Consulting Services Industry – Starting a Consulting Firm

Efficiency is the best trait not just for large businesses but it also applies to small businesses, to manage the flow of the business productivity in a given time. Consulting Firms such as Consultants, Accounting, Legal Services, and other professional consulting services firms, also need proper financial planning and staff management to run the firms smoothly.

Consulting firms target companies or executives to provide consultants or industry-specific specialists and subject-matter experts, which are trained and an expert professional in their field. Providing services to complement strategies and be implemented for better results. This has been perceived and accepted by companies as “outsourcing”.

Starting a consulting firm is a win-win to both the clients and the firm. Getting results without the hassle of hiring new staff for a lesser cost and sometimes, specialized experts do a much better job compared to new staff that still needs training and instructions.

Usually, the main area of work in consulting service includes:

• Project Handling


• Providing expertise solution in the respective department


• Creating, executing and managing plans


• Handling various company operations

These service providers are the superheroes that ensure a seamless integration and smooth operation for companies in different industries. So, it is guaranteed that starting a consulting firm or a business for consulting services is potentially profitable. How to make sure that it will be successful? Just like any business, creating a business plan or a financial model.

Type of Consulting Firms

There are many types of consulting practices that consulting firms follow, though broadly speaking, there are certain practices that are commonly focused on by consulting firms nowadays. Basically, it can be grouped in different, important areas such as:

• Major (Strategy-Focused) – Consulting services tailored to high-level, corporate decisions such as: various industry analysis, competitor assessment, mergers, new strategies, etc. Usually, this discipline is often adopted by large-scale, high-level consulting engagements, which most fresh graduates with MBA titles would want to be a part of.

 

• Information Technology (IT) – Consulting services are geared towards Information developments in different aspects (Assessment, Design, Application, Infrastructure, etc.).


• Human Resources (HR) – Consulting services are focused on maximizing value derived from Human Resources or employees in a business. E.g. Compensations plans, Health plans, Recruitment process, etc.


• Niche – Consulting services in this area are more varied depending on the specifications of the firm, e.g. specific research, analysis method, specific industry or region. Usually started by ex-partners of major firms who gathered a vast experience. Thus, this type of firm became a threat towards generalist consulting firms to up their game in the industry.

 

Types of Consulting Projects

Again, there are many projects that consulting firms practice, as each industry or client have their own quirks. Though, there are certain projects that are frequently requested by clients such as:

Post-Merger Integration
The process of buying a company is not as simple as it sounds. Aside from multiple chains, IT systems, customer loyalty programs, head management (positions), etc., there are many more processes that need to be handled, hence the need for consultants. These kinds of projects tend to be large in scope and for longer-term post-merger work. Also, when it’s a large acquisition, there will be multiple consulting teams working on different areas of the Post-Merger Integration project. Projects like these are oftentimes worked by Major or Niche firms.

Growth Strategy
One of the most classic types of project which most consulting firms do for a living. This type of project often handles problems in cases like: What types of products should they be marketing? Which products to let go? How to increase the market share? Usually, the projects are more short-term and involve significant analysis, e.g. competitor profiling, SWOT analysis, interviews, customer surveys, etc., all in all, it depends on what kind of specific growth issue needs to be resolved and meetings likely happen for as low as once per month.

Business Diagnostic
In this type of project, it involves fast profile development to assess a company or business unit. Often a great way for executives to get an overview of the business and understand what needs to be paid attention to. Usually, the duration of projects is very fast, short-term (3 months at most), and highly analysis driven. Most often, in this project, it focuses on the range rather than the profundity of a business. Also, a lot of competitor benchmarking will be conducted to understand the standing of your client compared to peers in the industry. There is a possibility of continuous work too after the project is done, e.g. follow-up works to go in-depth and more detailed analysis.

Private Equity Due Diligence
Another classic consulting project where Private Equity firms request consulting firms in assisting with the due diligence of target companies. Private Equity firms are capable themselves to do interviews and creating deal models but they still hire consulting firms to help them provide some inputs in their model. Basically, in this project, the consulting firm will act as an ‘extra pair of eyes’ or ‘backseat driver’ to the Private Equity firm. Projects like these usually last for almost a year, very fast-paced, with a very heavy workload and client interaction.

M&A Due Diligence
In this project, it involves analyzing a target acquired by a strategic investor, e.g. a company in the same industry. It is somewhat similar to Private Equity Due Diligence, where the company is capable of doing most part of the tasks needed in acquiring a company, but the consulting firm will be a great help in the transaction process. Their tasks include developing company profiling for potential acquisition candidates and strategically evaluate each. The assessment report will be a great determining factor to help the client decide which companies are worth buying or the most profitable. More in-depth analysis can be given to provide more information and guide the client to get a successful acquisition due to the help of the assessment. Basically, the most important process that the consulting firm must do to help the client make an important decision are: whether to buy, which to buy, at what price. This type of project will also be fast-paced with a heavy workload and a lot of client interaction.

Cost-Reduction
Another type of project that handles consulting services by helping clients to streamline costs. The range of the sources could be: production overhead reduction, switching to better-advanced equipment or less cost raw materials, procurement expense reduction, overhead reduction, etc. The consulting firm being an outside party will greatly help the client make objective decisions and no bias for the client. This project will be reliant on the results of a Business Diagnostic to check which areas the company is overspending. The consulting firm might touch upon the Spans and Layers Analysis to help determine which costs needs to be cut and how to proceed. Contract negotiations might also be encountered in cases where the client needs help with procurement cost reduction. Cost-Reduction project’s duration varies since it might involve a lot of meetings, interviews, and etc.

Organizational Design
There are different types of organizational projects that consulting firms work on. The first type of project is conducting an organizational re-design e.g. region-based to global-based structure. In this project, the work will be very intensive and direct interaction with the client to finalized and decide a new Organization Chart with the right new roles. Next type of Organizational Design project is a Spans and Layers Analysis, where consultants evaluate the span of the management level at each segment in the organizational chart. Helping to determine the area of opportunities to reduce headcount or reorganizing positions. Another kind of project involves decision-making and culture. In this project, the consulting team will likely conduct a RASCI model or a comparable model to determine key decisions that need to be executed and who is currently in charge of that task, and lastly, who should be in charge.

Customer Retention/Churn
The projects for Customer Retention and Customer Churn are similar in nature. Mostly, the consulting firm will help the clients identify the current customers they are likely to retain, as well as potentially lose, and help determine the factors on how to keep more customers that clients want to keep. Basically, the consultants will conduct analysis to have a better understanding of the state of the client’s customer base e.g. customer lifespan, annual churn rate, profitability per client, root causes of churn. The main tasks would be conducting customer surveys as well as in-depth microeconomic analysis of the decision-making of the customers. Then, they will help prescribe ways to convince churning customers to stick with the client. A lot of interaction with a client’s customers and a fair amount of client interaction too will be done in this project which doesn’t last that long depending on the complexity of the project itself.

Why do Consultants need Financial Models

In a consulting services business, there are many projects that involve business valuation and business profiling. What works best as a tool to understand those tasks? – building a financial model. With a financial model, not just the consultants but also the client will understand faster why the consultants came about their advice. There are many other reasons why a financial model is an important tool for consulting companies, so we listed below the several common models they build and used in their work.

• Valuation Models – These are often conducted to do a thorough valuation of a business targeted by the client and also the client’s business standing. With a valuation model, it is easier to see whether the business is profitable and worth investing for.


• Cost Models – There are many tasks in a project that consulting firms do and one of it is conducting comparisons and research of the inner operations of a business. Using a cost model, it helps the consultants with determining how different costs will develop based on the objective of their project e.g. sales projections, restructuring, reorganization, cost-cutting measures, post-merger synergies, etc.


• Pricing Models – Basically, using this model will help with determining how to price the products based on the chosen strategy or through competitor pricing comparison. To build this model is very convenient for it will show the numbers needed as proof.


• Sales Models / Product Line Profitability – Same with cost models and pricing models, in sales models, it helps determine how profit would develop as the client adds a new product or enter a new market for their business. To conduct a projection of future sales will serve as a reference whether it is plausible and profitable for the client to add new products or entering a new market. While in product line profitability model, it will help evaluate if the current product line is profitable the most after allocating resources e.g. which ones need to be discontinued, which needs to be pushed more to expand, etc.

 

• Distribution Models – Consultants use the models as a reference to help their clients decide in certain distribution cases e.g. which warehouse to prioritize or close based on location and the running costs it’ll incur.

 

• Organization Models – To evaluate the organizational structure of a business, this kind of model is built e.g. analyzing how many subordinates and levels of hierarchy.

 

• Full Financial Models – Though usually, this kind of models are done by professional financial modelers, some consultants still create financial models when the project demands one, e.g. restructuring, financial services clients.

Listed above are just a few of the many more uses for financial models in a consulting services business. So, it is undeniable that using a financial model is a very convenient tool for in this kind of business and Industry.

Creating Consulting Services Business Models

Creating consulting services business models is a time-consuming task for it needs a lot of preparation, research, data gathering and a lot of calculation. It’s a good thing that you can skip the tedious work in creating a consulting business model, just by downloading financial model templates that you can use as the framework of your business model.

If you are in need of financial plan for your consulting firm or need consulting financial model templates to designate your expenses efficiently and in a way where your firm is bound for financial stability and feasibility, listed above are Excel financial models and Financial model Templates, to get you started in your business in any kind of professional service firms, including consulting firm financial models that you can use.

Save your time building consulting services business models from scratch by making use of these ready-made excel templates and start creating your business plan efficiently.

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