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Consulting as Transition into RE
Old 07-24-2015, 11:55 AM   #1
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Consulting as Transition into RE

I am considering some consulting work to medicate my OMY issues and transition into real RE. This would likely be at a management level with IT/IS/process/systems overtones, possibly some actual software work at some point.

I have read and research this option some in the past, including here. But, my questions to those who have actually already been down this path (or, have close relationships with others who have):
  • Sole proprietorship, LLC, C-corp or other?
  • Any specific gotcha's on this road?
I am hoping this will not only help me but also any others considering such a path.

Thank you.
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Old 07-24-2015, 01:16 PM   #2
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I have only been doing consulting work for the past year or two, so there are probably others out there more qualified / experienced than me who can give betters answers. But here's my two cents.

I just went the sole proprietor route. Seemed easiest and quickest, plus I didn't really see any major benefits to other business structures considering my situation. I just do part-time work on an hourly basis for a few clients, and I have very few expenses and no other employees or vendors, etc.

There are no gotcha's really when it comes to consulting, but I would recommend getting very familiar with paying quarterly estimated taxes (both federal and state). For me, this has been the biggest change and the biggest hassle by far. I would also recommend only dealing with clients that you are pretty sure you can trust and that are financially sound, because I can tell you from my experience that getting paid in a timely manner for your work is occasionally tricky even with "good" clients.
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Old 07-24-2015, 01:19 PM   #3
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BTW, love your screen name, CoolChange. That's one of my favorite songs from the 70s and now it's stuck in my head!
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Consulting as Transition into RE
Old 07-24-2015, 01:19 PM   #4
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Consulting as Transition into RE

I did a 9 month on-site consulting gig after being in ER almost 2 years. For me it was less about OMY syndrome and more about topping off my portfolio while doing something new in another part of the country for a while (Scottsdale in winter-nice!)

I kept it simple, just set myself up as a sole proprietor. I did tuck away a lot of money in a self-employed 401(k). One can shelter a lot of income this way. I used Fidelity, and was very easy and straightforward.

While the consulting gig was a good experience overall, I was so relieved when it was over! From the time of my last day there a year and a half ago until now I have not once considered ever going back to work, on either a part-time or full-time basis.




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Old 07-24-2015, 01:51 PM   #5
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I began consulting the month after I retired from my state job and have continued for the past 4 1/2 years. I love it. I mostly work from home but do occasional on-site work, usually about twice a year for 2-weeks at a time. Sole proprietorship here as well. No emplyees, just me. Paying the quarterly taxes is painful It's one thing for taxes to be paid in bits and pieces out of each paycheck - you never really see that money. But to sit down and write out checks for large amounts 4 times a year hurts.
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Old 07-24-2015, 02:01 PM   #6
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Just one piece of general advice: get a good accountant the first year or two. Good investment to avoid rookie mistakes and have time to learn what to do things admin & tax wise.

After that you can take over yourself or pay for the convenience.

Other than that (ok, two pieces of advice), make sure you have good liability limiting clauses in contracts you sign, and consider some insurance against it (depends on entity structure, but e.g. director's liability comes to mind).

Of course, getting clients, making them happy and keeping them is most important but out of scope in this discussion I guess
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Old 07-24-2015, 03:32 PM   #7
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I did some full-time limited duration and some half time consulting from home for a couple of years after I retired. Just a few projects for a past boss. I was a sole proprietorship, which seemed the easiest. The taxes were easy with Turbo Tax. I set up an Individual 401k and was able to put just about all my income in there tax-deferred. Be sure to look into that.

I felt OK knowing that the work was temporary or half time. It was interesting, and I still had time for other stuff.
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Old 07-24-2015, 10:51 PM   #8
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sole proprietorship is fine if you have no employees
With individual 401K (Vanguard has them) you can shelter up to approx $55,000 per yr.
Get "Error and Omission" liability insurance (and search around as quotes range from x to 2x).
I find turbo tax is useful, no accountant needed, just read a couple of books on self employment.
Keep records of purchases (stamps, envelopes, computer, etc) and (keep images of receipts as they will fade away).

Biggest gottcha is many IT folks get gigs via headhunters without realizing headhunters add on 25%-100% to the fee when charging clients. So to be clear, if the programmer makes $50/hr the client is charged up to $100/hr.
Getting gigs privately means you can charge the headhunter rate
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Old 07-27-2015, 08:23 AM   #9
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Thank you all for taking the time to help me with this. I did take some time this weekend to completely disconnect and think about whether I really wanted to do this (consult with my soon-to-be prior employer).

Like truenorth418, I am actually leaning toward just wanting it to be over; but, I still have the OMY issues with walking away from the money and a project or two that I might actually want to do.

The advice on getting an accountant and liability insurance is useful. Yes, I should know this; but, reinforcement it good.

I know that it's time for a cool change. (There are definitely worse songs to have stuck in your head, Sojourner. I've been know to have this one on a short list of repeats in my car.)
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Old 07-27-2015, 09:38 AM   #10
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I started consulting 2.5 months after my golden handshake at age 49. With every contract, I spelled out that I would be spending an hour each day on personal stuff, mostly networking for the next job. After 10 years, I did retire.

Those last ten years did more for my savings that any other 10 years! And the variety of work was very satisfying.
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Old 07-27-2015, 09:48 AM   #11
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I work as a sole proprietor, and have for a very long time.

Liability insurance is costly, depending on the line of business. If a contract requires it, I look into the cost and decide if it makes sense. IOW, will I still make enough profit to be satisfied with the experience? If so, I purchase E&O insurance for that contract. For the rest of the time I have a business use rider on the home insurance policy.

In your situation, where you might manage the security posture of a company from outside, the risk is high, I would say. E&O would be priced higher, but I am just guessing.

Accountant is helpful, but not essential. What is important is to track your business-related expenses. Open a separate checking account, for example. Get a separate business credit card. Depending on the complexity of your business, you may need a spreadsheet, or business software.

Even more valuable than an accountant is an experienced tax preparer who is an accountant. Doesn't have to be a CPA, but that is an added benefit. The tax preparer should have EA status with the IRS.

When you're a small fry even small decisions and purchases can sway the business profitability. So it is extremely helpful to know how much your expenses will be, and how much you are left with after taxes, bills, etc.

After you terminate the employee relationship, leave the door open. There are other possibilities as you will find out as you network.

My ex (love the way that sounds) put out a job request tailored to my skills. The terms were so poor that I just left my best and final on the table and told them my door was always open.

As expected, I have been able to stay as busy as I want, and make a rate that is in line with my profession experience. Sometimes it is temporary work on W-2, and sometimes contracted 1099 arrangement. I'm sure you'll be able to do the same.
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Old 07-27-2015, 10:30 AM   #12
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I did 1099 work between W2 gigs a while back. The only work I got was from clients of my former W2 gigs...I never was motivated to find the next gig. So that's my big gotcha...depending on your network and the demand for your particular skill and your motivation to sell yourself, you may or may not be working. That might be a good cure for OMY.
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Old 07-27-2015, 10:40 AM   #13
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I did this and may go back to it.

I'd like to add. Set up a separate bank account. Maybe this is a no brainer and that's why it has not been mentioned. I would deposit checks in this account and withdraw no more then 70%, I left the rest for taxes. Also, log your mileage. It's amazing the driving you have to do for your business.
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Liability Insurance: Error and Omission, etc.
Old 07-28-2015, 02:40 PM   #14
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Liability Insurance: Error and Omission, etc.

A couple of people have mentioned liability insurance which I should probably investigate.

For those of you who have been down this road, did you use a business insurance broker, add a rider to your personal umbrella policy or do something else for this coverage? Basically, where should I look for a reasonably priced policy that will actually provide some protection if I should need it.

My consulting would be likely be on the system design, sales, solution architecture end more than actually writing and installing systems if that matters.
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Old 07-28-2015, 03:31 PM   #15
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I use a small business broker that I had earlier dealings with. Not really helpful for you, i'm in Europe with a very different landscape.

I did (and do) keep all business and private things strictly separate, gives me more comfort. So no umbrella and separate bank accounts, contracts, brokers etc ..

The line of business you do affects your risk premium and you can go without in your type of activity, but the tail risk is there and why take it?Especially in the usa.

For your type of activity a generic policy will likely do. And most likely a specific policy or company will exist specializing in either self employed consulting or the ict sector (as in europe). Ask around

Source: not licensed to give advice on insurance but have done corporate legal and insurance procurement for companies, listed and private. And myself
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Old 07-28-2015, 10:18 PM   #16
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I'll save you the searching for liability insurance, this company does it, and its the same company that many other companies will use after they take 2x the fee.
You can go direct, and the cost is not much for O&E coverage.
Plus be honest when you started the business (last yr, or 3 months ago) as they give a nice bonus to you.

Liability Insurance for small businesses | Hiscox

Its free to get a quote, and I'm just a happy customer.
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