What Is a Business Consultant?
- Business consultants help companies overcome challenges, increase revenue and grow.
- It’s essential to work with business consultants who have experience and previous success with companies like yours.
- Business consultants may charge by the project or hour, or you may need to pay 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 because of 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, they don’t have to figure out everything on their own. We’ll explore what a business consultant does and how one can help your business thrive.
What is a business consultant?
A business consultant is a professional with a wide array of skills who assists business owners with their endeavors. Consultants are knowledgeable because of their education and previous experience.
Additionally, business consultants provide management consulting to help organizations improve their performance and efficiency. These professionals analyze businesses and create solutions while 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.
Why hire a business consultant?
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,” such as laying off staff
- Reviving an organization
- Creating a new business
- Influencing other people, such as lobbyists
What does a business consultant do?
Generally, there are three stages of a business consultant’s process: discovery, evaluation and implementation.
The first step for any business consultant is the discovery phase, where the goal is to learn about your business. A good business consultant takes the time to learn as much as possible about a business from the owner and employees. The consultant will do the following things:
- Tour your facilities.
- Meet with the board of directors and employees.
- Analyze your company’s finances.
- Read all company materials.
During the discovery phase, the business consultant will uncover the details of your company mission and current operations.
Once the business consultant has developed an in-depth understanding of your company, they enter the evaluation phase, with the goal to identify where change is needed. This phase includes identifying your company’s strengths and weaknesses as well as current and foreseeable problems.
- Examining established problems and identifying new problems: The consultant should study problems that owners and management have already identified. Because of their objectivity, consultants can also pinpoint new or unforeseen issues.
- Finding solutions: A business consultant should strategize solutions to the problems they identify and outline ways to capitalize on opportunities to grow the business, increase profits, and boost efficiency. For example, say your company has a particularly strong sales department but a weak marketing department. This is an opportunity to increase your marketing resources and capitalize on your sales staff.
There are two crucial elements to focus on during this process: communication and feedback.
- Communication: During the evaluation phase, your entire team must maintain clear, open communication with the consultant.
- Feedback: You and your team members should take the business consultant’s advice as constructive criticism. The consultant’s feedback isn’t meant to be personal. While you and your employees are personally close to the business, this lack of wider perspective can hinder positive change and growth; the consultant brings objectivity and a fresh viewpoint. Of course, you should offer your own feedback and opinions to the business consultant, but keep your mind open to new ideas.
Once your company and the consultant agree on a plan, the consultant should enter the third phase: the restructuring stage, or implementation of the plan. In this phase, the consultant builds on your assets and eliminates liabilities. They also monitor the plan’s progress and adjust it as needed.
Types of business consultants
There are various types of business consultants specializing in different business aspects.
Strategy and management consultants
Strategy and management business consultants can bring industry expertise to your business to help you scale, acquire new opportunities, and drive revenue.
Consultants with a focus on strategy and management can help your business do the following:
- Expand into new markets or increase awareness in your current market.
- Reorganize your business model to create a cost-effective strategy.
- Increase your business’s capabilities.
- Acquire a new business venture.
- Merge with another business or change your business’s structure.
- Stand in as middle management during a transition period.
Business consultants who specialize in operations can help you improve 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. These consultants also help through quality control and understanding how to tweak and optimize your production for better results.
A financial consultant can show you the broader scope of the your business’s financial health. They mainly assist in investment decisions and help you find the best way to handle your business’s assets and debts. Financial consultants may have even further specializations, including financial planning and advising your business on taxes, daily expenses, and the best retirement plans.
Human resources consultants
The best HR outsourcing companies and independent HR contractors can assist you with your HR functions. These consultants can take over your day-to-day HR tasks, such as recruiting and retaining employees, processing payroll, performing administrative tasks, and managing employees’ performance.
Marketing consultants help businesses 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’s reach.
What about consultant firms?
While you can hire an independent professional, you can also engage the services of a specialized firm for your consulting needs. Big firms like McKinsey & Co. and BCG wouldn’t necessarily fit a small business’s needs and budget, but a local firm might work well.
To start, run a Google search on your pain point and location – such as “Seattle brand strategy firm” – and examine your results. The search will likely bring up firms you’ve never heard of before, but a closer look at their projects and client reviews can help determine if they’d be a good match. Additionally, hiring a local firm means you have a better chance of finding someone you know or previously crossed paths with on their client list.
These are some pros of a consulting firm:
- Extensive resources
- Multiple professionals’ expertise
- An established brand with hundreds of references
These are some pros of individual consultants:
- Flexibility in scheduling and location
- Ability to dedicate their full attention to your case
Whether you should select a consulting firm or individual depends on your business needs and preferred work style.
How to choose a business consultant
Choosing a business consultant who fits your business needs can be a daunting experience. Whether you’re looking for someone to help with your high-level strategy needs or a niche, solution-oriented specialist to improve your SEO or product-sourcing processes, it’s essential to know where to begin and take it one step at a time.
1. Find the right business consultant.
Finding the right business consultant may be the most challenging 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 essential to find a consultant who has expertise in your industry or experience with the kinds of problems your business faces.
- Leverage your existing network. Start your search for a business consultant by leveraging your existing network. A recommendation from a colleague, partner or other business owner who was in a similar position is often more reliable than generic reviews or accolades. Ask your contacts if they know of any experts in the field who can assist with your specific problem.
- Explore dedicated marketplaces. Explore dedicated marketplaces that can help you find consultants by topic, budget and location. Popular sites include Catalant, Graphite and Business Talent Group. Don’t hesitate to utilize social platforms like LinkedIn as well. Numerous recommendations are usually a good indicator of a potential consultant’s expertise. Search for keywords relevant to your issue, and take a close look at the top results. [Learn more about using LinkedIn for your business.]
- Visit freelance sites. If you’re looking for a niche specialist, consider exploring popular freelance sites like Upwork, Dribble, Fiverr and Freelancer. Note potential consultants’ popularity, engagement levels and reviews from previous clients.
2. Vet your potential business consultant.
- Ask questions. If you rely on a personal recommendation, ask detailed questions about your colleague’s experience, the consultant’s process and, most important, the results of their consulting work. Your colleagues can give you a unique insight into the long-term impact of following the consultant’s recommendations rather than just their short-term gains.
- Learn about the consultant’s background and qualifications. Look at the consultant’s resume, educational background and certifications relevant to your industry. It’s a good sign if they seem willing to explore new learning opportunities and keep their skills updated.
- Ask the consultant about their hands-on experience. Hands-on experience is significant in the business world. If someone came directly out of college labeling themselves as a consultant, do they know anything more than you? Consider looking for consultants who have successfully owned or run small businesses, enterprise organizations or specific departments.
- Ensure their experience applies to your business. 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.
- Check out their website. You should also 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.
- Examine their consulting track record. You don’t just want a consultant with 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.
3. Decide if they’re the right consultant for the job.
If your potential consultant’s references are excellent and they’ve proven to be reputable and effective, meet with them to ensure they’re the right person for the job. Clearly outline your pain points and expectations, and see if you’re comfortable with their style and personality. If the consultant checks all your boxes, it may be time to move forward.
Designing a business consultant agreement or contract
Once you’ve found an excellent consultant, done your due diligence and vetting, received satisfying and verifiable references, clearly outlined your pain points and expectations, and made sure you are comfortable with their style and personality, it’s time to confirm the arrangement.
Consultant agreements or contracts are typically drawn for three to six months with the option to renew. Agreements usually include details like the names of the responsible parties, consulting parameters, fee structures, payment schedules, outlined deliverables and established deadlines.
A defined and confirmed deadline ensures that your consultant has sufficient time to deliver the promised results while prompting timely progress.
How do you measure a business consultant’s success?
Unlike an employee performance review, there’s no widely accepted, objective methodology for measuring consulting performance, but it is reasonable to set goals and measure deliverables. This process is similar to Peter Drucker’s management by objectives and SMART principles for managing employees.
- Set clear, measurable objectives. At the beginning of your work, ensure that you and your consultant establish clear objectives that are as specific, measurable, achievable, relevant and time-oriented (SMART) as possible.
- Establish the tangible results you want. Establish your desired financial and other measurable outcomes, such as increased revenue, annual savings, or reduced employee turnover.
- Determine the intangible results you want. Ensure your consultant knows the intangible results you want to see, including improved morale, strong implementation of business values and increased customer satisfaction.
- Measure progress at each phase. Measure your objectives’ progress at every phase of your collaboration.
- Evaluate KPIs. Evaluate the set key performance indicators (KPIs) at the end of your consultant’s work.
- Use a consultant questionnaire. A consultant can provide a comprehensive questionnaire that covers the entire business ecosystem and desired areas for improvement at the onset of the project, and then they can offer the same set of questions at the end. This way, you’ll be able to easily compare the results, especially when it comes to intangibles.
To evaluate the consultant’s performance, it can be helpful to answer the following questions:
- Were the KPIs met and delivered on time?
- Was the collaboration process smooth, and was the consultant responsive and helpful throughout?
- Did they provide you with the necessary skills and resources to improve your business?
- What are the short-term, midterm and long-term impacts of their work?
- What was your ROI on the consulting services?
Business consultant FAQS
How much do business consultants charge?
According to the Bureau of Labor Statistics, the median annual pay for a management consultant was $87,660, or $42.14 per hour, in 2020. But 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 arrangements and the percentages of consultants who favor them:
- Per project – 31%
- Hourly – 24%
- Monthly retainer – 15%
- Daily rate – 13%
- Value- and ROI-based – 17%
According to the study, 40.5% of consultants earn up to $5,000 per project, though some make more than $100,000 per project. The project’s size, scope and length will 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 examining specific key metrics to determine the consultant’s work. Most companies look at their net profits in the quarter before hiring the business consultant and 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 ROI is a crucial part of hiring a business consultant. If you’re paying a business consultant more than $5,000, you 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. [Learn more about big data solutions for small businesses.]
How do you determine a budget for a business consultant?
Hiring a consultant can be a significant expense. Considering that fees vary, it’s essential to establish a realistic and reasonable budget. Consider setting the consultant’s cost as a fixed percentage of your total sales. For example, if your monthly sales are $10,000, paying a monthly consultant fee of $5,000, which amounts to 50% of your earnings, might not be advisable. A 5% fee on $100,000 of revenue seems more reasonable.
If you establish clear phases for your consulting project, you can reduce costs and risks by assessing the progress at each stage. For example, if you employ the consultant’s marketing expertise to bring a range of products to market, evaluate their efforts after the first launch and potentially apply the same strategy to the rest of your product line without needing continued services.
Many consultants will be able to assist you with determining your project’s scope and budget as part of a free consultation. This interaction can also help you test the waters and determine whether the consultant is a good match for your business needs.
Should you employ a virtual consultant?
When defining your consulting project needs and KPIs, determine whether the work must be done on-site or it can be carried out remotely. Opting for a virtual consultant can broaden the potential talent pool, as you wouldn’t be tied to your local market. Additionally, it can reduce the consultant’s cost and ensure flexibility.
When it comes to niche specialists, especially in the digital space, remote arrangements, if clearly defined, can be mutually beneficial. At the same time, some consultancy work involves working hands-on with your team and is better suited for in-person collaboration.
Several common mistakes can prevent you from achieving success in your work with a business consultant.
- Automatically hiring the most established or accoladed consultant: While a proven track record, glowing reviews, and certifications are all essential when choosing a consultant, it’s even more crucial to ensure their experience is relevant to your industry and business case. Ensure your selected consultant is familiar with – or, better yet, ahead of – relevant trends, technology and methods.
- Hiring a jack-of-all-trades: A consultant or consultant firm that claims to “know it all” may lack niche experience or skills that you require. Find a consultant with focused expertise who has vast experience and can assist you with your specific needs.
- Treating a consultant as an employee: It’s essential to treat your consultants as equals, respecting their working style, existing workload and schedule. They might not be available on short notice or jump on a task outside the defined scope. They won’t know everything about your company’s operations, and they may not choose to put in overtime. They’re there to advise you and improve your business operations, not become another team member. In fact, their external perspective is what makes consultants so valuable.
- Ignoring the outlined action plan: It’s the consultant’s job to draft a map and set you up for success, but you and your team are responsible for creating change and implementing the recommendations. If you’re unwilling to “walk the walk” once the consulting project is over, you won’t see the value of engaging a business consultant.
- Treating the consultant’s suggestions as absolute truth: While you’re paying for and relying on your consultant’s expertise, it’s essential to reflect on your own experience, apply common sense and treat their recommendations as helpful directions rather than a hard set of rules. Don’t be afraid to question their suggestions. You know the ins and outs of your business best and will be the one dealing with the long-term implications of the consultant’s recommendations.
How do you know when to hire a business consultant?
Hiring a business consultant isn’t a one-size-fits-all solution. You’ll need to evaluate your company in these key areas:
- Human resources
- Business strategy
- Compliance and regulations
- Financial planning
If your business is struggling in any of these areas, it’s a good idea to seek out a business consultant who’s a verified expert. 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 suggest ways to remedy them.