and "Richmond, Va." on the search engine Google, for example, for listings. An office suite typically comes with shared support staff and equipment such as copiers for one monthly fee. You'll have to install phones and lines --- figure $2,000 to $3,000 for the equipment -- as well as your computers, servers, software, and office furniture. Once your future is more certain, you can consider larger spaces and longer-term leases.

Consult your local Small Business Administration or Service Corps of Retired Executives office (804 771-2400, ext. 131) for help in assessing costs in your area.


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