Front Fees

Front Fees
By
William Cate

You're caught between a rock and a hard place. If you refuse to pay front fees, you won't get very much professional help and what help you do find will be very costly. Front fee scams abound. If you pay front fees, you seriously risk being a victim of these scams.

Attorneys, accountants, and business consultants offer advice and often turnkey services to the business community. They do so for money. Swindlers usually offer referral assistance to nonexistent programs or turnkey aid to nonexistent programs. It isn't that difficult to tell the difference between the swindlers and the professionals.

Professionals offer advice. They are anxious to tell prospective clients about themselves and their companies. In most cases, an advanced search at Yahoo or Google will give you information about the professional and their company. If their profession requires membership in a professional organization, like the State Bar Association, they will be members. While they will charge you for a face-to-face meeting, you are given an opportunity to determine if their advice will actually help your company succeed. If you determine that they will make a good ally in your efforts for corporate success, a retainer will save you money and ensure more attentive service.

Swindlers aren't interested in making a few bucks doing a consultation. They are seeking the big bucks of getting you to pay for nonexistent programs. They want you to know as little as possible about them. After all, you are going to eventually file a complaint with the authorities against them. Their websites lack any information about anyone involved with their company. Their emails are unsigned. The information they supply is nonspecific. They dangle carrots in a foggy haze of vague but very enticing text. Credibility isn't their stock and trade. Working their scams from offshore is their usual policy.

Currently, there's a group of swindlers running a no front fee sting operation offering American entrepreneurs and business owners ten million dollar LIBOR plus three loans from Asian banks. The pigeon is asked to pay for the business loan appraisal. The swindlers do the appraisal. Assuming the pigeon bites on the bank loan appraisal rip-off, the result will be an uncertain appraisal. To get the loan, the pigeon is then asked to pay for the loan insurance. The insurance company is a myth. The swindlers run it. If you think about it, no insurance company would offer coverage on anything that is almost certain to fail within two to five years. If the pigeon bites on paying the loan insurance, they are hit with more costs. Needless to say, the pigeon never gets the loan.

Turnkey project offers, like finding a business lender, taking your company public, arranging stock support for your public company, finding wholesale buyers for your company's products, etc., are expensive undertakings. Both swindlers and professionals will want front fees. The difference is that the professionals are willing to build a relationship with your company by doing consulting work for you. They operate on the start small and build creditability model. The swindlers will want you to pay them based solely on hype and knowing as little as possible about them. If you'll just look, it's easy to see the difference.

Let me offer an example of a professional's no front fee and front fee policy. I advise several Venture Capital (VC) firms about issues related to taking their clients public. In the process, I've learned their funding selection criteria. If I get a startup Executive Summary from a trustworthy source that meets a VCs criteria, I'll request the Business Plan. If the Business Plan is credible, I'll forward it to the VC. My costs are five dollars for postage and a couple hours of my time. Maybe the VC will fund one in ten of my referrals. However, if the VC funds a referral, they will pay me twenty thousand times my costs. For me, it's a good bet.

On the other hand the costs of taking a client public are far more than five dollars. Unless the client is willing to pay my costs as a front fee, I won't take them public. My middle road is to act as their paid advisor as they take their company public. My point is that professionals may be willing to offer no front fee services for help that costs them little time and money. They won't do so for high-ticket items. In that case, your option is to pay them as your consultant and do the work yourself or try to do it without outside advice.

The Front Fee Axiom is simple. Start with small payments for consulting advice. If the advice helps your company, agree to pay a retainer as long as it reduces your consulting costs. If you come to trust the professional, consider a turnkey offer or do the project yourself with their advice. NEVER pay a front fee to anyone whom you haven't met and can't do basic due diligence upon.