Purely contingency-based fees make it difficult to provide serious advice - KERN
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Purely contingency fee makes serious counselling difficult

Many company owners ask themselves whether an advisor should only receive a success fee in the process of company succession. Hans-Reinhart Grünbaum, a lawyer in the legal and tax department of the Frankfurt Chamber of Commerce and Industry, addresses this important question in the second part of his conversation with Bolko Bouché from the Saxony-Anhalt Successor Club. In addition, he points out typical consulting traps that can be very easily avoided in the search for a company successor.

Mr. Grünbaum, can I agree on a success fee with the consultant, as in the case of buying real estate?

Serious consultants I know only exceptionally accept the wish to be paid exclusively on the basis of success. A well-founded service is associated with a workload that should not be underestimated. The success of the mediation, on the other hand, depends only partly on the counsellor. It can make sense to pay for counselling and mediation separately. In practice, mixed models ("retainer" and "success fee") are also agreed upon.

How can the adequacy of the invoice be checked?

You should specify the scope of services precisely. A mere activity as a business broker or only the inclusion in a database without additional advice does not usually lead to success. Make sure that only necessary services are provided. In addition, the services should be appropriate and affordable for the size of your company.

Do not allow yourself to be put under time pressure before concluding the counselling contract, reserve time for reflection. Get the contract documents in advance before you sign. Get a confidant to help you. This can be your tax advisor who knows your company well, or your lawyer. A serious adviser will not object.

Beware of advance payment, high fixed starting prices and monthly flat-rate agreements regardless of the scope of the work. Agree on itemised billing for services rendered. Payment does not have to be made by collection order either. If the client is to trust his consultant, the consultant can also trust the client to pay the bill.

What, for example, would not be adequate services?

In one scam, the canvasser first persuades people to sign a contract for communication services as a first step. This meant placing advertisements. An advertisement in the contract was charged at around 1000 euros, although the newspaper itself charged considerably less. In comparison, the price of the subsequent placement appears to be quite favourable. In view of the lucrative advertising margin, the consultant no longer has any interest in providing the mediation service.

How can entrepreneurs recognise poor quality counselling and what can they do about it?

If the written business analysis is missing or unusable and if there is a blatant violation of the rules customary in the industry, there may be immoral conduct. In this case, the court ruled that the fee must be repaid. In this case, the consultant should have already noticed the desolate financial situation of the company during the business analysis and that it would not be able to pay the excessive consulting fees. Contrary to the facts of the case, the consultant had failed to point out the uneconomical and unsuccessful nature of the project.

The decisive question for old entrepreneurs and buyers is the purchase price determination. The basis for this is the Business valuation. In order to avoid mistakes, an expert publicly appointed and sworn by the Chamber of Industry and Commerce should be consulted.

However, it will not always be possible to prove the poor quality of advice in court. Therefore, great importance must be attached to the selection and drafting of the advisory contract.

Click here for the first part of this interview: 

Part 1: Advice traps in the process of business succession

Publication with kind permission of Bolko Bouché of the Successor Club Saxony-Anhalt. The interview was also conducted by the IHK Frankfurt am Main published.

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