If you are a consultant and are thinking about starting your own business as a freelance consultant, then you are like many other of our consultingheads users. The desire for more flexibility and their own control over projects and working hours is driving more and more young consultants. High daily rates promise comparable pay to the consulting job, but with more freedom and a better work-life balance.
But the consulting exit as a freelancer comes with some hurdles that you should not underestimate: project acquisition with ever stronger and larger competition, annoying paperwork and unsteady income. Especially for future freelance consultants, early and thorough planning is therefore important.
We help you on your way into freelance consulting. In the first part of our guide for freelance consultants, we answer the questions you ask yourself before deciding on this career path.
In the second part, we give you concrete and helpful tips for your start as a freelance consultant: Freelance Consulting – In 10 steps to becoming a successful freelancer.
Overview:
– What is a freelance consultant anyway? The difference between freelancer and freelancer
>> Freelancer definition
>> Definition freelancer
>> Freelance consultant or freelance consultant – which is it?
– The Freelance Trend in Consulting
– When is the ideal time to leave consulting as a freelancer?
– The way to freelance consulting
>> Option 1: You work as a part-time freelancer after the consulting exit
>> Option 2: You become a full-time freelance consultant directly after the consulting exit.
>> Option 3: You remain employed as a consultant and become a freelance consultant on the side.
>> You have no consulting experience but want to become a freelance consultant
– ➥ Infographic: Freelance Consulting [PDF]
– Find freelance projects
What is a freelance consultant anyway? The difference between freelancer and freelancer
Often the terms “freelancer” and “freelance” are used interchangeably, but when looked at more closely, there are subtle differences between the two terms:
Freelancer definition
Regardless of the industry, so-called “freelancers” work as self-employed individuals on a project basis for various clients. A freelancer therefore shimmies from project to project without being permanently employed by a company. The term “freelancer” thus refers exclusively to the type of employment and not to the activity pursued.
Definition freelancer
The term “freelancer” refers to the same type of employment as the freelancer. However, the exact occupation or profession pursued is also taken into account. Indeed, freelancers are representatives of the liberal professions, which are defined by law in Section 18(1) of the Income Tax Act. This paragraph states:
“Freelance activity includes the independently exercised scientific, artistic, literary, teaching or educational activity, the independent professional activity of physicians, dentists, veterinarians, lawyers, notaries, patent attorneys, surveyors, engineers, architects, commercial chemists, auditors, tax consultants, consulting economists and business economists, certified public accountants, tax agents, alternative practitioners, dentists, physiotherapists, journalists, photojournalists, interpreters, translators, pilots and similar professions.”
Freelance consultant or freelance consultant – Which is it?
Particularly in consulting, the exact designation often leads to confusion. As cited and bolded in the previous section, “consulting economists” are among the representatives of the liberal professions.
However, according to the German Federal Ministry for Economic Affairs and Energy, not every management consultant can automatically be classified as a freelancer, as the term “management consultant” is not a protected job title by law. Therefore, the tax office must first check whether certain requirements are met. For example, proof of a relevant business administration degree must be provided.
And why is that even important? In itself, the designation is incidental, but the categorization leads to bureaucratic differences in individual cases. This is because those who work as freelancers must register a trade and pay trade tax, while freelancers only have to report their activities to the tax office.
Small tip: If you are an authorized consultingheads user, then you can in principle assume that you are eligible as a freelance consultant. Finally, we screen our users by consulting background and academic profile.
The Freelance Trend in Consulting
With the aging of the freedom-seeking Generation Y and Z, the freelance trend has surged across all industries in recent years. This is because the desire for self-determination also affects the choice of career. According to the German Association of Liberal Professions, for example, the number of self-employed in the liberal professions has risen steadily in recent years.
And the consulting industry is no exception to this trend. Moving from permanent employment to self-employment is a popular “move” for consultants. The Federal Association of German Management Consultants (BDU) estimates the number of consultants currently working on a freelance basis in Germany at around 14,000. Our users’ data confirms the interest in freelancing among consultants: 60% of consultingheads users are interested in a freelance position, 31% exclusively.
Nevertheless, the freelance consultant is not a brand new phenomenon. Even in the past, companies wanted impartial advice, independent of large companies and their sales targets. And even then there were consultants who were happy to fulfill this need.
But one thing has clearly changed: Whereas twenty years ago only the “old hands” with strong networks could get by as freelancers, thanks to digitization, project and customer acquisition is easier today than ever before. Online platforms such as consultingheads bring companies and freelance consultants together efficiently and conveniently. Companies and consultancies also benefit. You can absorb short-term peaks in demand with freelancers and thus work even more cost-efficiently.
When is the ideal time to leave consulting as a freelancer?
It is difficult to establish a general rule, as the ideal time to exit as a freelancer depends on you, your expertise and your network. A full 73% of our freelance consultants on consultingheads have at least five years of professional experience in consulting:
However, through our experience and cooperation with companies, we know that especially young “hungry” consultants with two to three years of experience are increasingly sought after. That’s why we make the recommendation that you should get out after about three years of consulting experience if you want to work as a freelance consultant.
At consultingheads, we have also placed candidates for freelance positions who had only one or two years of consulting experience. However, this only works in exceptional cases and under the following conditions:
- You already have a strong
expertise
in a niche that is particularly in demand among companies. - Despite your short experience you already have a solid
network
of clients through professional and/or personal contacts as well as mediation platforms. - You bring a fair amount of self-confidence to hold your own against senior managers despite your probably younger age.
No matter at what point you decide to exit as a freelance consultant, you should consider your decision thoroughly and plan your exit early. Learn more tips in the second part of our freelance series!
The way to freelance consulting
Many paths lead to freelance consulting. Ideally, these have the following in common: they start with a permanent position at a consultancy – whether MBB, Tier 2 or boutique – or include this career stop at some point in the resume.
Because, of course, not every freelance consultant starts out in consulting and then moves directly into freelancing. Many of our users also go through other career stages, switching first to industry or a start-up, for example. Regardless, you have several options to get started as a freelancer:
Option 1: You work as a part-time freelancer after the consulting exit
Most consultants take the path of working as a part-time freelance consultant for the time being after leaving the profession. It’s also the option with the highest probability of success, because you often won’t have enough orders to work full-time, for example. Maybe you don’t want to, because you have other priorities:
- You want more free time and to benefit from a better work-life balance. For example, you want to start a family or take more time for your family and friends.
- You plan to start a startup on the side. This way, you combine two forms of consulting exit: freelance consulting and startup founding. In addition, you can finance your start-up with two to three days of project work per week in the initial founding phase.
Option 2: You become a full-time freelance consultant directly after the consulting exit.
The plan of the second option is for you to quit your permanent job and work directly as a full-time freelance consultant. Probably the dream of most aspiring freelancers, but easier said than done!
You won’t fill up your calendar without a broad portfolio of clients and projects in your pocket. Therefore, you must have already prepared for it for many years and built a strong reputation. While thorough planning is important in any case, especially if you’re a freelance consultant on full-time assignment, you need to develop a sure strategy for regular client acquisition.
Option 3: You remain employed as a consultant and become a freelance consultant on the side.
With this option, you will initially work on two tracks, i.e. you will keep your permanent position in consulting and use evenings or weekends for project acquisition and work on projects. This gives you the chance to test out whether freelancing is something for you. While this option is less risky because you can still count on your steady salary and job, it is clearly more stressful and difficult to implement. You should expect the following problems:
- Pure stress without compensatory time off: Let’s face it, isn’t working as a full-time consultant demanding enough? If you then also sacrifice what little free time you have for freelance projects, you really have to be stress-resistant!
- Contractual restrictions: You will probably have to clarify your secondary employment with your current employer. Depending on the project, you may also be restricted by a non-compete agreement in which you agree not to work for any competitor.
- Time difficulties: Apart from giving up all your free time, depending on the flexibility of the project, it will not be possible at all to pursue your full-time job and be present on your freelance project at the same time, as the working hours will overlap.
You have no consulting experience but want to become a freelance consultant
In rare cases, you can become a freelance consultant without consulting experience. Similar requirements apply here as for the exit after a few years of consulting experience. With a special and highly demanded expertise, which you could acquire in your profession, you can prevail against freelancers with consulting experience if necessary. You also need a good network, self-confidence and realistic project and salary expectations.
But it will definitely be difficult to convince companies to hire you for a project if you don’t have any consulting experience. An alternative is to first apply to a consultancy for an entry-level position as an experienced hire without a consulting background, and then exit as a freelancer. If you still decide to work directly as a freelance consultant, remember: without consulting experience, you are not considered a freelance consultant, but must register a business for your freelance work.
Infographic: Freelance Consulting[PDF]
In the second part of our freelance series you will find even more tips and advice on your first steps as a freelance consultant: In 10 steps to becoming a successful freelancer.
Errors discovered or suggestions for improvement to our article? We are open to criticism and welcome your feedback – via comment or email to [email protected].
Sources:
Federal Ministry of Justice and Consumer Protection: “Einkommenssteuergesetz (EStG) § 18” Accessed at: https: //www.gesetze-im-internet.de/estg/__18.html
Eidmüller, C.; Bundesministerium für Wirtschaft und Energie – Existenzgründungsportal: “Management consulting: freelance or commercial activity?” Accessed at: https://www.existenzgruender.de/SharedDocs/BMWi-Expertenforum/Gruendungsplanung/Freie-Berufe/beratende-Taetig/Unternehmensberatung-freiberufliche-oder-gewerbliche-Taetigkeit.html
Institute of Liberal Professions Nuremberg: “Development* of Self-Employed in Liberal Professions in Germany 1950 – 2018 (in thousands)” Accessed at: https://www.freie-berufe.de/wordpress/wp-content/uploads/2018/07/BFB_Fakten-Grafiken_2018-07_Entwicklung_1950-1.pdf
