How To Set Up A PV Consultancy

A few weeks ago, I posted a 4-part series on "How To Set Up A PV Consultancy". Several of you asked me for a consolidated version of that series, so here it is. Feel free to share this, copy it, and especially to use any of this that is helpful to you!

Legal advice: (Obtain a qualified attorney).??I asked my estate attorney for help setting up an LLC (Limited Liability Corporation).?It took him about two weeks to set this up, file it with the IRS and the State of Pennsylvania, and obtain approval.?The cost of doing this was about $1250 (a one-time fee).?He provided me with an EIN (Employee ID Number), which I need for each client in order to accept payment.?I also need this EIN in order to establish electronic banking (business checking account).??By the way-you will want to decide the name of your LLC.?Once you establish it, I think it is difficult to change.?

Some things you will need to think about- are you establishing a solo practice, or do you want to employ other people??This decision will affect the type of entity you establish, and probably will affect your liability insurance.

Financial/Tax advice: (Obtain a qualified accountant or financial advisor). I set up a business checking account, so that I could accept payment directly into an account separate from my personal savings or checking.?For some reason, this took one month to set up, (after receiving my EIN from my attorney), even though I did it at the bank that holds all of our other accounts.?I was told that the bank was taking precautions to prevent money laundering and financial fraud, so take this time into consideration.?I do think that you will want to accept payment electronically, in order to avoid waiting for checks in the mail.

Save documentation of all of your business expenses, as these are deductible.?A short list of such expenses includes the attorney fees for filing your LLC (or S-corp), liability insurance, computer/phone costs, etc.?My first year costs included [(attorney $1250) + (liability insurance $1600/yr) + (computer $2200) + (phone $1200)].?On an ongoing basis, my expenses will be minimal, mainly liability insurance.

You will need liability insurance.?Some clients will request proof of your insurance.

Because I am now self-employed, my accountant set up a quarterly payment schedule with the IRS and the Pennsylvania Department of Revenue.?I have something that looks like a quarterly bill (with a payment stub) and I send the IRS & PA a check for my estimated taxes, at the end of January, April, September and November (I know those aren’t exact quarters, but that is when they are due).

Self-employment- talk to your attorney and your accountant about the best way to structure your situation.?My top tax rate as a full-time employee was either 36% or 39%.?The top tax rate for an LLC is lower.??In addition, I was able to set up a solo 401k, where I am allowed to contribute both as an employee, and an employer.?I am able to contribute approx..?$60,000/year to this 401k this way.?

You will receive a separate 1099 from each client.?Obviously save all of this for your taxes.

Save all of your business receipts (attorney and accounting fees, insurance, cost of equipment and supplies, etc.)

LLC vs. S-Corp: this is complicated.?If you want the simpler solution, the LLC is the way to go (that is what I did).?If your income is very high, and you want to shelter more of it from taxes, my understanding is that an S-corp may do this.?What an S-corp lets you do is to set up a corporation where you are the employee.?You pay yourself a certain amount as an employee (say $100,000/year).?That amount is taxable as an employee.?The remainder of your proceeds is taxable at corporate tax rates.?This approach requires that you set up a payroll system, and track that appropriately.

Clients:?Who are your clients going to be, how will you learn of this work, what type of work are you planning to do for them, how much are you going to charge them, how many clients do you want, etc.??(Ignore all of the following if you have one client already established who you will work for, and work only for that client).?

Some of my work comes through word of mouth, directly from the client, and some of it comes through recruiters.?Some recruiters specialize in full-time placement, and others specialize in contracting/consulting.?Some recruiters are solo practitioners, and some are part of a larger recruiting practice.?In the contracting/consulting space, some recruiters specialize in lower-end engagements, and some specialize in higher-end engagements.?As you enter this space, you will probably find 2-3 recruiters whose market aligns well with your offerings.?

I am 1st order connections with approximately 400 recruiters on LinkedIn.?When I started my practice, I emailed every one of them.?I tracked all of my emails (and responses) in a spreadsheet.?If you are just starting this process, search on “pharmacovigilance recruiter” or “drug safety recruiter”, and see who searches for full-time vs. consulting opportunities.?Connect with recruiters who hire where you live, and for the type of work that you want to do.

I have found 2-3 recruiters that I think very highly of.?The advantage of working with recruiters is that they are highly motivated to find me work, because they only get paid if they find me work.?The more work they find for me, the more they get paid.?Recruiters tend to add 25%-35% above my hourly rate.?I would be happy to connect you with the recruiters I work with.

Another source of client contacts is other people who work in my space.?I was surprised by this.?I assumed that other people who did what I do were “the competition”, but it is not like that at all.?I know a consultant who does exactly what I do, and we forward recruiter calls to each other all of the time, if one of us is too busy to take on new work.?In addition, if potential work requires a higher or lower skill set than mine, I forward those calls on too.?

My clients are, for the most part, small startups and biotechs who are either too small to have full time PV staff, or slightly larger companies who have some PV staff but want some part-time support.?The type of work that I do is the same type of work I did as a VP of operations- attending project meetings, reviewing protocols/CSRs/DSURs etc., oversight of CROs, compliance oversight, etc.?I am currently the Acting Head of Pharmacovigilance for two of my clients.

Administration:?My schedule- I have 4-5 clients at a time.?I tend to work with one “anchor” client (20 hours/week or so), and fill in the rest of my schedule with 3-5 hours/week with each of the other clients.?I work about 40-45 hours/week of billable work, which is very rewarding financially.

You will need to allow for some non-billable administration time.?This is time used for billing, invoicing, scheduling, etc.?I probably take 3-4 hrs/week on this.?Scheduling is the most challenging, because I am part of several client scheduling systems.?If Client A wants to meet with me Thursday 11am, but I have a meeting already scheduled with Client D, I have to try to accommodate both clients.?I have not found an elegant solution to this challenge.?Even managing my own calendar (where do I have to be, and when, for each client) took some learning.?Luckily all of my clients use Microsoft Outlook, so I found a way to merge all of my calendars and email into one Outlook application.?But my clients cannot tell when I am available, and I don’t update all of my individual Outlook calendars every time I am invited to a meeting.?It is not unusual for me to have a schedule change 2-3 times daily.?

Your bill rate- what will your bill rate be??(I don’t want to know, but you will need to decide).?I encourage you to aim high.?If you set your rate too high, your recruiters/clients will let you know.?Every client project has an established range, and it is ok to ask what the client range is.

Probably worth asking a recruiter for some guidance on this, or another consulting physician.??At a minimum, consider your annual salary + bonus, divide that by 2000 hours.?That is your currently hourly rate as an employee.?But as you well know, companies are accustomed to paying 1.5-2x more to consultants, because the company doesn’t pay benefits to consultants.?

Think about whether it is worth providing a discount to your rate for a client who has a lot of work to do.?For example, if your bill rate is $200/hr, and a client has a 20 hours/week project for a year, is it worth accepting a little less ($175/hr?) in exchange for the security of a long-term contract?

Also, some clients may pay a bit more hourly, but require more administration in order to get paid.?Some clients require entry into an online tracker (using the Intuit technology), others accept invoices.?(You will need to create an invoice for each of these clients).

Each client has a different billing & payment schedule.?Two of my clients invoice on two-week cycles, and provide payment two weeks after each two-week cycle.?Most of my clients do invoicing on a monthly basis, and pay one month later.?One client waits three months to pay.?

I suggest that you track all of your invoices.?I sometimes have 8-10 outstanding invoices.?I created a spreadsheet that has: Client name/invoiced amount/invoice date/payment date.?I highlight outstanding invoices in yellow, and then grade those invoices out when I am paid.?I would be happy to share this with you, along with my monthly invoice template, if you would like.

Contracts-once you agree on terms and conditions, a client (or recruiter) will send you a contract.?Usually the main part of the contract is “boiler-plate” text (with statements on confidentiality, intellectual property, liability exclusions, etc.).?This main section of the contract tends not to change from one consultant to another.?Then there usually is an Appendix A, a one-page appendix that describes your specific responsibilities, start and end date, and compensation.?Obvously look at this carefully, but I have never had any issues with this Appendix.

I hope this helps.

Sincerely,

Hal