What is Fair & Reasonable to Charge for Business Services

[Corporate Services]

Fair & Reasonable Compensation

I have decided to submit this to the forum as the number one challenge facing the providers of professional business services as well as the start-up business owner is what to pay. I have found that in most cases business owners are experts in their chosen field of expertise but have little or no expertise in what is required to successfully source credible investors. The most difficult challenge facing both parties is to agree on the amount and type of compensation for the service provider in return for his/her time, skills, contacts, credibility and expertise. To achieve this I am submitting the following proposal that was recently submitted to a potential client after much back and forth discussion. Hopefully this will serve to breathe some reality into your future discussions whether you are a business owner in need of these types of services, or, you’re a business service provider. This is an actual situation which was accepted by the client – the work was completed in 60-days and he/we are currently in negotiations with two very credible investors. The following is the actual proposal sent to the client last July:-

Services Required

 Firstly I will need to invest the time to gain a thorough understanding of you project, this will involve me providing you with a very detailed questionnaire which will form the basis of both the business plan and financing proposal.
 Once I have gained this knowledge I will then create a formal financing proposal that
We can confidently put in front of any credible funding entity. I will then begin to market your opportunity to both my existing contacts and to new ones.
 Concurrently with this I will begin working on the development of the main business
Plan in readiness for presentation to seriously interested parties, who respond to the financing proposal.
 Along with the business plan I will create an excel workbook to accommodate the financial projections that will need to reflect realistic and attainable numbers both for costs and revenues.
 Along with these responsibilities I will utilize my contacts to come up with a suitable International Financial Structure that will fulfill your wishes and accommodate foreign based investors.

It is clear to me that these functions create three distinctly different relationships which I will attempt to clarify as it is critical that we are on the same page if we are to work together.

Fee Based Relationship

The first relationship is the one of ‘Fee Based’ which is the contribution of my time in carrying out the above duties – my time is valuable and I have a set fee schedule to compensate me for this. This is the kind of remuneration you would expect to pay a lawyer or accountant and any other professional to hire their expertise. On a project such as this where the principal had adequate financial means I would charge $8,000 per month plus expenses. Half would be paid up front and the other half at the end of the 30-days – this would continue until the contract was complete. However, in your case I am willing to be flexible – I will reduce my monthly fee to $5,000 for a 90-day period. The residual of $2,500 per month ($7,500 over contract period) is to be deferred and paid out of the initial funding. Therefore all it will cost you initially to hire my services is $2,500 which I feel is more than fair and reasonable given our respective situations.




Success Fee Relationship

The challenge of sourcing, connecting, communicating and establishing the credibility of a suitable investor for any project is an extremely specialized procedure, especially one where we are restricting ourselves to those deep pocketed individuals and groups who are comfortable becoming involved in an international situation. The time involved is often immeasurable and can be a full time proposition for the lead negotiator in gaining the trust of these investors. The timely injection of adequate capital under reasonable terms and conditions is the lifeblood of any business and therefore to provide a reward for the time and effort involved in successfully securing one is via a ‘Success Fee’. This fee is paid out of the funds invested at the time they are invested at a rate equal to 5% of the amount raised. For example the initial amount we will be looking for is $250,000 – my fee would be 5% or $12,500 payable upon receipt of the funds. If we decide the 2nd stage amount is another $500,000 then my 5% will be $25,000 and the same will apply to any subsequent funding. This way I am rewarded only if I am successful in attracting the investor – if I don’t then I don’t get paid – there’s my incentive.

Long Term Participation

The final relationship is one of long term participation or equity as I believe that the aforementioned services will determine the long term success of the company – without the contribution of these services achieving your personal and corporate goals in a timely fashion would be unlikely. I have always been of the opinion that if I am directly responsible for contributing in a substantial way to the long term success of a company then I should also participate in what I have helped to create. Therefore in return for my contribution I would expect to be allocated a 5% equity position in the company to ensure long term reward in the form of profit sharing/ dividends/ buy out etc. This still leave you 95% equity and more than enough for you to offer the investor/partner which will probably be in the 20% to 30% range depending on the type of arrangement we decide to enter into.

I believe that this addresses the points raised in our recent discussion on the one hand I can appreciate your financial constraints which is why I have structured this proposal the way I have. However, you must appreciate my position too – in your case you pay your monthly bills by creating websites – the success of your business concept is as you say your retirement. I agree, this is why I charge a fee for my valuable time – this fee income pays my bills – Relationship No 1. My success fee is strictly performance based, my time is only rewarded if I am successful in sourcing an investor for your project – if I don’t I don’t get paid so really this costs you nothing – Relationship No 2. Finally if my involvement and contribution to your project positions you to enjoy long term rewards then it is only fair that I participate in a small way in that long term success which is why I expect a 5% equity interest in the company – this is my retirement – Relationship No 3.

I trust this addresses adequately the points raised in our prior discussion but it is now time for you to decide on whether you want someone like me to contribute my expertise at this critical time. The choice is yours – I am not willing to compromise any further. Whatever you decide I wish you all the very best in your future endeavors.