Consulting (Part 8) – Avoiding Overhead

February 26, 2012

Hal Pomeranz, Deer Run Associates

Earlier in this series of articles on consulting, I mentioned that my wife and I run our business from our home.  This prompted one reader to ask why we didn’t have separate office space.  The short answer is because office space is pure overhead.  Every month that office space is going to cost me the same amount of money, whether I’m actually billing or not.  And if I’m in the middle of a lease, I may not be able to shed that overhead as rapidly as I’d like.

During bad periods, extra overhead is the weight that drags you down.  I’ve previously discussed having six months of “burn money” saved up to help you through these periods.  One way to make your savings go further is to take a hard look at what recurring costs are necessary, and which can be done away with.

When I think about the absolute necessities for keeping our business going, the list is really very short:

  • Internet/Data Service — Obviously, we run a high tech business and Internet and data connectivity are a must.  Over the years, the most cost-effective solution that I’ve found is to use an inexpensive residential data plan for our home offices and have a dedicated server at a colocation facility acting as the “public” face of Deer Run.  I get better availability and more throughput by having the server at the colo, and “residential service + colo” is still less per month than the expensive “business level” service plans offered by my local data providers.
  • Telephony — These days, cell phones are a must.  We also have a POTS line from our local telco which is the main number for Deer Run.  Extravagantly, we also have a separate POTS line for our fax machine.  While I enjoy having the POTS lines around as a backup, the reality is that they’re not at all necessary.  If we ever do another move that requires us to print new business cards and letterhead, I would likely drop this service.
  • Insurance — An earlier article in the series talks about insurance issues.  We carry our general liability coverage and an extra rider on our homeowners policy to cover the replacement cost of our computer systems in the event of a catastrophic event like a fire.  Do not try to skimp on this.
  • Accountant/Attorney — Also do not skimp on legal and financial advice.  The good news about these costs is that they only tend to accrue when you’re actively working.  If business drops off, then you won’t need these services as much, other than perhaps year-end tax preparation.
  • Taxes — Related to the above, make sure you pay all of the taxes that you owe.  The out-of-pocket and opportunity costs related to dealing with an audit, taxes, and penalties are significant.

From a business perspective, anything else falls into the “unnecessary overhead” category in my world.  Think long and hard before taking on any additional recurring costs besides those listed above.

We’ve managed to keep our business going through two major economic downturns where business was scarce for 6-12  months.  In both cases, we weathered the storm by dialing our expenses down to the bare minimum and deferring maintenance that was not absolutely necessary until the economic outlook improved.  In this “hibernation” mode, we were able to turn our “six months” of savings into enough money to get us through an entire year.

Office Space

Since I started this post by mentioning the office space issue, I did want to note that even though we work from home we do have dedicated office space.  In fact, three of the four bedrooms in our home comprise the “World Headquarters” of Deer Run Associates.  Laura and I each have separate offices with doors that close– a must for when we’re both working from home.  We also have a third “overflow office” for visitors which also holds our server and networking equipment along with our paper files and other storage.

You are allowed to claim a deduction for the office space used for a home-based business.  You must be careful to only use the office space for business and not for personal reasons.  I will also note that the IRS has sent unannounced representatives to visit both our California and Oregon offices to verify that the office space was being used as we claimed.  While the IRS agents were unfailingly polite, I was also glad that our office space looked as professional as could be when they arrived.

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7 Responses to “Consulting (Part 8) – Avoiding Overhead”

  1. Hal,

    Great series!

    If I wanted to get my name out there with respect to doing digital analysis, what advice would you offer me, beyond what’s in your series?

    Offering to do pro bono work for LE? Offering to do an initial ‘try out’ on a pro bono basis for public/private customers? (Do both…no takers).

    What resources or avenues would you recommend?

    Thanks.

  2. Great points, Hal.

    I would also consider a virtual office http://en.wikipedia.org/wiki/Virtual_office if you need access on occasion to certain amenities (such as a conference room, signor for deliveries).

    Especially if you have kids, it may not be possible to make your home office appear completely professional.

  3. Harlan, I’m not a big fan of pro bono work as an avenue for obtaining future paying work. Generally, it seems like once you give something away for free, the recipient isn’t likely to be willing to pay for the same service in the future.

    Now if you want to do pro bono work for the benefit of the community, I’m all for that. And that may indeed increase your visibility as a practicioner. I am aware that some people in our industry have gotten their start by doing volunteer gigs for LE, though I’m hearing anecdotal evidence that it’s becoming more difficult for LE to use civilian volunteers in this capacity these days.

    Another option for gaining recognition as an analyst is participating in one of the numerous forensic challenges that happen every year (like the DC3 Challenge, now open for registrations at http://dc3.mil/challenge/2012/). It’s clear to me that prospective employers are watching the results of these challenges pretty closely, looking for talented individuals.

    Harlan I’m curious about your experience, having written WRF and WFA as well as authoring a well-known and widely used forensic tool in regripper. Do you find you get more credit as a practitioner for your books or for regripper? Or is it not easy to distinguish the effects? Do you tend to do more analysis work these days, or more expert testimony?

  4. Aaron, I tend to agree. I don’t think I’d feel comfortable meeting a new client in my home office space. But it’s easy enough to either use a service like the one you recommend on an as-needed basis, or simply meet at a coffee shop or cafe if necessary. And often the client wants you to come to them anyway.

  5. Hal,

    > Do you find you get more credit as a practitioner for your books
    > or for regripper? Or is it not easy to distinguish the effects?

    I guess it all depends on what you mean by “credit”. I can’t easily distinguish the effects of either, because what I hear is often anecdotal, third party, and only when someone thinks to mention it. Most often, it’s “credit” in the sense that someone says, “Hey, this guy Harlan did this thing”, and not something that necessarily leads to actual work, or even the potential for contract work.

    I’ve been told by some that “everyone” in the industry knows my name, or that my name is well known in the industry. That “knowing” doesn’t translate to my “doing”, per se.

    > Do you tend to do more analysis work these days, or more
    > expert testimony?

    I’ve never had an opportunity to provide expert testimony. In instances where I’ve assisted LE, it’s either been a small part of the overall issue, or I’ve provided information that’s led to a plea agreement.

    On the topic of pro bono work, I’m all for doing that type of work to assist LE and support my community. I’ve also done some pro bono work as a “try out” or interview, but I think you’re right, in the sense that when you move beyond that and start discussing even greatly reduced hourly rates, the interest wanes.

  6. I have to agree with Aaron…there are some folks who can handle the “home office” environment very well, and there are those who cannot handle it at all. My experience on the IBM ERS team showed me examples of both…you have no idea how annoying it is when the manager who scheduled you for a conference call has their small children in their office while on speaker phone.

  7. […] the standard taxes that accrue on that income.  You should also have billed enough to cover any overhead costs related to running your business for the […]

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