If you’ve been operating a successful professional services business as a solopreneur, it can be a smart move to leverage your experience, contacts, and track record in the industry by adding other professionals to your team. Managing a multi-person firm will allow you to land contracts that other people can fulfill, and you’ll start to make money while you sleep.
Making the transition from self-employed professional to managing partner, however, also has drawbacks. You will need to take on added responsibilities in management, administration, and marketing, which in turn will reduce the amount of time you have available to work on client projects yourself. You may find yourself spending considerably more time landing and managing contracts than you do working on them. Be sure that this change in focus is desirable for you before taking the leap.
If you think you’re ready to graduate from solopreneur to CEO, the best place to begin is with a strategic plan. What sort of personnel do you plan to add? Will they be other professionals who do exactly the same type of work as you? Or will their skills complement yours to expand your company’s capabilities as well as its capacity? How fast do you want to grow, in terms of personnel, revenue, and client base? What would you like to see by the end of this year, next year, five years from now?
Before you bring in any new contracts, start building your team. Your smartest first hire might be an administrative assistant or virtual assistant, rather than another professional. Having someone else to do administrative work will free up more of your time for billable work and business development. You might decide to hire someone part-time who could later grow into a full-time employee.
To bring other professionals into your firm, you probably want to start out by offering them “associate” status, even if you think you eventually might want partners. This will give you a chance to evaluate how well you work together, and whether the quality of their work is up to your standards, before making any long-term commitments.
The best financial arrangement is to pay associates as subcontractors rather than employees. You have no obligation to pay your subcontractors unless you have work for them, and don’t need to withhold taxes or offer benefits. If your associates continue to also serve their own clients, and don’t work out of your office, you may choose to keep them on as independent contractors indefinitely.
When you are an associate’s only client, however, it may become necessary to hire him or her as an employee to comply with IRS rules. You can still hire employee associates on an hourly basis, and only pay them when work is available. In either case, be sure there is a written agreement between you that spells out expectations.
With one or more associates lined up, you’re ready to land the first contract for your newly expanded firm. This may be a project that you also work on, or business you develop for your associates alone. It’s typical for a firm to keep anywhere from 15 to 30% of the revenue generated by an associate’s work. (When associates are employees, the “house” percentage is often higher.) If you bill your client $100 per hour, for example, you might pay an associate $70-85.
Prepare for your new status by beginning to position your business as a firm instead of a person. This may mean changing your business name as well as revising your marketing materials. A name change may be as simple as adding “Associates” or “Group” to your own name. Or you may wish to choose a new name to represent your expanded enterprise.
Give yourself a job title, such as “President,” “Principal,” or “Senior Consultant,” and add it to your business cards. Update your website and marketing materials to reflect the expanded capabilities of your firm.
Before offering an associate the opportunity to become a partner and share in the overall profits of the firm, make sure he or she has the ability to also bring in business for the company. Partnerships where only one of the principals lands all the business often don’t succeed because the partnership feels unequal.
If you don’t plan to offer partnership to your associates, they may choose to move on after a time. This is a normal transition that you should be prepared for. Make sure that your associate agreement covers issues such as giving notice, competition, and confidentiality, so that you won’t be unduly harmed when an associate decides to leave.
Growing your business in this way — if it suits your skills and personal desires — can be a wise long-term strategy, as it can not only increase your profits, but also help to make your company saleable when you eventually decide to retire.