Oftentimes, as business owners, we fight through trial and error to build our businesses. Although it is possible to build a successful business on your own, having an experienced business advisor can help you get your business where you want it to be in a more efficient manner. I like to think of it in terms of climbers conquering Mt. Everest. The climbers have the vision, experience, and skill, but they still benefit from having a sherpa to guide them along the best course. Of course, this comes with a price. That’s why today’s entry is going to answer the question, what does it cost to hire a business advisor?
Follow Along With The Financially Simple Podcast!
I’ve been a business owner most of my life. In fact, I’ve owned a total of six businesses (I currently own three of them) and have sold three of them for profit. Business ownership is just one of those things that I get. It has always made sense to me. Because of this, I am also very capable of assessing the value of someone’s business. I am not an Accredited Valuation Analyst™ (AVA®) or a Certified Valuation Analyst® (CVA®). However, I am a Certified Value Growth Advisor® and am able to provide a benchmark or informal valuation.
Despite having expertise in this area, I am completely unequipped to provide an adequate assessment of my own business. You see, I’m too close to my own business. It’s my baby. Likewise, your business is your baby. When you look at your baby, you see it through the lens of love. That can distort the view. I’ve written an entire book about this very subject. It’s for this reason that a business advisor is so valuable. I believe this so much that I use a business advisor to help me in each of the businesses I own.
A good business advisor can examine your baby with objectivity. They will be able to provide honest feedback, even if it’s upsetting at first. Not only will a business advisor help you to see your business’s flaws, but they can guide you through the process of improving them and making your baby more attractive to potential buyers or investors. Now that you can see what a business advisor brings to the table, let’s begin to look at how much it can cost to hire a business advisor.
There are a few different ways that your business advisor might charge for their services. The first method is to simply charge an hourly rate. This is exactly what it sounds like. The business advisor provides you with their services, billing at a set hourly rate. In my own business, we are exploring the possibility of bringing in a second business advisor that specializes in the area of user experience/user interface. They will likely bill us on an hourly basis for this type of work.
Another method that you could encounter is what’s known as project-based billing. Basically, this means that the business advisor gets paid per project. For instance, I once had a client who needed me to help him with a building project. For my part, I helped him put together some of the numbers and the underwriting for the bank. This enabled him to put together the financing and contracts necessary to bring in the contractors he needed to complete the physical build. I entered into this project with an understanding of how much time would be needed to complete the job and charged him for the project rather than the hours spent on it.
Finally, we’re beginning to see a new billing method emerge. The method itself isn’t really new, but it used to be reserved for mid-sized to large corporations. However, with the advancement of technology, we’re beginning to see a lot of business advisors offer value-based pricing. Essentially, this means that you’re paying for the tangible and intangible results they are creating for you. What does that mean? It means you’re paying for tangible results such as a revenue increase and for intangible results. For example, let’s say, as a business owner, you hate doing certain activities within your business. If the business advisor is able to formulate a way for those tasks to be done for you, freeing you to do other more desirable and profitable tasks, that adds intangible value.
Recent studies within the consulting industry have indicated that 80% of consultants are actively trying to increase their rates. As the CEO of a business consulting firm, I can tell you there are a lot of people who claim to be business consultants who don’t know how to be one. They might have read a few books, worked for a Fortune 500 company, or even understand one or two processes. However, their knowledge isn’t readily applicable to small businesses. Therefore, true comprehensive business advisors are becoming fewer and fewer.
Because of this, consultants who are specialized in a particular area—and make it clear in their marketing—have a higher consulting engagement value. Those who are specialized (and make it clear in their marketing), earn 25 percent or between $20K to $100K more per engagement than their counterparts who don’t make their specialty clear. Likewise, a specialist is twice as likely to receive most of their consulting income from retainer-based work. With this in mind, it’s important to determine which type of client you want to work with.
Now, this last statistic is actually inverse to what many small business owners do. Oftentimes, small business owners will lower their billing rates in order to win a larger client. However, only around 33 percent of consultants will do this. The reason is that, as consultants, we know the value of our training and expertise. We understand how we can directly impact the businesses that we consult. Because of this, I challenge you to know your worth and stand firm with it. Having a race to the bottom isn’t benefitting you or your business.
At this point, you’re probably wondering how a business advisor determines their fees. There are a variety of factors that play into this equation. Your business advisor may consider some or each of the following factors in order to determine your consulting fees:
First, you have market averages. According to Body Shop Business, experienced advisors in the collision repair industry can charge between $2,500 and $5,000 per day. On the other hand, I know several dental consultants that charge $75,000 for their first-year program. This doesn’t include the added expenses that come with implementing the plans. So, there are many different market averages that play a role in determining the cost to hire a business advisor.
Another determining factor is the expected duration of consulting. In other words, will the job be a “one-off” phone call or does it call for a monthly—or longer—package? In my business, we charge an onboarding fee followed by a monthly fee for the period of time that each client needs. Once they’ve reached the goals they were planning to meet, that fee might reduce, depending on the client’s needs. For the business consulting we receive, we pay our consultant’s fees for our monthly virtual consulting and if they come to the office, we incur an additional fee.
It is a dream of mine to reach the point, in my own business, where we can charge based on the ROI of the value that we affect in the business owner’s life. In the small business world, this is often more difficult to achieve because the Earnings Before Owner’s Compensation (EBOC) is so out of range that value-based growth just doesn’t work. However, I know business consultants who work with small business owners, charging them around $200 per hour with the agreement that they will receive a percentage of the ROI if it is above a predetermined amount.
Essentially, this is a way for the business advisor to leverage a deal with you, the business owner. One of the most publicized examples of this comes from the series, The Profit. Marcus Lemonis, the owner of the multi-billion dollar company, Camping World, goes on the hunt for struggling businesses that are desperate for cash and ripe for a deal. In each episode, Lemonis makes an offer that’s impossible to refuse; his cash for a piece of the business and a percentage of the profits. Now, you don’t see many of these types of deals in the mainstream, but there are a few consultants that are willing to take this type of risk.
This is a really simple way to determine your fees, as a business consultant. Basically, the consultant determines how much money they need to earn and how many hours they want to work. If a consultant needs to earn $1,000 and only wants to work 5 hours, they would set their fees at $200 per hour.
This basically focuses on how well the consultant understands a specific industry or niche. For example, my company really focuses on exit planning and exit strategy. The reason for this is that I’ve seen so many business owners pour all of their energy into their profitability while ignoring the fact that exit planning is profit planning. This is something that I’ve been able to prove through extensive research and even first-hand experience. When I began focusing on growing the value of my business, I saw profits follow. However, when I simply focused on building profits, the value of my business wasn’t really there. Therefore, it made sense for me to hire a consultant that was well versed in consulting-based businesses with a focus on exit planning and strategy.
These are the six factors that business advisors consider when determining their fees. As such, knowing these factors can go a long way in determining what it might cost to hire a business advisor to consult your business.
At this point, you might be saying, “Justin, I’ve never hired a business advisor because I don’t need one.” If that’s you, I get it. I completely understand that you feel that way. But here’s the thing… we all need expert advice. The reason is that you can’t see what you don’t know you should be looking for. Another way of putting it is to say, you don’t know what you don’t know.
I have a story to illustrate this point. A major Chicago newspaper found itself in crisis mode on the Saturday before Christmas, one year. The massive printing press stopped working and the paper was in jeopardy of losing its extraordinary advertising revenues if they couldn’t print the Sunday edition. After the technicians exhausted their expertise, a desperate phone call was made to a retired technician who had worked on the presses for over 40 years.
They told the man that they would pay him anything if he could just get the presses running again. Once he arrived, he looked around for a few moments before opening a control panel. The man removed a dime from his pocket and used it to turn a screw 1/4 turn. The presses sprang to life and the management told him to send an invoice for his work. A week later, they received an invoice for $10,000. Astonished, they requested an itemized bill in hopes that it would persuade the technician to reduce his charges. Instead, they received an itemized statement that read, “$1.00 for turning the screw. $9,999.00 for knowing which screw to turn.” You see, none of the other technicians knew what to look for, making the retired technician’s wisdom and experience extraordinarily valuable. Both to himself (as a consultant) and to the newspaper who got to keep their advertising revenues.
Friends, maybe you’re like the printing press technicians. You know the ins and outs of your business, and you know them pretty well. However, when all of your expertise leaves you unsure of what else to do, you can bet that there is another who has been where you are and found the way to move past it. Leveraging the wisdom and experience of a business advisor in your business can yield the results you’re looking for. Maybe you’ve tried “everything.” But that just means you’ve tried all that you know. The cost to hire a business advisor can be substantial. But the value they could bring to your organization could be much greater.
Look, life is hard. Life is good. Trying to steer your business toward increased value, profitability, and a successful exit plan can be super frustrating. But it doesn’t have to be. By working with a great business consultant, you could make your business goals at least financially simple!
Are you tired of running in circles? Do you spend more effort chasing profitability than building lasting value? Are you just curious to learn what a business advisor could do for you in your business? Reach out to us. The team at Financially Simple helps hundreds of business owners just like you!