.Consulting for Profit & Success How to Develop a Competitive Financial ProposalBy Silvester Hwenha pptx

Consulting for Profit & Success
How to Develop a Competitive Financial Proposal
By
Silvester Hwenha
Smashwords Edition
****
Published By
Silvester Hwenha on Smashwords
Consulting for Profit & Success
How to Develop a Competitive Financial Proposal
Copyright 2011 by Silvester Hwenha
Smashwords Edition License Notes
Thank you for downloading this free ebook. You are welcome to share it with your friends.
This book may be reproduced, copied and distributed for non-commercial purposes, provided
the book remains in its complete original form. If you enjoyed this book, please return to
Smashwords.com to discover other works by this author. Thank you for your support.
Other books by Silvester Hwenha available at Smashwords.com
The Making of a Consultant: The Keys to Establishing a Successful Consulting Career
Strategies and Tips for a Writing Winning Technical Proposal
Table of Contents
Introduction
About the Financial Proposal
Costing and Budgeting for Consulting Fees
Developing the Project Operations Budget
Determining Project Profitability
Financial Management Systems
Financial Proposal Consolidation and Submission
Key Takeaways
Introduction
Starting a consulting business is difficult enough but staying in the business is even more

challenging. You must find clients, consistently deliver the best services, and charge the most
competitive fees for your services. The bottom line is that the business must make a profit to
stay afloat and to grow.
Making money in consulting boils down to how skilled you are at developing competitive
and profitable financial proposals and project budgets. Most consultants have exceptional
technical skills in their area of specialisation but often lack the financial skills necessary to
sustain their consulting careers. Money is the lifeblood of any business. Without a healthy
cash flow your consulting practice will inevitably grind to a halt.
This book provides you with knowledge and specific financial skills, hints and tips
necessary to help you develop a competitive financial proposal. After reading this book you
will:
• Clearly understand the steps involved in developing a financial proposal;
• Have the ability to evaluate your services and charge competitive fees;
• Confidently develop project budgets;
• Have the ability to determine the profitability of consulting projects; and
• Create healthy professional relationships with associate consultants.
About the Financial Proposal
In development consulting in order to get work both the technical and financial proposals
must pass the client’s tender evaluation process. This book focuses on the financial proposal.
The financial proposal complements the technical proposal to constitute a full proposal. In
fact, the financial proposal is based on costing the technical proposal. Generally, the financial
proposal consists of two key sections; consulting fees and project operational costs. The
consulting fees are what the individual consultants involved in the project are paid in
exchange for specific services over a specified duration. Project operational costs indicate
what it would cost the client to finance the project to completion.
While the above constitutes a complete and acceptable financial proposal, it often suffices
only for small and short-term projects. For larger, more complex and long-term projects
clients require a more detailed proposal. In addition to the above, the consultant or consulting
firm is required to provide a detailed narrative of the financial management systems in place
that demonstrate to the client adequate capacity to manage and control financial resources.

Costing and Budgeting for Consulting Fees
Consulting fees relate to the money paid to a consultant in exchange for specific services at
a stipulated rate over a specific period of time. In development consulting the fees are
commonly charged per working day.
How to set your consulting fee rate
One basic rule about costing your services is that you must know the value of your services.
Do not let clients determine what you are worth. Always make sure you negotiate for fair
compensation for your services. Make the effort to research and be aware of the standards
regarding professional fee structures in your particular area of consulting. Most organizations
have guidelines and structures for professional fees. Most such structures peg consulting fees
based on the qualifications and years of experience of the consultant. Resist the urge to be
greedy and opportunistic; always comply with industry standards when pricing your services.
Remember that clients are buying your expertise. Therefore, once you have set your rate
allow yourself to gain a track record of successfully implementing projects before increasing
your rate. Your experience will enable you to easily negotiate for higher and favourable fees.
While you need to charge a consistent consulting fee rate, it is also necessary to be flexible.
Your rate should have some allowance for negotiating with clients who might need your
services but do not have a sufficient budget to cover your fees. Sometimes the work might
add value to your portfolio of services and prepare you for other bigger projects. Use your
discretion but do not be shy to turn away loss making projects unless if it is part of your
social responsibility plan.
Determining your consulting fee and negotiating with clients is a tough process and
sometimes consultants price themselves out of business. This could happen in one of two
ways. First, some consultants peg their fees above the market rate in an effort to increase
profits from projects. The cardinal rule in consulting is that never come out to the client as
greedy or desperate for money, even if you are! Outright greed and desperation will raise red
flags and scare the client away. Second, some consultants accept very low fees and barely get
by in the hope that this will secure them repeat business in future. Sometimes this helps
consultants to get into the industry but it does not always work in the long-term. Remember
though that when proposals are evaluated it is not necessarily the cheapest proposal that will

be selected. Furthermore, once you price yourself below the market rate, it will be very
difficult to justify huge increases in your fees in future. So make sure that you charge
competitive fees that will make you profit and keep you in business.
How to develop a consulting fees budget
When you are an independent consultant developing a budget for your fees is simple and
straight forward. When associate consultants are involved the budget for consulting fees must
be disaggregated to show the fees paid out to each consultant and the number of days worked.
In the budget the consultants can be identified by name or by their roles in the team. The fees
must also be disaggregated by phase or activity for clarity. Clients always want to know what
they are paying for.
Where field work is conducted as part of implementing the project, fees for other personnel
such as research assistants and data entry clerks must also be charged separately. Remember
that any activity not costed will reduce your profit margin as the activity will still need to be
conducted to fulfil the assignment.
Most clients will provide you with their preferred structure for the budget. However, where
no format is suggested develop a simple and clear but detailed costing structure. The budget
must also be presented in the stipulated currency. An example for a consulting fees budget is
shown below.
Developing the Project Operations Budget
Project operational costs relate to those costs incurred during the course of implementing
and managing the project. These costs are derived from costing all the activities to be
undertaken to complete the project as outlined in the work plan. It is therefore important to
make sure that the work plan is comprehensive and detailed to ensure that all the activities are
costed. Generally, operational costs are direct and reimbursable costs and as such are
commonly charged at cost price. Examples include travel, communication (email and phone
bills), stationery; printing and photocopying of project documents. These costs are often
incurred by the consultant and then reimbursed by the client.
Clients will often indicate allowable costs and it is your responsibility to ensure that the
client approves of all expenditure in advance to guarantee reimbursement. In addition,
authentic proof of expenditure such as receipts and invoices are required before the client can

reimburse such expenditure.
Where the project requires the consultants and other staff such as research assistants to
work away from their normal work stations, per diems or daily allowances are paid to cater
for out-of-pocket expenses, food and accommodation. These allowances are often paid in
advance and require no formal accounting beyond providing accommodation receipts as
proof that you actually went on the field trip. Per diem rates are often determined by the
client based on the cost of living in a particular geographic region. However, where these
allowances are too low to sustain daily living expenses they can be negotiated.
Where field work is involved transport must be costed. Where workshops will be conducted
workshop venues and refreshments for participants must all be costed. Great care must be
taken to ensure that all operational costs are covered. Poor costing will reduce the
profitability of the project on the part of the consultant and clients are often unwilling to
renegotiate budgets once they have been agreed on.
Creative costing that minimizes project operation costs is a requisite skill as this often gives
your proposal a competitive edge over your competitors. Where possible, suggest cost cutting
options to the client. For example:
• Use your own vehicles to conduct field work. Even when you charge a fee to cover
vehicle servicing costs, it will still be cheaper than paying for a rental car; and
• Use your own computers for data entry instead of hiring.
When operational costs are reduced your budget becomes competitive. Low operational
costs will not affect the profitability of your budget as these are direct and reimbursable costs.
Below is an example of a project operational costs budget.
Value Added Tax (VAT)
All registered consulting firms have tax obligations. As an individual you are also liable for
income tax. Income from every project is thus liable for tax. Your budget must indicate
whether it is inclusive or exclusive of value added tax (VAT). Most clients in the
development sector are non-profit organizations and often will not accept budgets inclusive
of VAT. This calls for creative pricing of your work to ensure that your budget remains
profitable after tax. In addition to tax, you budget must make provision for all possible
contingencies.

Your budget must always have a shelf life or validity period. This is critical in situations
where clients delay the hiring process and only do so when some project costs have changed
and the budget needs readjustment. Conventional practice shows that financial proposals are
valid for a period of 90 days or three (3) months.
Determining Project Profitability
Let us face it; the primary objective of any business is to make money. Consulting is no
different. Providing cutting edge services and solutions to clients comes with the job. This
does not mean that consultants are not passionate about their work; consulting is business and
to remain viable the business must make profit. So do not be shy or reserved when it comes
to charging competitive fees for your services.
It is critical to determine the profitability of a project before you decide to take on that
project. Since all operational costs are charged at cost price you can only make profit through
charging competitive consulting fees. When you work as an independent consultant this is
straight forward because you get to retain all the professional fees you charge the client.
When associate consultants are involved, determining the profitability of a project becomes a
challenge. The challenge arises from the need to balance paying out competitive rates to the
associate consultants and retaining a healthy profit margin.
Different consulting firms use different strategies to reward associate consultants fairly and
still retain a profitable margin. The most common strategy is to negotiate and agree on the
fees for associates, add a ‘mark up’ and bill the client. For example, an associate consultant
may agree to a fee rate of $300 per day and the firm bills the client for $400. This means that
for every day that the associate consultant is on the project, the firm makes a profit of $100.
The profit margin will vary from firm to firm and from consultant to consultant. While there
may be no universal guidelines regarding the acceptable profit margin there is certainly a
limit beyond which clients are not prepared to pay.
The conventional practice in developing consulting is to develop a budget for professional
fees and then separately develop a retention or profitability table (whatever you choose to call
it). The retention table basically shows the rate you charge the client for each associate
consultant, the actual rate to be paid out to the associate consultant and what you retain as
profit (see table below). This table shows that at the stipulated rates the profit margin on the

budget would be 16% or $2750.00.
Strategies for retaining associate consultants
Most independent consultants and consulting firms depend on a pool of associate
consultants to complement their expertise in implementing consulting projects. Repeatedly
doing business with the same associates often improves team performance. It is therefore
important to develop strategies to retain associate consultants. Here are a few ideas:
• Always agree on competitive fees. Squeezing associate consultants in a bid to raise your
own profit margin will not work for long. Chances are the associate consultants will
only work with you once and never return. So be fair and benefit more from having a
pool of competent and loyal associates;
• Create and maintain a healthy professional relationship with the team. Provide adequate
back-up support including making travel arrangements, processing advance payments
and basically sorting out and managing all logistics to enable them to do their work
effectively;
• Invite associate consultants to professional events where they can benefit from
networking with other consultants; and
• Send associate consultants professional literature such as articles, reports and news
related to the consulting industry.
When your associates feel valued and are rewarded fairly for their services, they will be
loyal. This will serve you the labour of putting together a team every time you want to bid
for an assignment.
Financial Management Systems
Financial management systems are critical especially when you land big projects with
relatively big budgets. If the client is going to pay large sums of money in advance to cover
project costs, they invariably need proof that you have or you can access proper financial
accounting and management tools and systems. If such tools and systems are in-house, it
presents a distinct advantage although it is also acceptable to tap such skills externally.
Usually having a computerised accounting system (such as Pastel) and a qualified Book-
keeper or Accountant is enough proof of a functional financial management system. In some
cases clients will also require proof that your systems are tax compliant. The following

documentation is often requested in to satisfy clients that you have a sound financial
management system:
• Tax certificate;
• Audited accounts; and
• Bank statement.
For larger projects and where the firm may be required to pre-finance the project, the client
will request proof of funds before awarding the contract. These requirements are often
limiting to most emerging small and medium consulting firms. To circumvent such
challenges small firms often partner with more established firms who have functional
financial management systems and adequate funds to pre-finance projects. In the long-term
you should strive to establish your own financial management system and grow your savings
from revenue.
Financial Proposal Consolidation and Submission
Since the different sections of the financial proposal are prepared separately, in the end you
must consolidate the proposal. All calculations and totals must be verified for accuracy. Once
the budget is submitted no corrections to the proposal will be permitted. In order to ensure
accuracy in the calculations, insert formulas when you design you budget template. This will
make it easy for you to make adjustments to the budget as all totals are then automatically
calculated.
Payment Schedule
Once the budget has been finalized, you must develop and propose a payment schedule to
the client. Always propose a down payment upon signing the contract. This initial payment
must be calculated to cover project expenses including fieldwork up to the submission of the
first major deliverable. Without a down payment, most consultants and emerging firms fail to
take up and implement projects because of lack of adequate financial resources to pre-finance
projects.
However, most clients are reluctant to agree to a down payment and often prefer to make
payments against major project deliverables. This then requires the consultant to pre-finance
the project. In order to avoid the financial strain imposed by the need to pre-finance projects,
you should routinely save a fixed portion of your fees to build your financial reserves.

Submission of the Financial Proposal
The financial proposal in packaged separately from the technical proposal. Where the
proposal is submitted electronically, the financial proposal is attached separately. When hard
copies are required the financial proposal is packaged in a separate envelop and clearly
labelled.
The reason for packaging the technical and financial proposals separately is that they are
evaluated separately. The technical proposal is evaluated first. The financial proposal will
only be evaluated if the technical proposal reaches or surpasses the minimum threshold set by
the client.
Key Takeaways
• The financial proposal entails costing the technical proposal and consists of budgets for
professional fees and operational costs, and a narrative of your financial management
systems;
• Charge your professional fees based on your experience and industry standards. Fees
that are too high will price you out of business while fees that are too low will bankrupt
you;
• When you engage associate consultants strike a balance between paying out competitive
rates and ensuring a profitable retention;
• Project operational costs are direct and reimbursable costs and therefore must be
charged at cost price. Ensure that you have receipts and invoices to facilitate
reimbursement by the client. Also make sure that the client approves all costs before
they are incurred;
• Your budget is liable to taxation, so make sure you know how to handle this and and
other contingencies to remain profitable;
• Invest in developing financial management systems. They are very important when you
go for large and more profitable assignments; and
• Negotiate a payment schedule that allows for a down payment with your client. This
will help you to conduct the assignment without the financial strain of pre-financing
projects.
Silvester Hwenha is an independent Development Consultant with over 10 years of

experience consulting in the non-profit sector in Southern and East Africa. Silvester has been
a Senior Consultant with reputable consulting firms in Zimbabwe and has been engaged with
non-profit organizations based in the USA. Silvester is a Zimbabwean national now living in
Pretoria, South Africa.
Connect to Silvester
Smashwords author page: />Email: mailto: