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Partners, Employees and Subcontractors

There will no doubt come a point in your professional life as a consultant when you just can’t do it all yourself anymore – whether it’s servicing clients, marketing your practice, handling bills (incoming and outgoing), or even just answering the phone. What are your options, and how will you know which is best for you and your consultancy?

Many factors are involved in making the decision: control, finances, facilities and equipment, and long-term business plan, to name just a few. The most important factor actually involves all of these – what kind of life and practice do you want for yourself? In fact, you’ll find yourself asking some of the same questions you examined when you first thought about consulting as a career.

Is your vision for your practice one of a growing company that will still be servicing the sector once you are gone or retired? Or do you see your practice as your “canvas” – the medium in which you have full freedom and control to express yourself professionally and maybe even personally? Perhaps your dream lies somewhere in between – a well-rounded service organization without the restrictions of a “job-job” environment.

Your answer to this most fundamental question will help you in considering the advantages and drawbacks to the three primary arrangements available to you once you reach that point where you just can’t do it all yourself:

PARTNERSHIP

Partnership is the business equivalent of marriage … equally serious, equally difficult in its early years, and equally ugly if it doesn’t work out whether you ever legalized it or not.

Partnership is a BIG step – it involves the sharing of ownership, i.e. control, decision-making, risk, investment, and money. If you are someone who is most comfortable and most effective when you are in the driver’s seat, this may not be a good option for you.

If, however, you have found that rare bird of a potential partner who is a perfect complement to you in terms of skill set, temperament, life goals and business vision, consider partnership as a basis for building that firm that will still be here in a few generations.

In the best partnership arrangement, both parties come to the transaction bearing equivalent assets: contacts and client base (non-overlapping), reputation, work tools (e.g. equipment), and financial liabilities (ideally, neither has any business financial liabilities).

Most importantly, and most often overlooked, is a matching work ethic – comparable levels of drive, initiative, perseverance, etc. – and working style. The perpetual procrastinator can drive the compulsively organized crazy, and vice versa.

Explore exactly what the benefits to each – and roles of each — will be in the arrangement. Perhaps work in an informal partnership relationship for six months to a year before formally incorporating or announcing the union.

EMPLOYEES

Hiring someone to work for you is possibly the most flexible form of bringing in assistance. You can start with a part-time support person or “assistant consultant,” or bookkeeper depending on where you feel most overwhelmed or least competent. The advantage is getting immediate help that is dedicated to your business in the specific area where you need it.

The drawbacks are that you will now have obligations as an employer – especially legal and financial – that you didn’t have before when it was just you, or you and your spouse. You may have additional expenses for facilities and equipment – desk, computer, phone, etc. If your office is in your home, you may have space and/or privacy issues to consider. And even when times are slow, you’ll owe a paycheck.

If your employee is a consultant, you will have responsibility for the quality of their work and the quality of their interactions with your clients. You will need to carefully consider whether you will need legal agreements that address non-compete issues should your consultant-employee quit or be fired.

When hiring anyone, be as thorough in the search, interview, and reference check process as you would advise any of your clients to be – and equally in compliance with the law in all hiring practices.

This arrangement works best if you are looking for all the freedom of the consulting life without the burden of burning yourself out on those business activities that are stressful or difficult for you to manage alone.

SUBCONTRACTOR

This, too, is an option that offers high flexibility without the long-term financial commitment or overhead/infrastructure investment required of an employer. This arrangement work best as a means of expanding your practice areas to encompass a range of desirable and marketable client services that are outside of your own professional expertise. The key to succeeding with this form of arrangement is to develop a network of professionals you respect and trust. After all, they will be your representatives before your client.

The subcontractor relationship can take several forms. You may or may not wish your client to be aware of the fact that the person servicing their project is a subcontractor as opposed to an in-house member of your team. Be clear with your associate before entering into a subcontractor agreement how their relationship to your firm will be characterized to the client.

Review all work product performed by the subcontractor before it goes to the client to make sure you feel comfortable with your firm’s name going on it. If this professional is one you’d like to work with again, be sure to provide formal feedback to one another when the project is completed so the relationship can be even better next time.

Familiarize yourself with the IRS definitions of subcontractor versus employee to insure that you will not be incurring any tax liabilities or other penalties as a result of the working arrangements.

Subcontracting is the best choice for seeking assistance if you prefer to focus your professional activities in a specific area of expertise without limiting the revenue opportunities for your practice, without giving up control of your firm or committing to the overhead of an expanded consulting staff.

SUMMARY

There are other types of arrangements to consider if you’ve running out of “bandwidth” in your consulting practice: temporary employees, outsourcing, combining two or more of the arrangements above, or allowing your practice to be acquired.

All of these choices can work in a variety of circumstances, but only if you have examined your long-term objectives in both business and life. You may wish to re-visit some of the considerations detailed in the very first issue of Nonprofit Consulting Review.

Fare well, and farewell for this week …

 

About the Contributor: Renata Rafferty

Renata J. Rafferty is president of Magnificat High School. Magnificat High School was founded in 1955 with three Humility of Mary Sisters, 63 students, a small vacated school house, profound faith, a life-changing mission, and enthusiastic, committed families. Now, with over 11,000 graduates, 109 Sisters of the Humility of Mary, thousands of families, faculty, friends, and a reputation acclaimed nationally, locally and around the world, Magnificat High School stands as witness to how “God who is mighty has done great things for us.”

Renata, a former member of the CharityChannel advisory board, is a nationally respected philanthropic advisor, as well as a popular columnist and author on the business of charity.

She is called on regularly by the media to comment on nonprofit trends and breaking news. She has been interviewed in INC., Kiplinger’s, Worth, Money Magazine, On Wall Street and Forbes, as well as for major dailies such as The Washington Post, The Boston Globe and The New York Times.

She is also a frequent guest on national news shows, such as The O’Reilly Factor, on the topic of charity fraud.

Renata was the founding editor of CharityChannel’s Nonprofit Consulting Review, and serves on the Board of Advisors of The National Philanthropic Trust. She is the author of Don’t Just Give It Away: How To Make the Most of Your Charitable Giving, with Foreword by the late Paul Newman (1999, 2nd ed. 2006).

She is a popular keynote and commencement speaker, known for her dynamic, no-holds-barred style in addressing issues such as philanthropy, social change, and servant leadership.

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