• December 18, 2014

Should You Be a Consultant?

It seems almost impossible to argue that you shouldn't take on outside work as a consultant. You can boost your income, your reputation, and your retirement savings. You can explore new challenges, meet peers at the cutting edge of new applications, and maybe build some bridges that will lead in entirely new directions some day.

By consulting, I mean gainful employment -- not departmental or disciplinary duties -- but paid outside work where you, as an expert witness, design consultant, or whatever, earn an attractive market rate for your time, and get to apply your knowledge in a practical arena. If you've never done it before, or are unsure about whether to take up the challenge of consulting, the question becomes not whether to try it, but why not?

Thinking About Consulting

Accepting that first real assignment as a paid consultant in your field may appear like a small step. In fact, it marks the qualitative shift from being Professor X in the field of Y at Z University to being You Inc. If you accept the idea of moving toward this new identity, you have to decide what You Inc. is really about. How do you define yourself? What is the arena in which you operate? How much time can you devote to the work? These are some of the ingredients of a business plan, and you shouldn't take on any outside work without one.

Creating your own business plan can help you see how your consulting and your teaching and any other activities you do for money all work together to the benefit of You Inc, and what the ultimate destination might be. As part of developing your business plan, you need to have a good estimate in advance of what your expenses will be. Since your consulting work will be done on your off hours -- that is, when you're not otherwise making any money -- your estimate of the potential net profit of your consulting ought to be pretty solid.

What I'm trying to say is that you need to go beyond simply reasoning that the consulting might bring in a nice piece of change and demonstrate to yourself that it makes sense in light of your overall professional goals, both long term and short term. Your short-term goals might include earning extra cash, improving your communication skills, demonstrating to your colleagues that you have outside market value, and boosting your chances for promotion.

Your long-term goals might include enhancing your stature in your field, planning a transition to a new career after you become emeritus, and bridging the gap between your research and the real world so that your discoveries can be put to good practical effect.

A crucial part of your plan has to include a close look at your institution's policy towards consulting. Most faculty handbooks have a detailed description of what is permitted, how many hours may be devoted to outside work, fair treatment of graduate students under your charge, disclosure of your outside activities, and the division of any spoils from that work. These policies also discuss issues of academic freedom, conflict of interest, and classified research. Study the policy closely, but then take the additional step of informing yourself as much as you can about the actual practices at your institution.

There's a lot of evidence to suggest that the actual practice may vary a good deal from the fine print, from campus to campus, and even from one field to another. You have to determine reliably whether, as in many places, your institution actually tacitly encourages this variance. Naturally, the burden will be on you to disclose any actual or potential conflicts and to understand their implications in any work you undertake.

What's interesting about faculty outside consulting is that although you are acting formally as an individual, you still trail a certain glory from your institution. That's quite an advantage, when you think about it. Although you would have to share the proceeds of a patent you developed with the university, the time you charge your consulting client is basically your own. In fact, in many places the opportunity to pursue outside consulting is one of the best fringe benefits of academic work.

From a tax point of view, consulting may be the step that finally pushes you from doing your taxes yourself to needing a professional to help keep all the schedules straight. Outside income and losses are normally reported on Schedule C, which summarizes the income and expenses associated with your consulting or other outside activities. You may have to begin filing quarterly. For each separate outside enterprise, you may need to prepare a separate schedule C. (For additional information on taxes, see IRS Publication 335, "Tax Guide for Small Business.")

Your consulting work may also require an attentiveness to record keeping that you've never needed before, especially if your regular paycheck has been your one source of income. Basically everything that relates to an expense generated through consulting work may become a legitimate business expense. This includes travel, meals, stationery, computers, software, postage, phone calls, space to do the extra work in, research materials, and more. This can also get you into some gray areas, and areas that some people routinely stretch. The simplest point is that stretching the rules to include a few questionable expenses is never worthwhile if it increases the risk that all the benefits of your work could be thrown into jeopardy.

Preparing Your Business Plan

Preparing a basic business plan will help assure that you use the limited free time you have for outside work effectively. It's not good planning to take on a consulting job just because it pays something. Taking on a particular assignment needs to work in relation to your broader goals.

This needn't be anything as scary as the business plan that might be written for some biotech startup company heading out to pitch itself to the venture capitalists. In this case, you're the venture capitalist, and you have to decide if you're going to lend You Inc. the precious time it's going to take from your life to do the consulting. Your time is more valuable than mere dollars. A business plan should cover every aspect of a business, including a mission statement, competitive analysis, marketing, production, the regulatory environment, accounting, risk analysis, and performance measurement.

Your plan can be as brief as a few pages but should be designed to ensure that you evaluate the factors that will allow you to succeed where most startups don't. Some of the issues to include:

  • Mission Statement: What do you have to offer that's special? What are your bedrock values? The mission statement should incorporate your short-term and long-term goals.
  • Marketing: It's not good enough just to accept any old assignment that comes along. Is it the best assignment that you might find among all you could develop? How do you plan to get the word out that you are available? How will you convince others to hire You Inc. in the future?
  • Production: How much of your time and energy will it take to succeed at the task? What resources will you need? Is it practical?
  • Competitive Analysis: Analyze your strengths and weaknesses. Why should someone hire You Inc.? Who are your toughest competitors? What are your plans to make yourself more attractive?
  • Regulatory Environment: Incorporate the issues we discussed above regarding the rules and practices at your college or university, and show how your activity fits into that environment.
  • Accounting: Plan ahead how you're going to maintain and present your financial records.
  • Performance Measurement: Show how you are going to judge your success as a consultant. What are the financial milestones you want to accomplish? This also means having a schedule that you review regularly to decide whether it's all working out or whether you need to change your strategic positioning.

You can find whole books on preparing a business plan and while away weeks at it, rather than getting started, so try to avoid that trap.

Using your spare hours to make spare change can be a significant boost to your income as well as opening the road to new opportunities and maybe even to eventual liberation from the cocoon of the professoriate.

John Vineyard, C.F.A., formerly an investment officer at Cornell University, left academe in 1992 to become president of Sunlake Investment Management, an investment-counseling firm in Ithaca, N.Y.

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