Risk Management for Consulting Firms

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Quick Summary

You bring specialized expertise to your consulting clients to help them identify and resolve complex and challenging business issues. Selling personal knowledge, experience and insights creates unique business risks, including determining competitive fees, the need to continually generate new clients, the risk of getting sick or otherwise being unable to complete an assignment, getting paid in a timely manner, and protecting yourself against lawsuits due to perceived or real errors arising from your professional services.

Valuing Your Expertise

As a consultant, you’re selling knowledge and experience – intellectual property that’s unique to you. If you undervalue your expertise, you risk working too hard with insufficient compensation. If you put too high a price tag on your intellectual property, you risk alienating clients and losing out in competitive bid situations.

Constantly Networking for New Work

If you do your consulting job well, eventually, the client won’t need your services. That means you need to find another client with a new problem to solve. This requires constant networking so you can maintain a large and diverse client base and add fresh prospects to the mix. Otherwise, you risk stretches of down time, which means the meter is not running and you’re not getting paid.

What Is Business Interruption Insurance?

Consulting is very personal in that clients are paying you for your lifetime of personal experience and insights. If something happens to you, such as an accident or major illness, and you can’t complete your assigned responsibilities, you can’t just bring someone else in to take your place. In this case, your income will stop while your expenses will keep rising.

Getting Paid

Consultants are considered independent contractors under the law. This means it is your responsibility to make sure you are compensated properly and in a timely manner. So it pays to set up safeguards to ensure you get paid, such as written compensation terms in work contracts and insisting on up-front partial payments – particularly from smaller clients without a payment track record.

Professional Liability Risks

As a professional, you always strive to provide your clients with the best and most accurate information. But at some point, you may overlook something or make a mistake. If a disgruntled client believes your errors have cost them money (even if it’s not true), you might be sued, and the cost to defend yourself could be high enough to put your business at risk.
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