When selling a company, the decision on whether to hire a consultant is a key moment that can fundamentally affect both the course and the outcome of the entire process. Advisors bring above all extensive knowledge a market experience, but they can often have i valuable contacts a negotiation skills.

In this post, we'll consider the reasons for hiring a consultant, the pros and cons of this choice, the different types of consultants and compensation models, as well as a comparison between large and smaller consulting firms.

Reasons for hiring a consultant

Hiring a consultant can be critical to ensuring a successful sale of the company. Expert knowledge, a wide network of contacts and professional negotiation skills are key to:

• determination correct market value company
• increasing visibility companies in the market
• security the best possible conditions sales
• security legal protection the seller, who in most cases is a slightly weaker party (although we do not mean the term weaker party as used by the Civil Code)

Benefits of hiring a consultant

• Saving time and energy: Consultants take on a significant portion of the administrative burden, allowing company owners to focus on their day-to-day operations.
• Value Maximization: Expert market knowledge and strategic planning can lead to better financial results.
• Risk Reduction: Advisors identify and minimize potential legal and financial risks associated with the sale.

Disadvantages

• Costs: Consultant fees can represent a significant investment
• Loss of control: Delegation can lead to feeling less in control of the sales process

Types of counselors and their roles

• Investment bankers and M&A advisors: They specialize in comprehensive services related to the sale of a company.
• Legal and financial advisors: They focus on specific aspects of the transaction, including legal and tax issues. Advisors play a vital role in every step of the process, from preparing the company for sale, through negotiations with potential buyers, to the final closing of the transaction.
• Experts and expert institutes: they will help sellers find or verify the correct (fair) value of the company being sold

Large versus smaller consulting firms

• Large companies: They offer extensive experience and a global reach, but can be more expensive and often less flexible.
• Smaller companies: They provide more personalized service and may be more accommodating, but may not have as extensive a network of contacts.

Ve twenty years of experience of our law firm we had the opportunity to get to know our contractual partners, both colleagues from smaller and large renowned offices. I don't want to generalize, but I can unequivocally state that my colleagues from smaller offices had significantly better experiences, both from a human and professional point of view.

Compensation models

• Fixed fee: Fixed fee for specific services. From the consultant's point of view, it can be problematic when he is entrusted, for example, with the representation of the seller during negotiations with the buyer. In such a case, it is difficult to estimate in advance how many times the contractual documentation will be exchanged between the lawyers of both parties, how many hours will be spent on it. Thus, advisors may tend to inflate their fees to eliminate this risk
• Hourly rates: The advisors' remuneration is derived from the number of hours spent on the transaction. The disadvantage may be that two identical transactions may be equally laborious, yet each of them has a different value (selling a company for CZK 10 vs. CZK 000), but the responsibility of the adviser (in the case of lawyers) will be in the latter case higher. It is so whitewashed that the consultant will demand a higher hourly rate, which can lead to the fact that in the event of a disagreement and the transaction is not implemented, the costs of the seller will be significantly higher, which can demotivate him to engage the consultant
• Percentage reward: Remuneration based on a percentage of the sale price, which motivates the advisor to achieve the best possible result, but the advisor does not always have the mandate to negotiate business and therefore price terms.
• Hybrid models: A combination of a fixed fee and a percentage reward, which can be ideal for some transactions. We have quite a lot of success with our clients with a model where we bill the work at a (fairly standard, sometimes even discounted) hourly rate, with the fact that if the transaction is brought to a successful end and the client sells the company, we have an agreed percentage reward from the price achieved, from which we already deduct remuneration paid according to hours worked. When the client successfully completes the transaction, the consultant is allowed to participate in the success of the transaction, but at the same time, he is not burdened with excessive hours worked, and in the event that the sale is not completed, his costs for the consultant are eliminated.

záver

When choosing an advisor, it is crucial to consider all of the above aspects, including the type of advisor, the size and specialty of the advisory firm, and the preferred compensation model. The right choice of advisor can be decisive for the successful sale of your company, while it is important to find a balance between the cost of the services and the added value that the consultant brings to the process.

When negotiating a mandate with an advisor, always pay attention to the sufficiently defined content and scope of his activity, the amount of remuneration and the conditions for its payment. Also, be interested in what his responsibilities are within the sales process.

Do you need advice or representation in the sale of a company? Do you have any comments about our series? Contact us! We have many years of experience in selling companies!

JUDr. Ing. Jan Vych, attorney and partner