For many IT professionals, striking out on their own to launch an independent computer consulting or IT consulting practice is a thrilling step: it means freedom from a restrictive office atmosphere, the luxury of being your own boss, and the promise of having unlimited earning potential.
But a career as an independent computer consultant also means working without the security of a regular paycheck, the discipline provided by a supervisor checking in, and the structure of a regular workday – all of which can make this “dream job” a challenge. And these are only the most obvious challenges computer consultants face.
Because many IT entrepreneurs know their work well but have a limited background in the financial or business side of things, they overlook business-building essentials and can end up spending thousands (or far more) in avoidable costs.
Here’s a guide to avoiding one mistake that can cost computer consultants hundreds of thousands of dollars. (For a look at how basic organization plays a role in risk management, read “How a Calendar and an Email Can Save You Thousands of Dollars.”)
Protection for Computer Consultants Who Aren’t Perfect
Let’s say you run your computer consulting business from your home. You start off lean: a laptop, a cell phone, a printer, and a hearty outreach campaign letting your professional network know about your new venture.
You secure your first three clients quickly, and things look rosy: you’re able to help people without being hampered by a web of corporate regulations, and you actually have time to enjoy the morning sunlight in your kitchen. You’re starting to think about the next phase (hiring a bookkeeper? upgrading your machine?), when you get an angry phone call from your biggest client: his company’s network just crashed in the middle of a major sales presentation, and they couldn’t get it to reboot. The client was spooked and left, making it clear there would be no deal.
The worst part? He blames the new project management software you recommended, which his company implemented the previous week. And now he’s going to sue you for the losses associated with losing the major account.
Even if you’re confident the software you recommended didn’t cause the network crash, you’re now facing a court case, which means you need to hire a lawyer – fast. In case you’ve never done that before, be warned: lawyers tend to be expensive. And while you may love that working as a computer or IT consultant lets you charge by the hour, you probably won’t be thrilled to foot your attorney’s hourly bill as he or she builds a case to defend you.
A drawn-out trial could mean endless billed attorney’s hours, docket fees, witness fees, and possibly (if you’re found liable) a judgment, easily totaling hundreds of thousands of dollars, depending on the scale of your client’s loss. You could avoid a trial and settle with your client, but that also costs money.
All of a sudden, your sweet consulting setup is looking dire.
The Cost of Liability Insurance for Computer Consultants
Luckily, the threat of costly mistakes doesn’t have to keep you from quitting your day job and starting the IT consultancy of your dreams. Investing in basic business insurance can, in the event of a liability lawsuit, protect you from…
- Lawyers’ fees.
- Court costs.
- Settlement or judgment costs (the “award” amount that makes headlines in court cases).
Considering the above costs can range anywhere from a few thousand dollars to a million bucks or more if you’re consulting with larger clients, the cost of liability insurance is reasonable. A typical Errors and Omissions (E&O) Insurance policy might set an independent contractor back as little as $2,500 per year – that’s only about $200 per month.
And a General Liability policy, which protects you from other third-party lawsuits, can be as inexpensive as $500 per year (less than $42 per month). (See detailed sample quotes of the cost of liability insurance for computer consultants.)
Writtten by Brenna Lemieux - check her out at Google+ or Twitter
