I have an opportunity to be a consultant - really to perform as the head of sales / business development for a startup company. The opportunity is there to turn it into full time employment if/when they get their next round of funding. The thought is I would be paid for my hours up until the time they either offer me a full time role or I find something else.

What should I do, if anything, ahead of time for this? Don't know what I don't know, but wondering if there is a more tax advantaged way of doing it one way vs the other, etc...? I still need to figure out a rate (no idea there, really, other than to take what I think I'd like for a salary and cut that up hourly with a small premium adder). I guess I just make up an invoice and send it to them? Any watch outs in a consultancy agreement I should be on the look out for?

Any basic guidance would be appreciated as Google is no help. My hope is this is short term one way or another.

Set yourself up an LLC - they tend to want to pay an entity, not a person. You're going to get smoked on taxes so make sure you're doing enough withholding.

RooAg said:

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I have an opportunity to be a consultant - really to perform as the head of sales / business development for a startup company. The opportunity is there to turn it into full time employment if/when they get their next round of funding. The thought is I would be paid for my hours up until the time they either offer me a full time role or I find something else.

What should I do, if anything, ahead of time for this? Don't know what I don't know, but wondering if there is a more tax advantaged way of doing it one way vs the other, etc...? I still need to figure out a rate (no idea there, really, other than to take what I think I'd like for a salary and cut that up hourly with a small premium adder). I guess I just make up an invoice and send it to them? Any watch outs in a consultancy agreement I should be on the look out for?

Any basic guidance would be appreciated as Google is no help. My hope is this is short term one way or another.

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From doing some calculations on this in the past, I think there are websites out there that were really helpful with identify things that you will now be on the hook for as a contractor vs employee. I remember being shocked at how much more you'll need to make to make the same after taxes as you would as an employee. I want to say it was much closer to double the basic salary divided by hours number.

Yeah, I've always heard you have to charge about 3x what your hourly expectation would be from a full time role.

Why 3x. Is that to make up for no 401k, partial insurance coverage, no bonus, etc? Or are you taxed higher? Or both?

i think partly that and partly due to the fact that your billable hours are more sporadic.

just something I read. I've never done consulting.

When i was doing more consulting, you need about 3x of your old salary to make it the same.

So if you're making $75/hr now, you'll need to charge $225. Part of this is SS taxes and withholding. Also to account for other expenses. You are supplying your own software, computer, etc. You'll need to account for travel and times. You might need to hire a CPA to do taxes.

If things are a little more set, try to get a contact that states you'll be paid a weekly rate for X amount of work. Makes accounting easier than sending in invoices and waiting for checks. You'll also have lots of non billable hours you need to account for.

~egon

RooAg said:

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Why 3x. Is that to make up for no 401k, partial insurance coverage, no bonus, etc? Or are you taxed higher? Or both?

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If I remember right, there is a ton of stuff your employer pays for tax-wise that you are now on the hook for as an independent contractor.

In addition to things like healthcare, vacation time (no longer paid), and inconsistent hours that can lead to lower income for stretches.

I was an independent consultant for a couple of years. You will need to be 2-3X on your rate and when you first see that rate you may think to yourself - that seems very high but it's a good rule of thumb. There are Excel rate model templates online you can download and play with to get a feel for it. And you will need to determine how you want to rate. Do you want to charge hourly? Do you want to charge by project / deliverable? I set up different rate cards depending on the type of engagement. Sounds like you will be hourly based on what you said.

You will need to get your LLC which is not difficult. You can do it yourself for $300-400 or pay an attorney around $1k if that makes you more comfortable.

You will ideally want to get a separate EIN for your LLC, a separate business bank account, and a separate business CC. However, you don't have to do any of these things if you don't want to as you can run this through your normal 1040, if you had to. It just makes things cleaner if you separate it.

I highly recommend getting a business / contract attorney to craft your contract agreement with them. You will want to consider things like where arbitration, legal matters, etc should happen and how they will happen. Also have your FA look at it if you use one.

Regarding invoicing, this doesn't have to be complicated. Use a template from MS Word. That's what I did and it worked fine.

Use a money software tool (you should anyway) to track your expenses so you can tag items that are tax deductible for your business. I use Tiller but there are other options.

Thank you very much. Good info.