Consultant Fees

I recently came across a posting from a frustrated entrepreneur castigating those consultants who have the audacity to charge for their services so I thought I would share my original posting and subsequent ones to address more ‘consultant’ bashing that was going on. I hope you find it interesting and that it paints a balanced perspective of this contentious issue.

The issue at hand is why should consultant’s or financial middle men charge up-front fees;

1^st Post – Most fees are based on a percentage of transaction – (3% of $2.5 M IS $75,000) (10% of $25,000 is ………..) The type of investor you need to target is small to medium individual investors/groups/syndicates who usually are the type of investors you think don’t exists. However, be prepared to have a 1st class business plan presentation and realistic and attainable financial projections – just because they are not large VC’s they are still very prudent investors. I hope this helps.

The next post was given in response to the insinuation that we had no right to demand an up front fee;

2^nd Post – I am an online business development consultant – I have worked many times in good faith only to be stiffed by the project principal who turns out does not have the ability to deliver what he says he does. Most institutions charge some form of retainer, good faith deposit, commitment fee etc., including banks and many VC’s and private lenders. They do this for primarily 2 reasons.

Firstly to separate the wheat from the chaff – if a client does not have the ability to reach the point of investor readiness then odds are other restrictions will also be present and this is enough to turn off many investors.

Secondly, who pays for the many hours of due diligence, that will be required by the investor or his people to disseminate the information, check it for accuracy, conduct inspections etc. In most cases the due diligence will raise flaws in the projects – either in its design or the inability of the project principal to deliver.

It is this that the up-front fee protects against – do you think a project principal would say once it had been proven that his or her project is for example ‘Not economically viable’ do you think that you would receive payment after spending probably many hours arriving at that decision. ‘Before you are quick to dismiss up-front fees remember this – if you walked into your lawyer’s office or your accountants office and asked them to devote part of their lives to building your dream do you think they would drop everything and willingly provide their services for free.

My final post was in response to a statement that what about the poor inventor – when does he get his reward;

Posting 3 – The reward for all the entrepreneurs countless hours is it’s his/her company – if he wasn’t putting this time in to developing his own dream he would be working for somebody else. There are 2 sides to every story – yes I agree there are some unscrupulous so-called middle men out there – but the credible lender and investors don’t deal with them. So not only are the middle men con artists – so are there investors – in many cases.

Any new business needs $25,000 in their ‘War Chest’ to cover the time and expenses of marketing their project – this is a cost of doing business and as long as project principals try to do it the cheap way by trying to find a genuine professional willing to assist them for no money they will continue to get taken.

In this regard the saying ‘You get what you pay for’ has never been more true – if you have a serious business then you need to invest more than your time and creativity – you need to put your money where your mouth is. If not then in my opinion you cannot afford to succeed.

I agree that this has become a minefield as the internet has become an ocean of deceit but like anything else in life – one has to shop and find the right balance between cost and product. I myself have lost 10’s of $1,000’s of dollars providing good faith time to entrepreneurs only to discover either there concept was flawed or the management was unsound. Who do you think pays for the consultants time in these scenarios?

Solution – I now offer a free 2-hour review time on all new projects – I assess the economic viability of the project, review the quality of their plan and financials and then provide them with a written opinion. This outlines what I think they require to attain investment readiness – I tell them my remuneration expectations which is a combination of fee based and success fee based.

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Tags: Business, Business plan, Due diligence, Entrepreneur, Good faith, Investment, Marketing, Small business

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