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There comes a point in every business when the owner realizes they need advice and wonders, “Should I hire a consultant?”

And, as with most things in life, the answer is, “It depends.”

Whether you’re starting a new company or growing an existing business, hiring the right consultant can be a cost-effective way for your small business to leverage specialized knowledge. Conversely, hiring the wrong consultant can cost you more than money—it can cost you a lot of wasted time and energy.

So, the challenge for a small business owner is to understand the role of a consultant in their business, and to learn how and when it is cost-effective to hire one.

What does a small business consultant do?

A business consultant is simply an outside expert you hire to solve an internal business problem. A good consultant is a great source of specialized knowledge. A great consultant brings knowledge, skills, experience, and process to improve the client’s condition.

Unlike in-house employees, consultants have independent schedules, may have multiple clients, and are hired on a contract/project basis. Depending on the consulting firm, consultants may work alone or may bring their own team, which typically includes one project manager and two analysts.

TIP: It is always important to clarify who the primary contact person will be in order to prevent miscommunications.  

A consultant can help with marketing and sales development, business expansion and improvements, and even execution of their ideas and recommendations.

The following is a quick snapshot of the consulting process:

Everything You Need to Know About Small Business Consultants

  • Pre-consulting: Prior to beginning work,  you and your expert set out the terms, parameters, and agree on the “consulting agreement”.

  • Consulting period: The consulting period typically includes a discover, research, and final presentation of recommendations that completes the project.

  • Post-consulting:  You and the consultant may choose to extend your agreement or move towards implementation on your own.

Why do people hire small business consultants?

Small business owners hire consultants as a cost-effective way to bridge a gap in knowledge and skills within their company, or a as a way to bring a fresh, objective, and professional perspective to the company.

Here are the three most common reasons why our clients turn to consultants for help:

  1. To find the problem(s): In many cases, a business may be exhibiting problematic “symptoms”, such as a decrease in sales, or cash-flow issues, and internal management in unable to pinpoint the source of the problem. In this case, a consultant can come in observe the symptoms within your operations, conduct some tests and research, and determine the root of the problem.

  2. To create the solution(s): In some cases, you may have a goal that you can’t achieve internally either because there is a skills gap or because it is simply not within your company’s core competency. Hiring a good consultant can save time and money, and ultimately achieve a better result.

  3. Optimization: In some cases, your company may have grown very quickly and know there are lots of things you could be doing better, but you don’t even know where to start. A consultant can come in and bring in some fresh perspective, evaluate any or all areas of your business, and determine the processes and procedures to increase productivity levels.

Where to find consultants

Finding consultants—I think—is the easy part. You can always search online directories such as elance.com or ask for recommendations from friends or service providers like your accountant or lawyer.

Finding the right consultant is the hard part. This is why I cannot stress enough the importance of the “mutual consulting interview”. Whether you talk to your consultant in person or by phone, a live interaction will tell you more about that consultant than any website or review will. Trust your gut. Is the person excited about your business, and about working with you? Do you believe they can achieve what they say they can achieve in the timeframe they quoted?

Now, having said all this, even with the best intentions there may be some consulting relationships that end up just not working out. When that happens, it’s usually a mutual feeling. In other words, don’t feel bad for parting ways with a consultant if things aren’t working out—chances are, they know it’s for the best, too.

Consulting agreements/contracts

Contracts are typically for 3-6 months, with the option to renew the contract as necessary.

TIP: Design your consulting agreement in phases that give you natural stops in the workflow, so that you can part ways with your consultant amicably if it ends up being a bad match.

Setting the optimal time period for your project is important to ensure your consultant has enough time to provide results, and it is also helps to ensure timely progress.

A typical consulting contract includes consulting parameters, names of the responsible parties, payment schedules, and any relevant deliverables and deadlines.

How much should you pay?

This is one of my favorite questions because the answer is quite simple: Price is determined by value.

Giving you the statistics on fees alone is not very valuable to you when consulting fees can range from $150-$10,000 per hour and projects fees can range from $1,000-$250,000.

Consultants vs. contractors

Often I am asked, “What is the difference between a $30/hr powerpoint writer from Craigslist and hiring an MBA at $300/hr?” While I wish the difference were obvious, lately, with the the terms “consultant” and “contractor” being used pretty indiscriminately, there has been some confusion about which means what. The following chart outlines the underlying difference in the value of a “consultant” vs. the value of a “contractor”.

Everything You Need to Know About Small Business Consultants

Understanding this key difference will not only help you get more out of your consultant but also help you have money by knowing when it is best to hire a “contractor”.

How to determine a budget

Ask yourself: How much is this worth to me? And: How much can I afford?

Here are three tips to help you determine the right budget:

  1. Look at percentages: A good way to determine the right budget for hiring a consultant is to set it as a fixed percentage of your total costs and/or sales. For example, if your monthly sales are $10,000, it is not wise to pay $5,000 per month to a consultant. On the other hand, if your monthly sales are $200,000, and you want that number to grow to $500,000, then $5,000 per month for a 6-month contract with a consultant sounds a lot more reasonable.

  2. Look at phases: If this is a complex project with a lot of uncertainties, look into reducing your risk by setting up in phases. For example, if you are looking to redesign your marketing efforts for several product lines, perhaps you should tackle each product line individually instead of all at once. This may not only lower the cost required to hire a consultant, but also reduce your overall need for a consultant—if you can learn from their approach to the first product line, you may be able to implement their strategies for the other product lines yourself.

  3. Talk to a consultant: Often a consultant can work with you for free to help you determine the right scope and budget for your project. Your preliminary discussions with a consultant are a great way to test the waters with your potential working relationship, too.

In conclusion

A small business consultant can help you run your business, by planning your business strategy and in some cases even executing it. I’m a big believer in small business consulting, because I see the positive effects of it every single day!

But not all consultants are created equal, and not all businesses or business projects are created equal, either. You’ll need to consider why you’re thinking about hiring a consultant, and how long you’re willing to wait before you see results, and how much you can realistically afford to pay for their counsel. Then, you need to find a consultant that you really click with. When all of that comes together, you’ve positioned yourself for success.