What are advisory firms and how they earn money?

The advisory firms act as consultants for the business and guide them about their strategic and operational direction. The advisory may be different depending on the agreed scope and purpose of the engagement. Well-known advisory services include but not limited to risk advisory, financial advisory, strategy advisory, management advisory, tax advisory, legal advisory, sales advisory, and advisory for digital transformation/IT. Let’s glance over these services and assess that how these firms make money.

Risk advisory

The risk advisory service providers carry out a detailed review of the internal operations and controls. These advisors identify the risk during the review process and advise the business about the probable impact of the risk. Often their reports indicate the nature of the risk if it’s high, medium, or low.

The responsibility of the risk advisors is not limited to identifying the risk but advising on the appropriate action to be taken by the management.

They charge the client for the services of review, assessment of the controls and making recommendations to smooth the process. If the required services are related to some specific areas of the business, the billing is limited; however, if engagement is about the comprehensive risk assessment of the business, the scope of the work and the fee to be charged increases.

Financial advisory

Financial advisory is the most popular form of advisory service. The advisors/consultants deeply analyze the financial structure and investment portfolio to advise management to control the cost of financing and enhance the return on the investments.

Financial advisors play an essential role in analyzing the investment opportunity that includes the formation of the projected cash flow, assessing the feasibility of the projects and payback period. However, their fundamental approach of the advisory is based on the appropriate financial management. In other words how the business should manage the finance.

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Overall, financial advisory services lie in the area of the investment portfolio, management consulting for the bank accounts, making estimations, projections, financial planning, and managing other aspects of finance.

Financial advisory firms charge the business based on the agreed scope of the work and the extent of the work to be performed for making advice.

Tax advisory

The tax advisory firms help the business control the tax expenses by way of the appropriate planning and applying the principles that help mitigate the tax expenses.

The tax advisors are certified tax professionals with an in-depth understanding of the taxation principles and loopholes of the taxation laws that puts them in a position to advise their client about tax savings and another legal ways of obtaining maximum tax exemptions from the system of taxation.

The tax advisory falls in areas including but not limited to the personal tax, corporate tax, customs duty, optimized filings of the tax records, compliance with the tax legislation and advisory on the financial and legal matters by considering the impact on the taxation structure of the business.

The tax advisory firms often work in close collaboration with the business executives and charge their clients often period wise. The periodic charges include filing for the tax returns and other calculations. On the other hand, firms may also set the business for some special project/special invoicing.

Legal advisors

The management of the legal aspects is one of the essential features of the business operations. Larger businesses often hire in-house lawyers as they have regular work. On the other hand, medium and large companies usually outsource their legal functions to lawyers/legal advisors.

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The legal advisors internal/external provide different services of the legal aspects that include drafting ad negotiating the contractual terms for the purchase and sale of the goods, assisting business management on the matters of the corporate secretarial compliance, helping company secretary in issues related to regulatory requirements of the board, assisting business in the conduct of legal research and finding the case references for the formulation of the legal response, assisting the company in the settlements of the business-related disputes and other matters of the legal proceedings.

Legal advisors are considered to charge a handsome amount for their services. The charges are based on the complexity and sensitivity of the legal matters under consideration. If the dispute/legal matter/contractual drafting/formulation of the legal responses is complex and lengthy, the fee to be charged increases and vice versa.

IT advisory

The scope of IT advisors has increased exponentially in recent times. The IT advisors provide services in infrastructure development, networking, product development, digitalization of the operational processes and other aspects of the business integration. The prime example of the IT advisory is implementing the ERP that brings massive digitalization by integration and increasing pace of the business processes.

The IT advisors earn money by charging the client for the work performed. Their billing depends on the time and size of the team in performing specific IT-related tasks. IT advisory is considered to be expensive and complex than normal advisory services.

Sales advisory

The sales advisors make in-house changes for improving the process of sales. They streamline the internal processes, optimize the sales funnel, formulate the marketing teams and refine the prices to help the businesses get enhanced deals.

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The sales advisory firm might charge the business based on the sales increment or any other scheme agreed between the advisors and the business.

Similarly, strategy advisors and management advisors work in close collaboration with the management to set a certain direction of the business. Their services lie in the area of advising management about the strategic direction of the business, product development, diversification, market development or some shift of the strategy etc.

Overall, we can interchange the term advisor with the consultants as they do not directly help the business but advise management on different aspects. Sometimes, the advisors/consultants have to closely monitor the processes to get in the advisory position. For instance, to advise on the risk position of the business, the advisor has to perform extensive procedures for understanding/make keen observations about the as in business processes.

Most of the advisors are the external consultants that are highly qualified and experienced in their field, which enables them to advise their client by understanding their operations and needs for the improvement.

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