Blogger
Share this content
0
29
16546

How much would you charge for a business plan?

A new prospect approached me to assist with preparation of multi year financial forecasts and a business plan in respect of a new business venture.

setting up the business will cost several hundred thousands of pounds, for some of which he requires secured bank borrowings.

He is fairly wealthy and not a "dreamer", having been in business before.

Basically he wants a fair bit of input into his business plan, and hand holding in approaching different banks for his new venture to get the best deal on the table.

I got on pretty well with him, and felt I had established some rapport.

After a fair bit of time probing his exact requirements I concluded it would take quite a few hours, so quoted £1,950 for this work. I thought this might be on the tight side, but balanced this against a new client aquisition.

However, when I phoned him to follow up, he said he had another quote for the same work of £350+VAT and would be going with that!!

No way could I have done what is required for that fee. Am I out of synch with other peoples views on this.

Replies

Please login or register to join the discussion.

avatar
By Tosie
07th Aug 2012 15:46

Cannot be done for £350

I suspect that he will get a cash flow rather than a business plan.

15 years ago Business Agencies in our area had a scheme were they paid half the price of a plan for start ups to local accountants. We used  to receive between £500 and £1.5k from them and the client paid the rest.

Thanks (1)
avatar
07th Aug 2012 15:55

Cannot be done for £350

Yes, you can produce a very generic cashflow for this price, but a proper business plan with double entry based projected P&L, Bal Sheet and Cashflow, together with appropriate appendices and research will cost £1-£2k minimum. If they then want help touting this around the banks the typical deal is £2k up front together with 1-5% success fee.

Steve

Thanks (1)
avatar
07th Aug 2012 16:18

Buying the work?

The only think I can think is that they have thought they are going to get, say, £2-3K in fees every year from this client so are prepared to write time off at the start.

I cant really operate on that basis as I dont have time to throw at iton a speculative basis.

There was quite a sizeable local firm (not this outfit) who seemed to be buying work a couple of years ago by lowballing for work I would not have thought they would be interested in. The local rumor mill said they were just trying to keep staff busy.

 

Thanks (0)
avatar
07th Aug 2012 17:04

there are business plans and business plans

Many years ago, a large city situated between Coventry and Wolverhampton obtained £1m of grant funding from Europe which they used to kick start 12 'social' businesses in Birmi...err that city.

Twelve of the worst business plans I have ever seen were duly submitted for which the city paid £2k a piece.

I had a say reviewing these 'plans' which was promptly ignored as political correctness demanded the correct ethnic mix should be supported regardless of the quality of the plan.

The worst plan involved taking scrap Austin Metros, turning them into beach buggies by putting the hatch at the front and the fuel tank inside the car (honest) and selling them to the West Indies. Needless to say none ever reached the Windies (or the UK for that matter).

The instigator of this hairbrained idea did however manage to make two grant funded trips to Jamaica for project 'research' ... 

The best laid plans etc etc.. 

Thanks (0)
avatar
07th Aug 2012 17:21

Focus on the value add

Try to persuade him of the value and additional input he's getting from you. You don't know what discussion he's had with this other accountant. Chance are, he's got your quote, phoned someone up and asked "How much will you charge for a set of forecasts", and got the reply "£350", and is comparing apples and pears.

 

Thanks (0)
07th Aug 2012 17:24

He doesn't want the plan

@Zara - first, this is why you should always ask a) what his budget is b) give options and c) find out who else he has spoken to and what they have suggested.

If he failed to disclose I would not do a proposal for free.

Second, he doesn't want the plan, he wants the bank to lend him the money so you could charge nothing for the plan and a percentage of the agreed loan.

Bob

Thanks (0)
avatar
10th Aug 2012 18:47

More of this value based £%&*?

Contingent fees are murky as hell IMHO, only for rogues and chancers.  Why the hell should you get double the fees for the same work just because the loan was bigger?

Regards

MtF

Thanks (1)
avatar
07th Aug 2012 17:34

@Bob

If you ask people their budget I usually find that makes them defensive as they think you are trying to stitch them up.

Thanks (3)
07th Aug 2012 17:39

Asking

@Zara - then I think you need to think about when and how you ask.

Bob

Thanks (0)
avatar
07th Aug 2012 18:35

options

Typically I offer a range of options in these cases:

1.  Quick and dirty - a basic 12 month cash flow and profit and loss which reconcile to each other, and against which I have a very good track record in getting funding for clients.  This can even be lower than £350 where I have a good existing understanding of the business - hence not much work teasing out assumptions.

2.  Medium - proper P&L, balance sheet and cash flow extending over more than 1 year, with supporting calls to a funder.

3.  Full Monty - even more extensive financials and supporting work through a broker to a variety of funders, and possibly also the local people who will offer financing to clients declined by banks.

Depending on my view of likely success, some or all of this may be offered on a success fee basis.  Clients will happily pay 50% extra when the work is only invoicable once the desired funding is secured.

If I am making more than one offer in the same letter, in my view this really does enable clients / potential clients to compare apples with apples if they are getting quotes elsewhere too.  I've seen a few of my loccl competitors' quotes for thissort of work and they are much woolier on what the client is getting for how much, plus most of them run a mile at the idea of risk sharing and success fees.

Thanks (0)

£2k

I've done lots of these.

Option 1  - £250 minimum for 12 month cashflow and P&L for an existing client.

Option 2 - Detailed 12 month cash flow, P&L, balance sheet, 5 year forecast, detailed supporting narrative which is specific to the purpose (not one of these crappy off the shelf software packages) - £1,995.

Attendance at meetings with prospective lender/funders etc - charge extra.

If he wants option1 then £350 sounds fair but from what you've said he wants option 2 so your quote sounds very reasonable. If he's an experienced business man he'll know that.

Do you think he's trying it on?

Thanks (0)

I might do it for nothing if ....

(a) I had an existing relationship with the client.

(b) I Could see 5+ years of nice fees from the new business.

(c) I liked them.

 

Otherwise, I think Bob's approach is spot on. I would invest a bit of time in selling myself to the client such that he is suitably enthused that his success is in part linked to my involvement in the project. When he then asks for a quote, I would reply that it really depends on how professional he wants to appear to the banks ... as Bob said ... give him the options. Giving one price gives neither of you anywhere to go.

Thanks (0)
avatar
08th Aug 2012 10:33

What service is being offered?

I am a bit bemused by the thought that you are not preparing a business plan but are buying the option of the bank lending money.

I do understand the concept, but for me this really is the wrong point at which to start any business plan. Surely the correct point to start is at the beginning and looking at the business proposals and then determining the marketing/pricing strategy, etc and then putting them down on paper. The figures will then unravel and from this you will determine what level and type of finance is needed and at which point.

If you start with considering obtaining the maximum loan possibly and obtaining a fee based on the sizes of the loan obtained, then working the figures around such a concept, doesn't this open you up to minipulating the figures to obtain better finance deal? Because surely if you are selling the option of the bank lending money and charging a percentage of that loan, that is starting at the end point and working backwards. Rather than starting at the beginning and working forwards.

Isn't this part of the reason we are in this financial mess in the first place, Mortgage fraud, ie. people putting whatever figure they believe will get them the lending on a self cert mortgage proposal in order to achieve the ultimate goal of obtaining that finance and then going to their accountant who are happy to sign any letter for a fee.

As for a fee, I did a cash flow and profit projection for £1,200 last year for a client, which included a what if analysis within it. I made a loss on this job, but part of this loss was due to setting up my spreadsheets and intergating and developing a template business plan for other clients. Also to be completely honest I really enjoyed doing it so it was worth the time.

Thanks (5)
avatar
10th Aug 2012 18:54

"Isn't this part of the

"Isn't this part of the reason we are in this financial mess in the first place, Mortgage fraud, ie. people putting whatever figure they believe will get them the lending on a self cert mortgage proposal in order to achieve the ultimate goal of obtaining that finance and then going to their accountant who are happy to sign any letter for a fee. ""

"

I totally agree with this point, if you are putting yourself in a position where you only get paid if the client gets a loan from the bank, and you don't think this sends your professional ethics down $%&* creek, then you are kidding only yourself.  I hope all of have been careful to exclude liability to third parties on these negligently prepared forecasts, this sort of crap should be left to unqualifieds.

Regards

MtF

Thanks (2)
avatar
11th Aug 2012 22:36

Correction

Querty Keys wrote:

mackthefork wrote:

 I hope all of have been careful to exclude liability to third parties on these negligently prepared forecasts, this sort of crap should be left to unqualifieds.

 

 

So all unqualifieds are charlatans, and all qualifieds are paragons of virtue are they?

I would say that your sweeping unsupported statement perfectly fits your description of  "negligent crap."

You are right about that, I said it wrong and apologise.  What I meant was, contingent fees are fine for unqualifieds, but most professional bodies have specific rules which ban the use of these sort of fees for almost all work.  I didn't mean that unqualifieds are charlatans I merely meant they are not subject to any rules or sanctions from a professional body, which means they can behave any way they like without worrying about consequences.

Regards

MtF 

Thanks (0)
avatar
By BKD
12th Aug 2012 10:08

Contingent fees

mackthefork wrote:

 most professional bodies have specific rules which ban the use of these sort of fees for almost all work.

Actually, not one of the three major professional bodies of which I am a member ban contingent fees. All three do recognise the potential threat to objectivity and require safeguards to be put in place to ensure that objectivity and independence are maintained. But that is quite different from saying they are not permitted.

And I would suggest that there is no need to apologise to anyone that makes grossly offensive and inflamatory remarks. I've tried it, and it doesn't work.

Thanks (1)
avatar
12th Aug 2012 22:24

Okay i can accept that, but......

BKD wrote:

mackthefork wrote:

 most professional bodies have specific rules which ban the use of these sort of fees for almost all work.

Actually, not one of the three major professional bodies of which I am a member ban contingent fees. All three do recognise the potential threat to objectivity and require safeguards to be put in place to ensure that objectivity and independence are maintained. But that is quite different from saying they are not permitted.

And I would suggest that there is no need to apologise to anyone that makes grossly offensive and inflamatory remarks. I've tried it, and it doesn't work.

....I would suggest in the case outlined above there can be no effective safeguards to protect a perceived threat to integrity and objectivity where the fees are contingent on a loan being given by a third party (especially as the work is based on future unknowns), surely you can accept that.

I apologised because he is right, not all unqualifieds are rubbish, probably a minority are to be fair.

Best Regards

MtF

Thanks (1)
avatar
By BKD
12th Aug 2012 23:11

Straying from the point

mackthefork wrote:

....I would suggest in the case outlined above there can be no effective safeguards to protect a perceived threat to integrity and objectivity where the fees are contingent on a loan being given by a third party (especially as the work is based on future unknowns), surely you can accept that.

I was responding only to the suggestion that the professional bodies ban contingent fees - which they do not. But to respond to your point - depending on size etc of practice, it is quite easy to put in place safeguards.

Thanks (1)
avatar
13th Aug 2012 23:29

Yes I am straying from the point, but.....

BKD wrote:

mackthefork wrote:

....I would suggest in the case outlined above there can be no effective safeguards to protect a perceived threat to integrity and objectivity where the fees are contingent on a loan being given by a third party (especially as the work is based on future unknowns), surely you can accept that.

I was responding only to the suggestion that the professional bodies ban contingent fees - which they do not. But to respond to your point - depending on size etc of practice, it is quite easy to put in place safeguards.

I would disagree politely but strongly with you, that there are effective safeguards to protect your perceived integrity and objectivity when the fee relies on a client getting the result they want at the potential expense of a third party, no matter the size of the firm. 

Regards

MtF

Thanks (0)
avatar
By BKD
14th Aug 2012 08:23

safeguards

mackthefork wrote:

I would disagree politely but strongly with you, that there are effective safeguards to protect your perceived integrity and objectivity when the fee relies on a client getting the result they want at the potential expense of a third party, no matter the size of the firm. 

nothing wrong with differences with opinion. and we'll need to disagree - it is very easy, in a larger firm, to build a Chinese Wall. of course, that doesn't stop the outsider questioning the integrity etc, but as far as we're concerned it ensures that our professional bodies' rules and codes of ethics are adhered to.

Thanks (0)
avatar
14th Aug 2012 20:01

You seem a very reasonable fellow.....

BKD wrote:

mackthefork wrote:

I would disagree politely but strongly with you, that there are effective safeguards to protect your perceived integrity and objectivity when the fee relies on a client getting the result they want at the potential expense of a third party, no matter the size of the firm. 

nothing wrong with differences with opinion. and we'll need to disagree - it is very easy, in a larger firm, to build a Chinese Wall. of course, that doesn't stop the outsider questioning the integrity etc, but as far as we're concerned it ensures that our professional bodies' rules and codes of ethics are adhered to.

...and are sure difficult to disagree with, however it would not matter how good or honest your work was, or how many chinese walls you put in place, all that matters is what it looks like to a third party when everything goes wrong and it is discovered you only got paid because the client got the loan.  Even though you crossed every 'T' and dotted every 'I and lower case j' you still bring the yourself, your firm and youi institute into potential disrepute because someone can look at it and say 'something smells funny here'.

Best Regards

MtF

Thanks (0)
avatar
By BKD
14th Aug 2012 22:58

Point taken

mackthefork wrote:

... it would not matter how good or honest your work was, or how many chinese walls you put in place, all that matters is what it looks like to a third party when everything goes wrong and it is discovered you only got paid because the client got the loan.  Even though you crossed every 'T' and dotted every 'I and lower case j' you still bring the yourself, your firm and youi institute into potential disrepute because someone can look at it and say 'something smells funny here'.

But that is a benefit of those safeguards - to significantly reduce the risk of everything going wrong. I'll be honest and say that we don't fee on a contingent basis very often, but we do, and have yet to see anything subsequently go wrong or have our integrity and independence questioned. And we never operate on a contingent fee only basis - client is offered a fixed fee or a smaller, fixed, fee and contingent element. So we will always get paid something whatever the outcome.

Thanks (0)
avatar
10th Aug 2012 12:42

Charge 5% to 10%

But not 5% to 10% of what he eventually gets!

What I mean is take the time to help him understand the full value of having a robust business plan and then quote 5% to 10% of this as an up-front fee for working with him to prepare the plan.

If the plan will help him secure the needed "several hundreds of thousands of pounds" that will then enable him to make presumably considerable profits over the duration of the "multi-year plan," I would have thought an investment of 'several tens of thousands of pounds' a fair means of ensuring you both share in the value your plan helps him create.  As Bob has said, charge for solving the problem he actually needs solving.

And I would strongly suggest you follow Mr Mischief's model of offering him choices - of significantly different value, at significantly different prices - hence my range from 5% to 10%.

And as Bob has also said, they are good ways and poor ways of finding out how much he thinks he has available to spend.  If this is based on his perceived solution and his perception of the 'market price' of such a solution, then the process of helping him see for himself the full value of your proposed work may well shift his views on how much he's prepared to invest in resolving his problem.

Thanks (0)
avatar
10th Aug 2012 17:23

Once quoted

£1000 to re write business plan with numbers that worked (client did not even understand how Vat worked)

Too expensive.

Business started and stopped fairly quickly cost £45K

but a business plan may well have shown this before I knew what was going to happen.

% fees not an option for a qualified accountant !!

The cheapest in town says you will get clients like this that go for the cheapest option and that is invariably what they get. The real cost are horrendous!

Thanks (0)
avatar
By david13
10th Aug 2012 17:35

Irrespective of the charges you levy, "Business Plans" are just pie in the sky and wishful-thinking!

You can only plan what you will do, you cannot "plan" what the punters will do!

Anyone who finances someone else's "business plan" needs his head seeing to.

Charge whatever you think you can get away with!

Thanks (0)
avatar
11th Aug 2012 08:33

right drivel

There is some right drivel in this thread.  Making a success fee offer in no way affects how I go about my work, that is surely what real professional ethics are all about.  I usually only offer this option when I am over 70% confident of success.  Where a client is seeking funding on what I consider to be a long shot, I say that and explain why it is a long shot, what the fee is and that the fee is payable regardless of whether he or she gets the funding.  The client can then choose whether he or she has a punt on the long shot.

Contrast this to the majority of the local competition.  They will generally quote a fee, but not on a fixed price basis like mine.  They will very often then attempt to charge more than their quote.  They do this regardless of whether the client had a good lending proposition or a rubbish one - some of them in my view probably don't really understand the difference, or won't at least discuss the overall lending proposition first with a broker in order to understand what the proposition is.

The second type of accountant simply takes the fee.  My sort of accountant actively discourages clients from entering into loan applications and spending fees with myself and other parties where there is only a remote propsect of success.

Which approach is more ethical?

Thanks (0)
avatar
11th Aug 2012 22:30

If you are successful......

mr. mischief wrote:

There is some right drivel in this thread.  Making a success fee offer in no way affects how I go about my work, that is surely what real professional ethics are all about.  I usually only offer this option when I am over 70% confident of success.  Where a client is seeking funding on what I consider to be a long shot, I say that and explain why it is a long shot, what the fee is and that the fee is payable regardless of whether he or she gets the funding.  The client can then choose whether he or she has a punt on the long shot.

Contrast this to the majority of the local competition.  They will generally quote a fee, but not on a fixed price basis like mine.  They will very often then attempt to charge more than their quote.  They do this regardless of whether the client had a good lending proposition or a rubbish one - some of them in my view probably don't really understand the difference, or won't at least discuss the overall lending proposition first with a broker in order to understand what the proposition is.

The second type of accountant simply takes the fee.  My sort of accountant actively discourages clients from entering into loan applications and spending fees with myself and other parties where there is only a remote propsect of success.

Which approach is more ethical?

and it later turns out that you were way off base with your estimates, and your fee was contingent on success, then it will look like you have been influenced to your result by the desire for fees, whether this is true or not (which I'm sure would not be the case) so if you belong to a professional association of accountants, you fail to protect your perceived integrity from doubt, potentially bringing yourself, your firm, and your association into disrepute.

Lots of accountants attempt to persuade clients from spending money on futilities, contingent fees do not make you more ethical or less ethical, but they open you up to looking like you might just be a crook.

Regards

MtF

Thanks (1)
avatar
14th Aug 2012 12:07

outright No

Applies to audit and assurance work.

But in the case of a business plan a third party is going to rely on your work to make their decision to lend or not.

It is not difficult to see that your appearance of being independent and or objective might be damaged if you charge on a contingent basis.

The objective will be to get the loan and the fee, whether the figures are right or not will be secondary.

How else did you know you would be paid for the work?

I also cannot see how you can reduce the risks of this being thought of this type of agreement.

 

 

Thanks (1)
avatar
14th Aug 2012 13:47

At what point is the accountant involved?

Having read through the OP post again and looking at the posts after mine, I have condsidered that the decision on contingent fees would depend on what point the accountant gets involved.

If this is at the very start, then I would imagine the client would not have any reliabile figures in which to provide the accountant. Therefore the client would not know what funding was either required or suitable. Ie. a long term loan, Smaller short term loan, Debt factoring, overdraft, etc (assuming equity financing is out). Therefore on this basis, I cannot see how a contigent percentage fee would work, in a similar way as I cannot see a cheap and cheerful £350, knock some figures into a spreadsheet would be advisable for the client. For me a detailed meeting/discussions on strategy and a full business plan would be advisable to determine if the business is viable or not.

If say the client comes to the accountant and coments that he has produced a rough plan and has some very good idea of what is going to happen and they say we think I need a £100,000 10 year loan, but the bank needs an accountant to undertake the business plan work. Then a contigent fee of 10% of the loan may work (if you don't get the loan you don't pay a penny!), but again you would have to exercise very good due diligence in your work. In the same manner as a £350 cheap and cheerful cashflow exercise to justify the . The more work undertaken to determine the viability of the figures the more you would need to charge and the more you could perhaps justify that your PI would be safer!?! So in this case a contingency price could work, but so could a cheap and cheerful cash flow, or something imbetween.

In the OP's post, it was suggested that the client is not a dreamer and wanted a fair bit of input. This to me would suggest that there isn't at present enough meaninful figures to produce a cheap and cheerful cash flow or to decide on the best type of finance required for this project. This is why I commented that I do not understand how you can work backwards, but can only work forwards.

If the cheap and cheerful approach is available and the accountant just decides to plonk the figures given by a client into a cash flow system/spreadsheet, without any professional consideration on the accurancy of these and signs an accountants certificate, then I only hope that the banks start to look at the accountants certificate more closely in the future and considers whether there is any merit in legal action. Because if the only reason the accountant is involved is to effectively sign something off, then perhaps it is time for the bank to understand that those accountant's certificiates are worthless. Having said this, this would mean that the banks would perhaps have to be a bit more professional in their approach to work as well!

Thanks (0)