Everything You Need to Know About Becoming an HR Consultant

HR consulting is the practice of delivering all aspects of human resource management as an external provider, and with the professional and business issues associated with operating such a practice—including client development, contracts and client management.

The demand for these services is not limited to large organizations. For independent HR consultants, in fact, the greatest area of opportunity might be with small companies. According to the Small Business Administration, the majority of U.S. small businesses that are not sole proprietorships have fewer than 20 employees. That represents significant opportunity for independent HR consultants.

As more organizations have chosen to lighten their staffing burdens by contracting for HR services, outsourcing opportunities have grown for independent HR consultants.

Nature of the Work

HR consultants are basically small business owners and must have the same traits as any other entrepreneur. These include:

• Ability to work independently.
• Basic business management skills—such as accounting, office management and customer service.
• Ability to market services.

In addition, successful HR consultants have expertise in a specific area of HR practice—or broad expertise as a generalist—and an identified target market with a demonstrated need for the services the consultant offers.

To attract clients, HR consultants must be able to demonstrate, through their background and experience, that they can accomplish certain goals and objectives. Certification can help to demonstrate an HR consultant's competency. Potential clients are interested in knowing what the HR consultant can deliver and in seeing evidence that the consultant has done similar work in the past.

A consultant's varied experience with multiple organizations can provide an edge without undermining the capabilities of in-house staff. Consultants' relative objectivity and neutral stance are valuable to organizations. This neutrality allows consultants to focus on real issues and solutions instead of on internal politics.

Staying up-to-date on HR trends and issues can be a formidable challenge, but it is a necessity. Participation in professional organizations can be a good source of information through other HR colleagues and through material made available in publications and online resources and at conferences.

The life of an independent consultant can be rewarding—and maddening; it can be invigorating—and demoralizing. The ups and downs are influenced primarily by clients and the quest to find them, keep them and work with them effectively. See Tips for Becoming an HR Consultant.

Business Management

HR consultants must be adept at managing their business as entrepreneurs and using their time efficiently when no one is driving them but themselves.

Some key business considerations for HR consultants include:

• Areas of focus. Determine whether the consultancy will provide general or specialized HR services, and identify services that will be provided.
• Target market(s). Determine the target market to be served (e.g., industry, geography, main point of client contact).
• Legal structure. Determine whether the business will operate as a sole proprietorship, limited liability corporation (LLC), S corporation or other entity.
• Management team. Decide whether the consultancy will be operated independently, or whether staff—or partners—will be necessary to meet client needs.
• Financial. Identify revenue and expense expectations and establish a preliminary budget for operations.
• Administrative. Determine how business operations will be managed, including such matters as invoice management, collections and tax considerations. Identify necessary outside resources (e.g., legal, financial).
• Insurance. Identify insurance needs, which include health and life insurance as well as professional liability insurance. The type and level of coverage selected will be based on the HR consultant's financial situation, level of exposure and degree of acceptable risk. See What insurance should an independent HR consultant have?
• Licensing. Determine licensing requirements. States, as well as many cities and counties, have different rules about business licenses. HR consultants should check with the appropriate agencies to determine requirements for doing business in their area.

Areas of Opportunity

While there certainly are HR consultants who practice as generalists, many find that having a specialty area of niche focus is an important way to develop name awareness and a steady stream of clients.

HR consultants have many opportunities and potential areas of focus. According to a survey by HR Dive, more than half of companies surveyed outsource at least one HR activity.

While the transactional elements of HR practice clearly represent opportunities for outsourcing, they are not the only opportunities. Small organizations have the need for tactical, day-to-day assistance in the broad range of HR-related activities. In addition, basic compliance and employee relations are also areas of high demand.

Work Environment

Many HR consultants work from home offices. When choosing to work from home, consultants should be sure to investigate local zoning and land use restrictions, which might affect their ability to receive business visitors or employ certain types of staff. For those who are able to operate in this environment, however, the advantages include convenience and reduced operating costs. The greatest potential disadvantages are ensuring efficiency and avoiding distractions.

For maximum efficiency, the office should be located in a room separate from the rest of the living area and away from distractions. The office setting should be designed to avoid unnecessary distractions and should be arranged for maximum efficiency with the desk, files and office equipment located to ensure that materials used most often are easily accessible.

While the conveniences of working from home can be substantial, there are often many challenges as well. It can be difficult, for example, to balance work and personal life with an office always right down the hall. Working from home may mean fewer meetings and less workplace gossip, but many other factors compete for attention—children, pets, housework, chores and the refrigerator among them.

Some HR consultants might want to consider renting an office separate from their home. The biggest consideration is financial and involves costs related to rent, utilities, travel and other overhead expenses. Temporary office space options might be available depending on the location in which the consultant practices, and other shared space arrangements might be possible. Various forms of business centers offer Internet access, videoconferencing, shared conference space and receptionist services. Some even rent a spot where consultants can meet with clients on an as-needed basis.

Location might be an important consideration, depending on the type of services offered and the frequency of interaction with clients on site. Before researching options, HR consultants should consider and prioritize their needs. Understanding exactly what is required can help filter the choices to make the most appropriate selection.

Marketing

In consulting, contacts count. Identifying potential contacts is an essential first step for anyone considering a consulting career. Most consultants find that their greatest source of business is word-of-mouth referrals, so reputation is also critical.

Marketing entails a variety of activities that might include writing articles, giving speeches, attending local and regional business events, serving on boards and committees, and making calls or other contacts with prospects.

Websites are a valuable tool for HR consultants not only to attract business but also to provide a handy resource for prospects and clients. The consultant can use this forum to highlight areas of expertise, showcase case studies and success stories, and provide contact information. To be effective, websites need to be professional in appearance, easy to navigate and updated frequently enough to encourage repeat visits.

Social media presence is also a necessity for HR consultants. Consultants can use social media sites such as LinkedIn, Twitter and YouTube to boost their presence and market their services at a very low cost.

Networking is key in the HR consulting business. Vital to success is the ability to connect with and maintain strong relationships with contacts in the markets that HR consultants have chosen to pursue.

Referral partners can also be used to market HR consulting services. HR consultants may consider partnering with other professionals in noncompeting businesses for referrals from their networks.

Once contacts have been established, HR consultants need to develop proposals that meet identified client needs. The ability to convey a value proposition to clients in the form of a formal proposal is fundamental.

Clients are interested in working with HR consultants who have hands-on, personal experience in the area of service they are providing. They are looking for individualized solutions to specific problems rather than cookie-cutter approaches. A critical skill for HR consultants is the ability to listen effectively to client needs.

Consultants who demonstrate an ability to listen, understand and act appropriately will ease clients' concerns that they understand and will be able to address client issues effectively. Clients are looking for results. Consultants who can demonstrate measurable value have a competitive edge.

Contracts and Agreements

While not all HR consultants use formal contracts with clients, it is advisable to document, in writing, the agreement and expectations of the consulting relationship to help manage expectations and avoid misunderstanding. Written agreements can help in situations in which the "players" or contact people within an organization change.

Written agreements are crucial so that everyone is clear on the work to be done, timelines and payments—and how to handle disputes. 

Alan Weiss, author of How to Write a Proposal That's Accepted Every Time (Kennedy Information, 2003), suggested that proposals be detailed and specific but also "lean and mean." His proposals include several standard sections that cover objectives, metrics, value to the customer, timing, methodology, options, joint accountability, terms and conditions.

Proposals do not have to be extremely detailed or lengthy. In fact, a simple letter agreement can be as short as one-half page. The key is to include, at a minimum:

• A description of the services that will be performed.
• The deadline by which services will be completed.
• The fees that will be charged.

In some situations, clients present the consultant with an agreement. When this occurs, it is a good idea to have the document reviewed by an attorney before signing it.

Another element of the proposal that can affect a client's decision to hire the HR consultant is references. References should be considered carefully and should include not just name and company but also information about the type of service provided and—when possible—the measurable outcomes of those services. HR consultants should be prepared to answer specific questions about performance and should have examples of specific projects readily available.

Financial Concerns

HR consultants must address the question of how much to charge for services. Consultants need to charge enough to reflect their expertise and value. Perception is important. Fees much lower than clients are used to paying might set off warning signals. Fees that are much higher might create concern. It is a tough balance but one that must be struck to ensure revenue generation and a steady stream of clients.

A number of factors go into establishing rates and project fees: what other consultants are charging for similar services, the type of business or industry being targeted, the client's history with using consultants, supply and demand, and the consultant's level of experience and expertise.

Fees for individual projects will be based on a number of factors, including project objectives, scope of services provided, success criteria, budget (if applicable) and timeline.

The decision of whether to charge by the hour or by the project is an individual one and varies from one consultant to another. See How should an HR consultant charge for services?