Consulting is a knowledge-based industry that spans across the breadth of various other industries from Information Technology to Financial Services. Consulting firms, irrespective of their legal forms of organization are traditionally run as partnership firms. This is the reason why most of the consulting businesses are named after the senior partners in the business. However nowadays, consulting firms have taken on the form of joint-stock companies in order to keep pace with the expansion across the world and increasing number of senior partners, who have now become shareholders.
The consulting companies usually may charge their clients in one of the two different kinds – on a rate per hour basis or on engagement basis. Rate per hour is the most popular basis for charging fees. However when the client allows considerable flexibility to the consultants in determining the nature of flow of work, the consultants tend to charge a fixed fee on the basis of the engagement.
Since consultancies are purely knowledge-based, there are usually no major capital expenses except for office buildings, furniture and equipments. The major expenditure is in the form of salaries paid to the employees. The partners’ salaries are usually the largest components. Typically, the partners are paid according to the volume of business sourced by them. Therefore the partners’ salaries are highly volatile across years. The middle-level and lower-level staff are paid salaries and bonuses just as in any other business. On some occasions, the salaries of partners are charged to specific clients directly. In such a case, almost all of the profits earned from that particular client is usually passed on to the partner.
Consulting firms also have large research departments to conduct on-going research on industry-specific problems. The research costs also form a significant portion of the total expenses. In order to learn more about financial models and to have models built for your business, please visit http://www.financialmodel.net/.
Tags: consulting firms, Financial Model, joint stock company, partner salaries, partners, partnership, research expenses
