I saw an advertisement in a state journal for the sale of a practice. The ad contained in capital letters “NO BROKERS,” which was an irresistible invitation to reply.
I told the seller about a dentist who had tried unsuccessfully for two years to sell his practice. So the seller engaged me to sell his practice, and within three weeks it was sold at our asking price. After the closing, the seller told me he netted more money from the sale after paying my commission than he would have had he sold it himself, which he was unable to do.
Then the buyer told me that the seller had offered the practice to him a year earlier at a lower price, but he didn’t think the practice was worth the lower price. After explaining cash flow, risk assessment, and other practice statistics, he decided it was worth the higher price that he paid. This was a win-win situation where the consultant brought true
value to the process.
There are advocates of dentists selling their practices privately, but there are benefits that need to be recognized in using professional sales consultants.
Brokers are the best resource for valuing a practice, examining cash flow, looking at market comparables, and looking at asset values to provide a realistic price. Sellers occasionally undervalue their practices, but are much more likely to overvalue their practices, which results in a frustrating experience for everyone.
Brokers can help save taxes. They can provide suggestions for your attorney and accountant on how to structure the best tax-advantaged sale. They can refer experts with extensive experience in structuring your sale that your accountant and attorney may not have. I have participated in several sales in which the seller’s tax savings were larger than their commission.
Brokers can help avoid lawsuits by suggesting language that can be included or avoided throughout the transaction, which protects both parties from costly disputes. The huge cost of even a successful defense makes a sales commission seem incidental.
Brokers protect confidentiality. They can provide volumes of financial information while not disclosing your identity. If cash flow doesn’t work for a buyer, a broker can end the process and the buyer will never know who the seller is. We believe your staff and patients should not hear about your intentions from anyone but you.
Brokers help buyers understand the real facts about your practice. A buyer that sees a corporate tax return with a $15,000 loss usually thinks the practice has lost money, rather than understanding the $300,000 net the owner actually made. Many buyers may overlook the practice because they don’t understand what they’re seeing. A broker provides all financial and practice information and interpretation so that buyers, their accountants, and lenders can clearly understand the true financial value of your practice.
Brokers find the cash. They know where practice financing can and cannot be found. They bring the most cash possible to the closing table without wasting time and effort. Brokers know which lenders will give loans when 75% of the price is intangible and cannot be collateralized, and they do not generally require a second mortgage or a spousal guarantee. Without cash there is no sale, and brokers know better than anyone where to find the cash.
Brokers give your practice maximum marketplace exposure. Brokers have access to the most venues, and typically have multiple Web sites and ads in the most popular journals. They also have lists of existing buyers for specific areas. While they have more access to more buyers than a private seller ever could, brokers also provide maximum confidentiality in the marketing process.
Brokers save you money. A seller can pay the sales commission with the money he or she makes treating patients, instead of losing that money while spending time trying to sell the practice.
Brokers bring legitimacy to a sale. It’s like buying a used car at an upscale dealership that has inspected the car and checked its damage history compared to buying from a private seller after inspecting the car in the driveway in the dark. There are no warranties, no background, and no assurances. The car may be better than the dealer’s, but buyers will doubt it and view the dealership as a safer and more valuable alternative. The same goes for your practice.
So before putting a “For Sale by Owner” sign on your practice, consider the time, money, and security benefits that a professionally assisted practice sale can provide.
Earl Douglas, DDS, MBA, BVAL, is the president of ADS South, which provides dental practice transition services in the Southeast, and the founder of ADS, a national organization of dental practice appraisers, brokers, and consultants. Contact him at 770-664-1982 or firstname.lastname@example.org.