Planning, Startups, Stories


Tim Berry on business planning, starting and growing your business, and having a life in the meantime.

What to Pay That Business Planning Consultant, Part 2 9

In my post here yesterday I started to answer “what should I pay a consultant to develop a business plan for my company?” My first take was about the need for planning process and living with your plan over the long term. The key thought there was:

So my first answer to this question is this: don’t pay a consultant to develop a business plan. Do it yourself.

Still, if you’re busy, and you believe in division of labor, and you don’t want to do the plan yourself, this doesn’t really answer the question. So this is part 2 of my answer.

1.  The one-time business plan document

Let’s assume for a moment that you want exactly what I say is the wrong thing: somebody to write a 10-20-page document you can call your business plan. There’s no concern about actually planning your business. You don’t want advice or guidance or second opinions, just a damn document. You don’t think anybody’s going to read it anyhow.

For that, find a good freelance business plan writer and good luck. Pay somewhere between $400 and $1,000. Figure the time involved is some listening to you, some shuffling your past papers around, and some writing. It’s a day or two of work.

I just checked average freelancer rates on freelanceswitch. It looks like writers get about $50 per hour, give or take. So $1,000 buys you about 20 hours for an average business writer. $500 buys you 10 hours.

And if you want spreadsheet knowledge double the price, and if you want financial knowledge and understanding, triple it.

Get very specific with the consultant: what services are you buying? Interviewing you? Reviewing your documents? Writing your document? Projecting your financials?

And remember this: that document will be useless a month later. At this point you can refer to my 10 questions to ask yourself before hiring a business plan writer.

2.  Business plan help, coaching, and facilitation

The good news in this case is now we’re talking about real business planning to really help you manage your business. This kind of consultant will work with you as much as for you, and help you create your plan based on your goals and resources. Let’s hope you get somebody who will help you build a planning process that generates a living plan that can be reviewed and revised regularly.

This consultant won’t just write a document for you, because that doesn’t work; but he or she will help you do it in a way that will work. Experience in this field is valuable. Don’t reinvent wheels and learn everything the hard way. Get somebody to accelerate that learning.

But the bad news is that somebody with the knowledge of business planning, spreadsheets, and financial standards is worth a lot of money. In this earlier post I calculated at least $200 per hour, maybe more.

And how many hours do you want of that person? Are you going to do the heavy lifting yourself, and optimize the task with leveraged knowledge and expertise? Then you don’t need as many hours. Do you want the consultant to do it all? That’s 20, 50, 100 hours very quickly. And then you need the consultant to transition the changes in the plan, and work with the planning process. I think I’m talking about serious dollars now; I’m afraid to add it up. $10,000? $15,000?

And be very, very careful as you approach this job. These are shark infested waters. Check references of past clients very carefully. In my experience the ratio of real consultants offering real value to charlatans and quacks is about one to four. Remember this: although you can’t get an investment without a business plan, the business plan alone means nothing. Investors buy your team, your market, your product, and your future. The plan is just to show them what you’re planning.

3.  My consultant will get me the money

With this one you get even more skeptical. The vast majority of people who sell business plan consulting services promising to get investors are just plain lying. Given that it’s not really the plan, but the team and product and market and such, that investors buy into, then what’s going on when somebody promises to write you a plan to get you the money?

If you do have a great team, market, and product, then a savvy consultant wants a piece of the action. They want to join the team.

Somebody who has the experience and contacts to bring to the party doesn’t just sell that knowledge to the highest bidder. That person can’t bring bad businesses to those contacts. There’s a whole set of worries about reputation. So either your business is really going to be interesting in that upper-echelon world, you have the team and market and product, or that person isn’t what they claim to be.

When somebody promises to get you in touch with movers and shakers, just for money alone, watch out. Keep your hand on your wallet pocket. Something is fishy there.

I knew a guy who did this kind of business for several years. He chose his clients carefully, making sure they had a real shot at getting investment. He charged $25,000 and up, usually along with a piece of the action, and that was 10 years ago. And he delivered on his promise. He used to use Business Plan Pro and the companies he consulted for account for more than a dozen of the successful companies, that got financed, in the bplans.com database of business plans.

But he doesn’t do that anymore. He ended up as CFO in one of his client companies.

If you’re thinking of going this way, check references very carefully. Always talk to past clients. Get a bunch of names and talk to all of them. Too many dishonest consultants can produce one or two names of past clients who are motivated (sometimes with mutual favors, sometimes with money) to speak well of them. Get 10 names and check with all of them.

(Image credit: Ruslan Grechka/Shutterstock)

  • http://timberry.com Tim Berry

    Elisha, you just identified one of the really difficult problems with the consulting-plan-writer idea: People mistakenly think success depends on your work, while in fact it depends on their reality. Your client will get the loan or not based on factors like credit history, experience, market factors, and so on. The best the document can do is stay out of the way. That’s a tough one. And you’re stuck with the problem that if you do the job well, you’ll spend more hours than you thought, and your client, if they pay you by the hours, will spend more than they hoped.

    Good luck with that. And I can’t answer your question. There are no rules in this area.

  • Elisha Jacob

    Hello Tim,

    I was hired to create a business proposal for a friend of my officemate. But actually it’s gonna be my first time ever to write a real proposal. I’m used to writing business correspondences and research, though. For business proposals, what I only have is the knowledge and application that I got during college (thesis, projects and all that stuff). So, if I’m just a beginner in REAL business proposals, how much should I be paid in the end? Would it be different whether my client got the loan contract or not?

    Thanks,
    Elisha Jacob

  • http://www.businessconsultingabc.com/Writing_An_Effective_Business_Plan.html Frank Goley

    Hi Tim,

    Had to check out this post after I commented on the previous post.

    Completely agree with your points.

    To start, I am sure you will agree that good business planning has strong involvement of the customer to have a successful plan to run a company (and then someone can adapt the main plan for investors, bankers, strategic alliances, etc). It is hard to write a quality plan without the strong involvement of the customer (and for the benefit of the customer to learn through the process).

    In my pricing, I offer business plan packages with set prices that pass value on to the customer with a proven planning process I can use with them remotely to produce a solid plan for a good price. I offer 4 levels of business plans which will meet most customers’ particular needs and budgets. I remotely consult initially to get a sense of the company and principals (as well as determine who and how will work with me on the planning), then I issue questions on a per BP section basis. The customer answers the questions, I review the answers and do the following: a) Comment if needs different info b) Clarify c) Address any questions they didn’t understand d) Ask further clarifying questions e) Provide advice from my business experience and planning experience. The client reviews, provides the second round of answers and if we are good to go, we move on to another section. It is a two way commitment.

    If the customer requires more of my time, experience and help, then I have consulting packages to combine with the planning packages, whether done remotely or onsite. Business planning is not an end product or goal for our company. It is very important but it is just a start. If I do my job and work well, then the customer will want a long term consulting relationship, which is profitable for them and us. Therefore, I do not charge what my plans are really worth unless the customer really needs more of me, and I proceed carefully with this type of customer to make sure we have a good fit (and I can spare the time needed).

    Either way, whether I work remotely, onsite, with or without the consulting package along side the planning package, it is the same process that I have developed and refined over the last 20 years. It is a process that requires customer involvement and results in a good plan if I can get that involvement. Two way street!

    There are a lot of “writers” and “consultants” out there that stain the industry. It is pretty easy to determine if the BP consultant is good. I try to give a lot of advice on our website (lots of articles, blogs, white papers and e-books) to be a resource for companies but also as a way to show my experience and proficiency. Check out the planner to make sure he or she is a good fit. Educate yourself on what good business planning is before hiring a consultant.

    Thanks for the great info Tim! Our industry really needs it!

    Best,

    Frank

  • Noah Smith

    Tim, Thanks for the insightful post. The paragraph about your friend who had a business advising and raising capital for select companies prompted a question: Did he just do this in a freelance way or did he have a company or fund? If someone who offers to perform this function looks right — right background, good references, etc. — do they not also need some kind of license, e.g. a broker-dealer license, that you should check for?

  • http://www.BroadBandHR.com Deb McClanahan

    You’re right about checking references carefully on this type of consultant – and on any type of consultant. The best way to find a business plan consultant WITH the contacts to get you in front of the VC’s is to look to people who have had success with the process and ask them who they know. I know a number of these people, and they won’t work with just anybody – they are as careful as the VC’s in determining who THEY will work with as entrepreneurs.

  • http://www.AVSmartz.com Steve Scott

    Saved me a cool 10-20 grand. It’s unfortunate that it can’t work efficiently for those who have a sound plan but no team in place.

    Thanks for the reality check!

  • http://www.venturearchetypes.com Nathan Beckord

    Tim, there’s so much good stuff here I don’t know where to begin. The clarification between hiring a bplan WRITER vs. a business PLANNING CONSULTANT is key, and one that I’ve spent way too much time over the years explaining to prospective clients; I’m bookmarking this so I can just refer folks here instead.

    I also strongly agree with your point #3, that anyone trying to sell you funding services upfront– i.e., before they have an intimate knowledge of your business– is a scam artist. Many startup consultants do in fact have solid investor networks; but the intros will come organically if your business is a fit with his / her network.

    Nice work, Nathan Beckord

  • http://sixstringcpa.blogspot.com Geoffrey, the SIX STRING cpa™

    I saw your Friday, September 17, 2010 post on AO Open Forum. I could not comment on that site so thought I would post here. The post was really good information on pricing.

    I am a major cost hound (or is it hawk), so I really liked your third tip. One additional comment I might make. Business owners should not just look at gross margin that is available to cover selling, general and administrative expenses. If the business is large enough then they should also get a handle on the variable versus fixed nature of expenses too. Cost of goods sold numbers can bury the fixed versus variable relationship which can be important to review at various stages of a business life cycle.

    Great job; sorry for posting it here – I just believe in seeking out giving Kudos!

    • http://timberry.com Tim Berry

      Geoffrey, thanks, doubled thanks in fact for finding your way back here to comment, and then finding an appropriate recent post to put it on. Tim.

      And for others, that post is The 3 Most Common Pricing Mistakes, which I intend to repost here on Tuesday.