www.SamWaltz.com/ReferralFee

Our Referral Fee ~ 10% of the Fee Income!! ~ is paid based on either (a) Professional Service Fees (in the case of Business Counsel or Strategic Advisory) or (b) Success Fees (in the case of Capital Services).

Referral Fees are “pay when paid,” a fundamental business principle with which most business people are well aware, and they of course don’t cover reimbursement of out-of-pocket expense, which is item-by-item on smaller projects, and typically a very modest monthly retainer fee on M&A projects.

My www.SamWaltz.com, founded 1993, work is in 3 major areas, incl…

(1)  Strategic Business Counsel, incl Business Plans, Business Development & Marketing Plans, Business TurnAround Plans, and Business Exit Plans;

(2)  Strategic Capital Services, incl Merger & Acquisition (M&A) on both the Sell-Side and Buy-Side, Capital Finding – Both Debt Capital (when a borrower may have trouble on her / his own) and Equity Capital (for investment), and ReCapitalizations, e.g., when someone wants to buy a business and needs additional working capital;

(3)  Strategic Advisory Services, incl Public Affairs, Crisis Management, Speech-Writing and other Executive Support like “White Papers,” and Advisory and Governance Boards.

Our M&A projects may be done via RLS, www.RLSassociates.com, founded 1986, where I’m one of about 15-16 consultants, each of us with slightly different backgrounds. Working with RLS Associates does not change payment of any Referral Fees, although it does impact my own fees, since part of my Success Fee goes to RLS Associates for putting it on the “RLS Platform” and using RLS Associates’ services.

In (1) Business Counsel, our “typical plans,” if such a one exists, are usually between $15K-$25K, meaning that referral fee would run $1.5K-$2.5K, although the occasional project runs $40K or even higher, but those are more Corporate, and don’t come along as often. Typically, such that $15K-$25K Plan takes 6 weeks or so, with my comp paid 50% up front and 50% COD, and Referral Fees are paid accordingly.

Similarly, the (3) Strategic Advisory / Public Affairs work may be in the $10K-$15K range, sometimes another order of magnitude higher, but that’s something fewer business people will encounter, unless you’re “inside” an organization that is having issues, or if you’re an Attorney or CPA.

The better Referral Fee opportunity is in the M&A side, most likely in Sell-Side Engagements, where you’ll recognize someone as a prime candidate to exit a business. Age-wise, she or he will be in late 50s to 70+, may have encountered some recent poor health, or a domestic issue like a divorce, death of spouse or child.

You identify that prospect through just a couple of “leading questions,” e.g., “have you given thought to how you will exit the business and create a liquidity event to fund your retirement, or to take care of your children, grandchildren and legacy needs?”

Your response is simply that you “know someone who helps Family-Owned Closely-Held Businesses accomplish that, and he offers a Free Consult,” if the person is interested. Volunteer to “tee up” the introduction with an e-mail and/or a phone call. Then call me, before the e-mail, let’s talk, and I’ll give you feedback that will help you in an e-mail.

Success Fee in selling a small business is pretty standardized, using what’s called the “Modified Lehman Formula,” and here’s an example. It’s not important to understand this exact model, because no one I know uses this exact model, but it well represents the principle of it. And fees are something you should never discuss with someone you may refer, you “just don’t know how it works”.

Enterprise Value % Success Fees of Deal Fee
Less than $1 million 8% – 12%
Between $1 million – $5 million 5% – 8%
Between $5 million – $10 million 3% – 6%
Between $10 million – $25 million 2% – 3%
Between $25 million – $50 million 1.5% – 2%
Between $50 million – $100 million 1% – 2%
Between $100 million – $250 million .5% – 1.5%

In my experience, selling a family-owned business worth about $10mil in Enterprise Value (e.g., $8mil in revenues, $1.5mil in EBITDA, or net profit) would be worth a Success Fee of about $400K, yielding a Referral Fee of about $40K, “pay when paid,” from the Closing Table.

However, too, it’s notable that it can take a year, sometimes more, to sell such a business. Two examples from my RLS work. One I started in December 2015 is still being actively marketed / sold in Spring 2017 for reasons having more to do with the Seller’s side. Another I started at Easter 2016 was sold in December and closed early in Feb 2017.

That pricing, too, reflects an “arm’s length” sale, where I’m actively marketing and selling it. For sale to a close buyer, e.g., sibling children, other relatives, managers, the fee could be 25%-50% of the regular fee, given that the major business issue is moved from marketing and developing prospects and negotiating the sale to a more simple task of structuring a deal between already-known willing seller(s) and buyer(s). Deal fee for that same $10mil transaction might be more like $150K or $200K, perhaps even a bit less.

But all that gives you some idea of the process, timetable, and value of a Referral Fee.

As noted, our payment of such a Fee is confidential, and we have no legal or ethical obligation to report it to any party, whether a Buyer, Seller, or Employer, aside of course from an IRS 1099 filing.

From our point of view, payment of the Referral Fee is our Marketing Investment, since most business comes to us – not “over the transom but – by referrals from business colleagues, friends and others who know us and trust us.