How To Choose a Financial Consultant

Running a small business requires a broad skill set that may be beyond a founder's vision and expertise.

For example, the owner of a local plumbing company may be an expert in pipes and installation, but have little financial know-how, which is key to running a business. Even if they do, they may not have the time to give it their proper attention.

As a result, the owner may want to tap into the expertise of a financial consultant who can help navigate the business toward a more profitable future.

 Whether for a short-term project or the beginning of a long-term relationship, remember that “consultant” is a diverse title, so make sure you’re looking for the skill set that matches your needs.

What Does a Financial Consultant Do?

Financial consultants work with small businesses to help them gain a thorough understanding of their financial standing and advise them on strategies to improve it.

To do so, they comb through their clients’ financial reports to learn how the businesses operate financially and where their strengths and weaknesses are.

Consultants also evaluate market data, trends, and forecasts. Once they’ve done their due diligence, they can provide their clients with valuable insight, including what they’re doing right, how to improve certain areas, and growth and investment opportunities. They may also assist with financial planning and mergers and acquisitions. 

The terms “financial advisor” and “financial consultant” are often used interchangeably.

Generally speaking, a financial advisor typically works with individuals on their personal financial goals and investment opportunities, whereas a financial consultant typically focuses on working with businesses.

No matter the title, the key is to make sure the person you hire has the skills you need for you or your business.

Does Your Business Need a Financial Consultant?

For some small businesses, outsourcing financial consulting services may seem frivolous if an owner or bookkeeper can handle the day-to-day financial operations.

Yet there may come a point when the business’s daily upkeep becomes so time-consuming that finances take a back seat, investment opportunities pass them by, or cash flow begins to falter. If that's the case, it may be a good idea to seek outside help.

Additionally, launching a business can benefit from a financial consultant’s expertise. A financial consulting services contract typically remains active for a limited time or the duration of a specific project.

Questions to Ask a Financial Consultant

Once you’ve decided to find a financial consultant, the real work begins – finding the right one.

Here are some important questions:

Does the financial consultant understand your industry?

A consultant can bring diverse expertise to the table, but make sure their skills are relevant. If their advice can’t be applied to your business, it doesn’t have much value.

Are they a fiduciary?

This means they are required to act in your best interest and must disclose any conflicts of interest. The laws around who is and is not required to be a fiduciary are tricky to navigate, so it’s best to verify potential candidates. The National Association of Personal Financial Advisors, the Financial Industry Regulatory Authority and the SEC provide search tools that can help you verify fiduciary or other regulated status.

Do they know the tax code?

A good consultant should understand and be able to answer questions about your responsibilities to the IRS, such as tax write-offs. Your tax responsibilities can change as the business grows, which is why having a dedicated expert can be helpful.

Do they know the law?

Some businesses are regulated by complex legalities specific to their industries, like imports/exports or patents, trademarks, and copyrights. Check that your financial consultant has relevant expertise or has a network of legal professionals who can help.

What credentials do they have?

Financial certifications can demonstrate a consultant’s credibility outside of the standard bachelor’s degree in economics, finance, or math. A common credential is a Chartered Financial Consultant (ChFC) from the American College of Financial Services, which reflects a comprehensive understanding of the specialized skills needed for financial consulting. They’re also fiduciaries. Some other common credentials for financial consultants include Certified Public Accountant (CPA) and Certified Financial Planner (CFP).

Do they fit your budget?

Consultants’ costs can range from a few hundred dollars to tens and even hundreds of thousands of dollars. It’s important to make sure any consultant is within your budget before you seal the deal.

Are they a good communicator?

A financial consultant may have solid financial advice, but if they can’t clearly convey their know-how to decision-makers, it won’t do a company any good. Similarly, misunderstood advice can create a poorly-implemented strategy and turn a potentially winning plan upside down.

Compensation Models for Financial Consultants

How much a consultant charges depends on numerous factors. While it’s difficult to pin down exact figures and ranges – you’ll need to shop around – typically, the bigger the project and the greater the consultant’s experience, the higher their rates. 

You can usually expect to pay a consultant based on one of the following compensation models:

Retainer

When a financial consultant works on retainer, they bill a set amount of money for a set amount of hours’ worth of work – for example, $4,000 for 20 hours of work. Retainers are typically paid monthly, either in advance of the work at the beginning of the month or after the work is completed at the end of the month. A variation of this “pay-for-work” model is a “pay-for-access” model, paying the consultant to be on call when their expertise is needed. In either scenario, a retainer represents a fixed cost that can be helpful for budgeting purposes.

Hourly Rate

Some financial consultants charge by the hour. Rates vary and can be as high as several hundred dollars per hour, depending on the consultant’s experience. This compensation model may make budgeting a little trickier, so it’s a good idea to monitor the consultant's work, perhaps requiring a weekly status report to help keep costs under control.

Project-Based

A financial consultant may prefer to charge a flat fee based on the expected time and work a project will entail. The total amount is typically based on their hourly rate, with some extra money built in to factor for changes or unexpected complications along the way. Others may offer a “bulk” discounted rate to incent a larger engagement.

Value-Based and Commission Percentages

Some consultants charge a percentage based on final growth yield value or as commission of the initial investment. For example, if a consultant charges a 5% value-based compensation on a $50,000 investment that yields a $120,000 ROI, the consultant will earn $6,000, whereas a 5% commission would be $2,500.

Some or All of the Above

Don’t be surprised to talk to financial consultants who use multiple compensation models. For example, one may start with a retainer and then charge an hourly rate for hours beyond what the retailer includes. 

The Takeaway

A financial consultant can bring much-needed expertise to your small business by providing an objective look at what is and isn’t working, advice on business expansion and other growth opportunities, and plenty more. Whether for a short-term project or the beginning of a long-term relationship, remember that “consultant” is a diverse title, so make sure you’re looking for the skill set that matches your needs. Even a temporary hire can help usher in permanent profits.

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