| To Fee or Not to Fee
My staff and I have worked hard to reach the high levels of competency we have achieved. Between educational and vocational awards, designations and battlefield tested skills we have the scars and medals shared by many of our contemporaries in this occupation we all share. Whether it’s practicing as brokers on main street, intermediaries in M&A, valuations for divorce, shareholder actions, estate matters, potential sale, etc., buy-side engagements and arranging financing so that our clients maximize their life dream, we all strive for excellency.
So why do many of us perform for free, sans fee?
Sure, it’s argued that we work on a success basis like real estate brokers. They do a comparative market analysis for free and then hope they will get the property sold. Even if all we had to do was pull BizComps and Pratt’s Stats and present same in a 2 page report, chances are we’d still have 2 to 4 hours of work invested. I’m constantly amazed when I hear of a broker in another office working for free. How about the agent with a purported buyer who drives them around to see every potential business for sale within 25 miles of the office? Wouldn’t we be better off by charging a buy-side retainer and bill against it at our hourly fee and then charge a success fee to the buyer? 20-25% of the savings from the asking price as our remuneration is rarely challenged. Ever notice how a potential seller reacts when they’re told the Buyer is paying the fee? We can send ten marketing letters to a seller as sell-side brokers with no response. One letter stating our fee is paid to the same seller and the phone rings. Hmmm.
Business appraisals are complex vehicles that have a profound impact on the end user. Are we really that comfortable with Rules of Thumb that we advise a seller of the value of their life’s achievement with such rule of dumb models when every business is different? Even canned software isn’t much better than taking the seller’s opinion on a 1 to 10 scale and plugging in some numbers with questionable veracity. Perhaps the “no fee” approach creates a false sense of security that mitigates the risk if we over or under value the business. Wrong! I hope your E&O insurance is paid. As professional business brokers and intermediaries we owe a fiduciary relationship to the client to do the very best work we can. Of course there’s the question of quality vs. quantity when it comes to listing inventory. We’d rather have a pre-qualified (paid a valuation fee), an educated seller (agrees with our opinion of value) and perhaps most importantly, in informed broker who has done the work (and been paid to do it) to understand the client company. Further, for those offices that have an element of turnover, wouldn’t it be nice to offer a trainee a source of income from day one? Imagine, even at a paltry $1,000 per valuation paid 50% to the trainee, they have the opportunity to make enough to cover expenses before the first commission check. Even if you don’t do your own valuations and send out the work, the agent makes a little something, pre-qualifies the seller and learns something about the company before attempting to market it.
We typically advise buyers that companies with multiple profit centers are desirable. Think about your office’s earnings potential with fee paid valuations, success fee sales, a retainer and success fee on buy-side engagements and for those that provide litigation support, expert testimony fees. Add the bonus of (fully disclosed) third party financing origination fees and maybe your turnover will decrease and you can add another administrative assistant to make sure there’s a live voice on the phone when a seller makes up his mind to sell.
Our philosophy is to never work for free and I propose that every qualified intermediary in our industry re-consider this practice. The time has come to charge for our expertise like every other professional.
Christopher R. George, CEO
George & Company
Worcester, MA, USA |
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