Business Advisory Companies for a Company in Debt: 6 Questions Before Paying a Consultant

An indebted company pays its consultant with money its creditors believe belongs to them, and that fact should govern the hiring. A fee spent on an adviser who produces nothing is a fee the settlement fund, the payroll deposit and the landlord will not see.

Six questions follow, stated here as the answers a careful owner should have in hand before signing. None requires legal training. All of them require the adviser to put something in writing.

1. The Word Advisory Describes a Posture, Not a Service

Business advisory companies range from turnaround consultants who take operational control, to brokers who arrange new financing, to settlement firms that negotiate with creditors, to accountants and law firms whose work is regulated by licensing boards. The label covers all of them. It commits none of them to anything.

The first task is to name the service. An owner should be able to finish the sentence "this company will" with a verb that describes work (negotiate these three balances, build a thirteen-week cash forecast, prepare the tax returns, answer the lawsuit) rather than a feeling. An engagement that promises to "restore financial health" has promised nothing a court or an owner could later measure.

A broker who arranges a new advance to retire an old one is, if we are being exact, selling financing, and the owner should evaluate the offer as a financing offer, whatever the letterhead calls it.

2. The Fee Structure Shows What the Adviser Is Paid to Produce

Hourly billing pays for time, a flat fee pays for a defined deliverable, a monthly retainer pays for availability, and a success fee pays for an outcome. Each rewards something different, and the owner should know which behavior the contract is purchasing.

Success fees need a definition of success. A fee stated as a share of "savings" depends entirely on the starting number. Suppose, as a hypothetical, a funder claims $80,000 after adding default charges to a remaining balance of $55,000, and the adviser settles for $50,000: measured against the claim, the adviser saved $30,000; measured against the balance before default charges, it saved $5,000. The contract should say which figure is used, and who verifies it.

Monthly retainers deserve the closest reading. A retainer earned whether or not anything happens can outlast the business it was meant to rescue.

3. Federal Advance-Fee Protection Mostly Stops at the Business's Door

Consumers who enroll in debt settlement by telephone have a federal rule behind them. Under the Telemarketing Sales Rule, 16 CFR 310.4(a)(5) forbids requesting or receiving any fee for a debt relief service until at least one debt has actually been settled or altered under an agreement the customer signed and the customer has made at least one payment under it.

A company calling about its merchant cash advance should not assume that protection travels with it. The rule's exemption for business-to-business calls, 16 CFR 310.6(b)(7), removes such calls from most of the rule, and when the FTC amended that exemption effective May 16, 2024, it extended only the prohibitions on misrepresentation (section 310.3(a)(2) and (4)) to business calls. The advance-fee ban was left where it was. So a settlement firm may lawfully charge a business before any debt is resolved; what it may not do, on a telemarketing call, is misstate the total cost of its service or make false claims about the savings or timing a customer can expect.

State law fills less of the gap than owners hope. California's Debt Settlement Practices Act defines debt as obligations of a natural person incurred primarily for personal, family or household purposes; Texas's debt management statute defines a consumer as an individual resident; New York's budget planning law is limited to licensed nonprofit organizations and reaches contracts with individuals, and whether it governs a lump-sum settlement model is not settled by its text. A company's MCA debt sits outside the plain terms of all three.

The edges are harder. A sole proprietor, or an owner negotiating a personal guaranty, is an individual, and whether the consumer statutes or the advance-fee ban reach that engagement is a question for counsel rather than for the adviser selling it.

For most business engagements the protection is the contract itself.

4. Licensing Separates Advice From Opinion

Only a lawyer may give legal advice, and an LLC or corporation may appear in federal court only through licensed counsel, a rule the Supreme Court's 1993 Rowland decision described as settled for nearly two centuries. An adviser who tells an owner a contract is unenforceable, or that a lawsuit can be ignored, is offering legal advice without a license to give it, and the owner bears the consequence.

Tax positions belong with a certified public accountant or enrolled agent. Planning help is available at no cost from SCORE mentors and at free or low cost through SBA's resource partner network, a benchmark worth knowing before paying for a business plan.

5. Referral Money Should Be Disclosed Before It Is Earned

An adviser may be paid by someone other than the client: a funder paying a broker for placing an advance, a settlement firm paying for a referral, a lender paying for a refinancing. The FTC's endorsement guidance treats material connections that affect credibility as matters for clear disclosure. The owner should ask for every such payment in writing.

The same caution applies to rankings. The FTC's rule on reviews and testimonials, 16 CFR Part 465, bars a business from misrepresenting that a website it controls provides independent reviews of its own category, and every comparison page, this one included, should be read with its authorship in mind.

6. The Deliverables Belong in Writing Before the First Payment

An engagement letter worth signing names the person who will do the work, lists the debts or tasks covered, states the fee and when it becomes payable, and explains how either side may end the arrangement and what is refunded when it does.

It should also define authority. An adviser who tells creditors to stop contacting the owner, or who instructs the owner to stop payments, is making decisions with legal consequences; the letter should say which of those decisions require the owner's written approval. A creditor who declines a proposal is not in breach of anything, and a contract that promises a result regardless of what creditors do has promised something no adviser controls (a promise that sophisticated firms avoid and less careful ones print in bold).

Who keeps the work product matters more than it seems. The cash forecast and the creditor schedule the adviser built belong in the owner's files when the engagement ends, whether it ends well or badly.

The Same Six Questions, Asked of Delancey Street

Delancey Street should be tested the same way. It negotiates merchant cash advance balances for businesses and offers a free, confidential initial review; it is a settlement firm, not a law firm, and legal work goes to independently licensed attorneys. Its fee terms, like any provider's, belong in a signed document before enrollment, and a business whose real problem is tax, litigation across several fronts, or insolvency beyond negotiation may be better served first by a lawyer or accountant. Whether any adviser is worth the money is a question the engagement letter can only partly answer. The rest is answered in the monthly statement.