27.3 Managing a professional business

Management consulting is a business, and has to be treated as such, in all cases where an independent service is provided to clients for a fee, and where the firm has to finance its existence and growth from its earnings. This applies to the vast majority of organizations that provide consulting services. Internal and subsidized consulting services constitute an exception and some principles of managing professional businesses may not apply to them. Still they can benefit greatly from being structured and managed as quasi-businesses.

Recognizing that consulting is a business

It is not always easy to call a spade a spade. For many years, professional firms resented being regarded as businesses, and even now some professionals feel uneasy about selling their services or discussing fees, which they regard as beneath their dignity. Consultants are often torn between being professional and commercial.

Yet a professional service must find a buyer or client who is willing to purchase it and to pay an adequate price for it. There is a more or less developed and structured market for professional services, and competition among professionals is increasingly regarded not only as normal and acceptable, but as necessary and beneficial to the clients. The marketing of professional services has undergone spectacular changes over the past decades, and in many countries further changes are likely in the years to come.

Like any other business, a professional consulting firm needs to be profitable. Its profits will depend on many variables, some of which are not under the firm’s control (e.g. general demand for professional services), while others are (e.g. the uniqueness and the quality of the services provided, its reputation and marketing skills, and the efficiency of operations). Profit planning, and deciding on the use of the profits, are important in every consulting firm that wants to be in a healthy financial position, motivate and compensate its people correctly and have sufficient resources for further development.

Traditionally consulting businesses were highly labour-intensive and getting into consulting required relatively little initial capital. All a new entrant to the profession needed was his or her own talent and a small working capital to cover living and other expenses until fees could be collected on a regular basis. He or she could even borrow this money, and start working from home without renting expensive office space. Many sole practitioners were thus able to become consultants on their own, even if quite a few of them had to make personal sacrifices at the beginning of their consulting careers.

Management consulting is now tending to become more capital-intensive. Consultants have to spend more on information and communication technologies, computer systems, Web sites, information and databases, licences, advertising, research, publications, and so on. Consulting firms need finance for