Your consulting income is growing. Is your personal wealth?

Professional Services

Growing consulting revenue does not automatically build personal wealth. First establish what the firm earns after allowing for your work and its operating costs. Then decide how much can safely support your household, reduce debt or build assets outside the business.

For the owner of an established consultancy, the gap often appears when you try to take a longer holiday, hire senior support or turn down an engagement. The income is strong, but it remains closely tied to your availability.

Count the hours that never reach an invoice

Delivery is only part of the owner's contribution. Business development, proposals, recruitment, supervision and the difficult client conversations also consume time.

If the reported profit depends on you doing all of that without a realistic allowance for remuneration, it offers an incomplete picture of the firm's performance.

An informative management report separates the cost of delivering work, overheads and owner remuneration. It should also show how much income depends on you personally, compared with work the wider team can deliver.

You may choose to remain a highly paid specialist with a small team. That can be an excellent business. It simply calls for a different financial plan from a consultancy designed to be sold without its founder.

A new engagement can create a funding gap

A major project may require recruitment or subcontractors well before the first client payment arrives. An apparently attractive contract can therefore increase the cash you need to keep in the firm.

Before accepting a sizeable engagement, map when delivery costs will be paid against when invoices can be issued and collected. Confirm the approval process, the person authorised to accept milestones and the consequences of a delay.

The government's payment terms guidance explains why terms belong in the contract as well as the invoice. For a consultancy, the practical question is whether the agreed billing process matches how the work is actually delivered.

Do the same exercise for concentration. If one client delayed a project or reduced its budget, which business costs and household commitments would remain?

Treat structure and tax as a connected decision

A company or trust does not, by itself, determine how consulting income will be taxed.

The ATO describes personal services income, or PSI, as income mainly produced by an individual's skills or efforts. Whether the PSI rules apply is a further assessment. Where they do apply, they can affect income reporting and available deductions.

That distinction matters. Avoid assuming that having several clients, issuing invoices through a company or employing an administrator settles the issue. The actual arrangements need to be considered.

Ask your accountant to explain the position in plain terms: whose income is being generated, which rules apply, what records support that conclusion and how money can appropriately move from the firm to you. Broader tax rules can still matter even where the PSI rules do not apply.

The aim is a structure that fits the business, with obligations understood before cash is committed elsewhere.

Decide what stays in the firm and what has a personal purpose

Owners can become accustomed to leaving every surplus dollar in the business. Others take too much out after a strong quarter and put it back when work slows.

A more deliberate approach starts with the firm's commitments and a realistic allowance for uncertainty. Agree what level of working capital the business needs. Then discuss the appropriate timing and form of payments to you.

Outside the firm, give surplus income a purpose. It might support debt reduction, a cash reserve, superannuation or investments, depending on your circumstances and professional advice. Each option has different tax, access and risk considerations.

This conversation should account for your partner's position, any personal guarantees and how much of the family's financial future already depends on the consultancy.

Make the next year less dependent on you

Choose one operational change that would make a meaningful difference to owner dependence. It could be introducing another senior person to key clients, documenting a repeatable service or giving a team member responsibility for delivery.

Measure the result in more than revenue. Did the change protect margin? Did it release your time? Could the client relationship continue if you stepped away?

These are useful commercial questions even if a sale is years away. They help you understand which part of the business value is transferable and which part is the reward for your continued effort.

Questions to take to your next review

Should I retain profits in the company? That requires advice on the business structure, PSI and other tax rules, working capital and your personal objectives. The company bank balance alone is not a sound basis for the decision.

Do I need to grow the team to build wealth? Not necessarily. A smaller consultancy with strong margins and a disciplined personal financial plan may suit you better than a larger firm carrying more risk and management demands.

If your fees have grown faster than your sense of financial security, start a conversation with EFS. We bring Professional Services advice, accounting and private wealth advice together so the firm supports the life you want beyond it.

General information only. Seek tax and financial advice that considers your circumstances before acting.

Speak with our team

For advice on your circumstances, speak with Theunis Holl or Adrian Dorca.

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