Business consultant vs. investment banker - which to use?

I recently received a call from a potential client who is considering a sale of their business. The sale had not been initiated by the owner, but rather by several competitors who had approached the owner to purchase their business. In other words, it was a horizontal merger situation. The owner wanted to know when to use an investment banker as opposed to a business/management consultant (i.e. someone like me). Apparently, this question comes up often, and deserves its own entry. Investment bankers (as well as their counterpart, business brokers) and consultants have distinctly different goals and purposes, as well as different compensation plans, and each should be used appropriately.

• Investment Banker: Investment bankers work the deal. Quite simply, they are there to represent the buyer or seller through the actual acquisition (or merger), and are compensated based on the deal. Normally, large investment bankers will received about 7% of the purchase price, while smaller ones who specialize in small transactions will receive some amount upfront and a somewhat higher amount, normally up to 10% of the purchase price. I-Bankers are expert at finding the seller the best acquirer and negotiating the highest price possible.
• Business Consultant: Business consultants are interested in maximizing the value of the business. Quite simply, they want to find whatever is in the best interest of the client, normally the owner. If that means growing the business, they will do it; selling the business, they will maximize the appropriate metrics (EBITDA, cash flow, whatever) to maximize the purchase price; liquidating, they will do that. The business consultant will delve into the owners' emotional needs as much as their financial needs, and look at all aspects of the business's operations. Consultants are paid a time and materials fee, whether a flat monthly rate or an hourly rate, and thus do not care if the most expensive deal gets done, or none at all, as long as it is in the client's true best interests.

So which one to use? The answer is pretty straightforward.

• If you are intent on selling the business, and need just someone to structure the deal and find the appropriate acquirer, get an investment banker. This is what they do, and their percentage fee structure, while expensive, will align their incentives with yours.
• If you are unsure of what you want to do, if you want to find ways to increase the business value prior to a sale, if there are hidden assets you want to leverage to raise the business to a higher plane, then you need a business consultant. 

An investment banker works best if, and only if, you are there to do the deal and have already maximized the internal value of the business. The moment even one element of this is incomplete, invest in a good business consultant.