Independent Consulting Bootcamp

Your future starts here...

Create the Basic Independent Contractor Agreement
that is Right for You

Protect your Consulting Business by taking Professional Advice.

The basic independent contractor agreement is one of the cornerstones in the foundation of any successful and sustainable Consulting business.

You may be tempted to try to manage without professional advice and expertise and thereby avoid some potentially expensive professional fees, but in my experience these expenses are a sound investment and they place your professional Consulting practice on a solid foundation. Furthermore, you will sleep easily at night safe in the knowledge that you have sought expert opinion regarding the relatively complex matters that are inherent to the basic independent contractor agreement.

It is important that you seek legal, accounting, taxation and insurance advice from professionally qualified advisers as you work through the process of setting up your Consulting business, finalizing the wording of the basic independent contractor agreement that you will use and prior to committing to client assignments.

The advice that you receive from this group of professionals will give you a comfort that the basic independent contractor agreement that you are proposing to use will provide you with adequate protection in law. Of course, all parties enter into the agreement with the hope and expectation that the Consulting assignment will be successfully delivered, and in the majority of cases that will be the outcome. However, there is always the possibility that there will be some problems or misunderstandings and in this situation it is essential to have robust contracts in place to enable effective resolution and protect all parties involved.

I will take each type of advice in turn and share with you my experience to illustrate the key issues and risks with which each type of advisor can assist.

My aim is to provide insight, based on my experience, into the types of questions you should be looking for your advisers to guide you on. As with all content on this site, what I am providing here is explicitly NOT professional advice or opinion for you the reader - this is what you will get from your legal and other advisers when you enter into a Client / Adviser relationship.

In my experience it is well worth investing time and a little expense to ensure that the basic independent contractor agreement that you will be using is robust and fit for purpose.


Legal considerations

When you review the basic independent contractor agreement that I use as an example elsewhere on this site, you will fairly rapidly appreciate the relatively complex nature of the legal agreements that are required to document the commercial relationships between your consulting business, the end client and the range of potential third party participants who may be involved in delivering the consulting work.

For example, you may engage subcontractors to assist with delivery of the assignment; alternatively, you may have sourced your introduction to the client through an agent or a lead contractor. In both these situations there are three parties involved and therefore it is important that each party fully understands their roles, responsibilities and accountabilities and that these are reflected in the basic independent contractor agreement that you use.

A good contract lawyer will be able to provide you with a starting point, i.e. a first draft of a basic independent contractor agreement. Alternatively there are a large number of companies that sell contractor agreements online.

Once you have the first draft of your basic independent contractor agreement you should review it in detail in order that you get a basic understanding of the contract, marking the document to highlight any areas of uncertainty in order that you can seek clarification from your lawyer.

I suggest that you then spend a couple of hours with your lawyer and simply walk through the contract end to end, in order that he can explain to you the basic intent of each section of the contract and you can obtain answers to your questions.


Accounting and Taxation considerations

It is important to take advice from a qualified accountant on the financial and taxation implications of starting your Consulting practice.

The timing of this advice is also very important. For example, you might think that you do not need to engage an accountant until you reach the end of your first year of trading in order that he can prepare your first set of annual accounts. It is essential that you engage an accountant to give you advice BEFORE you make the decision to establish your consulting practice.

Your accountant will be able to advise you on a wide range of fundamental financial and taxation issues that will inform your decision on matters such as:
  • The timing of establishing your business
  • The most appropriate form of trading entity, for example sole practitioner, partnership or limited liability company
  • The preliminary setup expenses that you will be able to claim as tax deductions

The advice provided by your accountant will need to be reflected in your basic independent contractor agreement. For example, a different contract will be required depending on whether you choose to operate was a sole practitioner, a partnership or a limited liability company.

By way of context, I am a UK qualified Chartered Accountant but despite this qualification and experience I have engaged a firm of accountants to provide specialist advice on accounting and taxation matters.

My perspective on this is a very simple. I believe it was Sir John Harvey-Jones who said that 'In business, you should do ONLY those things that ONLY you can do'. My core skills are around delivering consulting assignments to my clients, not around maintaining awareness and technical expertise in taxation matters. Therefore I choose to delegate this to a specialist and pay a fee for this service, thereby freeing up my time to focus on client work.

The service costs me approximately $5,000 per annum (£3,500) but this is a great investment given that it would take me many days each year to maintain a current knowledge of the taxation rules and allowances and that the expert advice I receive typically results in a reduction to my annual tax bill of an amount substantially greater than the fee I am charged.


Administrative & Support Considerations

Your level of financial success as an independent consultant will be significantly influenced by the amount of client facing and chargeable time you are able to achieve in a working year.

Smart consultants outsource their administration to allow them to work on the things that ONLY they can do.

A Virtual Assistant (VA) is an independent contractor who works remotely, usually from their home office, to perform secretarial, administrative and many other support tasks. Capitalising on the power, flexibility and convenience of email, internet, fax, phone and mail, a VA is able to offer valuable support to other businesses who can then focus on growing their own business, whilst outsourcing administrative tasks.

To find out how a Virtual Assistant can speed your process of setting up as an independent consultant and transform your productivity once you're up and running, visit our trusted partner for Virtual Assistant Advice.

Insurance considerations

As an independent consultant your business will face a number of risks which need to be understood and managed with any extreme or unacceptable risk being underwritten by comprehensive insurance.

Your clients will expect you to be willing and able to demonstrate the adequacy of your insurance arrangements. Futhermore, the basic independent contractor agreement that you use will need to specify the type and level of insurance cover that is in place.

The main categories of insurance that you will need to consider include:
  • Professional indemnity
  • Directors / Company Officers liability
  • General and public liability
  • Employers' liability
  • Employment practices liability
  • Personal accident and sickness
  • Business travel
  • Property insurance

Taking just one of these categories as an example to illustrate the importance of specialist advice, an effective professional indemnity insurance policy will provide a cover for a range of specific risks associated with the delivery of a Consulting assignment.

Your clients will engage you as a subject matter expert to provide specialist advice. If there are problems with the engagement then it is becoming increasingly likely that your client will sue you to compensate for any losses incurred or business disruption experienced. The potential value of such a claim could be financially catastrophic for an independent consultant. Furthermore, in this circumstance the client is unlikely to pay your fees which could represent a substantial proportion of your annual revenue.

Risk and insurance are complex matters and accordingly it is essential that you take advice from competent, experienced professionals who will work with you to understand the risks that your business faces and identify the appropriate insurance policy and cover to provide you and your clients with protection and peace of mind.

Furthermore, your insurance broker will be able to assess the basic independent contractor agreement that you are proposing to use and give an opinion on the risks associated with using the contract based on the proposed wording.

The basic cover provided by professional indemnity insurance would typically include the following risks:
  • Assistance in defending against an allegation of professional negligence
  • Indemnity in circumstances that professional negligence is proven
  • Civil liability cover
  • Fidelity - cover for your losses arising from the dishonesty of your contractors or employees
  • Loss of documents or data, breach of confidentiality
  • Intellectual property - cover for infringing of others' rights including copyright and trademark, or an act of passing off

In addition, some of the better policies would assist with mitigation of loss by paying the fees that the client is refusing to pay and covering the cost of paying your subcontractors.

Much more information is provided elsewhere within this site on each of the main categories of risk and the corresponding insurance options. Please refer to the insurance pages for details.

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