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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | JUNE 4, 2003 SMART ANSWERS By Karen E. Klein A Wedding Present for the Matchmaker? Bring two business into a lucrative alliance and you deserve a little something for your trouble. Just make sure to collect it in advance
A: Ask for a fee up front, advises Donald W. Phillips, CEO & chief investment officer of West A.M. (USA), a private-equity investment firm based in Chicago. "Be direct, be specific, and figure out an appropriate fee based on some percentage of the total transaction," he says. One-half of 1% is a figure sometimes used for introductions, but there is no fixed formula for this kind of situation. In your situation, what is truly appropriate will depend on the industry and the size of the transaction. CASH IN HAND. "It also depends upon the value that one brings to the table in negotiating the deal," Phillips says. "If all you did was call up two guys and get them together, then you have had a role and you should be compensated, but only for making an introduction. If your involvement goes to the point where you actually negotiate the deal, hammer out the terms, and the parties perceive your value and knowledge base as extremely important, that will put you at a different value-added level." In terms of when you get paid -- now, or later -- Phillips says most companies prefer to pay a finder's fee up front, charge it to the cost of the deal, and be done with it for accounting purposes. If there is a reason for you to stick around after the initial deal is struck -- you may have industry contacts or client involvement that is vital to the success of this transaction -- the parties will be more willing to pay you a "trailer" for up to three years, he says. In the investment-management business, for instance, a salesperson might be compensated for bringing a transaction to the table and then get 10% of the fees generated in the first year. The parties might prefer to pay that 10% over three years, however, during which time the salesman will be expected to continue to provide valuable information, services and coaching. RESIDUAL WORTH. In your case, you'll have to show both companies that your involvement is so vital that you should get not only a finder's fee, but also a percentage of the new business that results from your introductions. Only you can decide whether you can persuade the parties of that, or whether you'll be interested in staying on board in some capacity to justify a trailer fee. However you decide to present the situation, put your request on the table before the transaction wraps up. "Everybody has a short memory," notes Phillips, "and if they don't pay you now, they're likely to forget what you've done or perhaps argue about how much value you've added to the transaction. I've even seen situations where others later take credit for the introductions. Don't wait down the road for your payoff, or the probability of your losing it is high." Have a question about your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 45th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.  Karen E. Klein is a Los Angeles-based writer who specializes in covering covered entrepreneurship and small-business issues. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | JUNE |
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