Businessman in suit with blue tie sitting at negotiating table

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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