Who here works as a consultant? I've got questions...

So an opportunity has come up and a company wants me to consult on several large projects. Pretty much to start they want me to sit in on meetings and give my input. Problem is: I've never worked as a consultant.

I've got my hourly rate figured out thanks to several of my friends who work contract, but I'm still trying to figure out some details. Like sometimes they want me on site for meetings in the morning, then a 3 hour break, then more meetings. There's no point in going home, so I'll just be stuck there. Do I charge them for keeping me on site? Do I charge them for my driving time to and from their office?

I've had several people recommend I form my own LLC to run everything through. And that I'll need an accountant to keep my straight with the IRS. My friend says he socks away 1/3 of all he makes for the IRS and still gets creamed at tax time. It looks like my pay would get chopped up into thirds: IRS, self paid benefits, and lastly a paycheck. Does that sound about right?

I'm in a good situation right now where I can experiment with this job for a few months. If it works, awesome. If it doesn't, no big deal. Today I'm emailing them my hourly rate. If their head doesn't asplode with the price figure then I start tomorrow.

Charge by the day. I think that's how it is in that industry and pretty sure that's how my friend works. You don't need an accountant if you pay attention to detail and get TurboTax. I would suggest either a LLC, LP or other structure, even that corporation type that is basically the same as self employed. S Corp, I think.

I work for an engineering consulting firm, we charge by the hour including travel time and expenses. In your case, I'd charge for the down time in between meetings, but to make it better for your customer can you spend that time working on something productive? Say, preparing for the upcoming meeting, writing reports or recommendations, or inspecting things or monitoring their processes? Do they have a spare office or desk you can use?

I too work for an engineering firm. Our guys charge time from when they leave the office or home to go to the site. If they tie you up with down time that you cannot use otherwise, I see no problem with billing for that time as well. You may want to charge a lesser rate or that.

Sounds about right.

I wouldn't form a corporation before you know it's gonna fly.

I do some consulting - not engineering. Generally charge on a project basis instead of hourly. 50% up front, 25% of a designated progress point if it's a long one, 25% at the end.

What kind of work is this for?

I would charge by the day or half day. If I was hiring you, I would need either your tax ID or SS, so be ready to either form an LLC or give out your SS number and get a 1099.

Yes, you will need to pay taxes.

But there is no reason to incur the costs of setting up a corporation (and filing double tax forms, etc. etc.) before you know if it is going to fly.

Accept the 1099, and add it to your 1040. No big deal.

An LLC limits your liability. I'd also recommend using some book keeping software like Quickbooks to track deposits, expenses etc. And get a separate credit card (doesn't have to be in the name of the LLC - it can be in your name) to use solely for business purchases.

Given that you have far fewer protections via a business card, you're better off having a separate consumer credit card for business expenses. Especially if you have to sign any personal liability waivers to get a business card.

I like having a separate bank account for the company stuff, plus I'm a big fan of having an LLC to protect me. I didn't have one the first time and that burned me in a major fashion.

While I agree with Dr Hess that you don't necessarily need an accountant, whenever I was doing consulting work I had one. A good one will make sure you don't berkeley up your relationship with the IRS, and that's worth the fee to me.

And you get to write off whatever the Accountant charges you.

My wife used to be self-employed, I think it's worth it.

I'd definitely recommend a good accountant, as well. As others have said, set up a corporate structure so you're not personally liable.

Quarterly taxes can be a pain, make sure you're setting money aside regularly. You'll also get the privilege of paying 100% of Social Security taxes, as well.

On the plus side, it has some inherent flexibility, and if you do it right, you can put a ton of income towards retirement.

I do hourly, weekly or "special rate" but never project based. Customers will change the requirements and get in their own way every single time and if you did a project rate then it's up to you to explain why you need more money.

When you use a clock or a calendar... all you have to do is account for your time.

When I've worked as a consultant it was always hourly. I didn't bill for travel time to and from their office but did bill for any travel done for any other purpose related to the work. I did maintain a log of that mileage for tax purposes.

When using consultants (individuals or companies) it is usually time and materials, with a few exception for tightly defined projects. That allows the flexibility to have them work on other items without going through the process of defining scope, waiting for a proposal, and then getting the PO/financial approval.

A time and materials approach helps minimize your financial risk, by identifying slow/no payment situations earlier. It also makes scope creep and project delays a financial non-issue since you just bill for more hours for the extra work/time.

Make sure you define how frequently you will invoice and be paid. Many companies will assume monthly invoices unless alternate arrangements are made.

As for the debate over Liability and business structure, it depends on the work being performed and how they are using your work product. For example if you're being brought in as a subject matter expert then liability is more of an issue than if you are being brought in as a contract employee.