Chris Burand is an expensive but good consultant

This is how the phone call began. The prospective client told me that I’d been recommended as being very good, but expensive. He was not sure if “very good” was worth “expensive.”

That caught me by surprise because in the scheme of things, I am definitively not expensive. My hourly rate might be high, but I’m not expensive. Many moons ago, when I was just getting started consulting, I had the great luck of finding the best mentor anyone could ever hope to find. He was a true genius. One of the stories [lessons] he told was how to measure expensive.

A bank called him to solve a problem. He told them his hourly rate, which 25 years ago, was higher than what I generally charge today. The bank told him he was too expensive and they instead hired a large consulting firm that charged much less per hour. He asked how many hours that large firm would take. They did not know.

One way to measure “expensive” is hourly rate times hours. That firm charged half the rate, but they ended up charging over three times the number of hours.

Furthermore, that large consulting firm failed to solve the problem. The bank spent well over $50,000, and this was 25 years ago. The bank called my mentor back and asked him to solve the problem. They acknowledge his rate was now reasonable. He then said his rate had doubled. Would they pay that rate? The bank president, and this was a large well-known bank, said his price was still a bargain. The bank President had been educated based on his prior decision and I credit that President for putting his ego aside.

When hiring advisors, my suggestion is to not focus solely on the hourly rate. Pay attention to the number of hours required times the hourly rate and whether the advisor is likely to do the job well.

Which brings me to another recent call. It was a tough situation that required, by law, a high-quality appraisal of the agency. All appraisals are not equal. High-quality appraisals require reports that meet certain criteria regardless of whether the appraised value is correct. The client chose someone else to do the appraisal because they guaranteed a fairly low price.

I know that firm and the work they do does not always meet the required guidelines as established by the business appraisal standards boards nor the IRS. I have even seen their reports state that the report is only an indication of value or some other disclaimer. Most business owners do not understand that an "indication" means the report does not meet the required standards. The report costs, let’s say, $5,000. The agency owner thinks they’re getting a quality report for $5,000 and maybe they saved $2,000 or even $10,000 and they’re happy!

But they have a report that is worth $0. And when they learn they can’t use that cheap report for diddly, they have to then start over and pay for another report they can use. How much should you pay for diddly? Is $5,000 for diddly cheap or expensive?

I was recently working on another agency valuation and notified the owner they might not have the right E&O coverage. Besides possessing what I believe is the highest business valuation criteria of anyone specializing in insurance valuation (the typical failure rate of applicants for my certification is over 95%), I also am certified to conduct E&O audits and training by the largest E&O carriers in two countries. My identification of a huge gap in their E&O coverage potentially saved the agency from bankruptcy. Is that worth an extra $5,000? Is that expensive?

Some situations are very sad. I saw a situation where the agency owner died, and someone offered to value the agency for a low price. The widow agreed, not knowing the appraiser was actually a business broker working for the buyer and being paid a commission by the buyer! Where do you think the price was set, low or high?

I am frequently asked how many hours this or that will take. My answer is most always the same, “I don’t know. It depends on how good the data is.” Quite a few advisors will not say that upfront, if at all. Why is this even important? Frankly, the quality of data is not that important unless you need to defend the value. If the IRS disagrees, or the other litigant does not agree, or if the buyer does not agree, and it turns out the data your appraiser used was poor or contradictory, the odds your value will be upheld is low. To that end, is it expensive to spend extra time verifying the data? A loss can be very expensive relative to the extra cost of developing the correct data.

Two factors are at force. The first is the number of advisors who are incredibly willing to take advantage of people who do not know better. They do not know the required appraisal standards. They do not know the tax requirements. This is not their world, so they don’t know, and they are either scared of spending too much money or they’re too cheap. And these folks take advantage of them.

But if people will even hire someone to just educate them, we can eliminate ignorance as a reason for making a bad determination of “expensive”. I’m not sure how to eliminate cheap other than to encourage people to look at the bigger picture.

In some ways, it is like purchasing the correct insurance. If you never need it, did you waste your money? Maybe, but if you have a claim that gets paid, you’re very happy you had the coverage. The main difference is that people usually only get appraisals when they must get appraisals, meaning when they know they must defend against a potential disagreement. Therefore, you will use the appraisal so it makes sense to figure out for yourself, upfront, what your definition of “expensive” is.

When that prospective client told me he heard I was expensive, I immediately thought about all the wasted money spent on more “economic” advisors. I then thought about how much business brokers charge. I am not expensive, but I am very good.

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NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.