Financial Benefits Of Experienced Guidance
For practice owners/sellers when deciding whether or not to utilize the assistance of a practice broker or transition consultant the critical question is not what it costs. The critical question is: Will the guidance provide value in excess of its cost? To answer that question, one must look at the potential answers to a wider range of questions, such as:
Based on our years of experience in practice sales, we firmly believe that experienced guidance and assistance provide financial benefits well in excess of their costs. Those benefits may result from a combination of any of the following factors.
1. Reduce The Chances Of Financially Damaging Sale Rumors. To reduce the risk of financially damaging sale rumors reaching patients and staff, inquiring potential buyers should sign confidentiality agreements before they are told the specific identity of the selling dentist. Because practice sellers, advertising their practices themselves, must give those inquiring a way to contact them for the first inquiry, inquiring dentists will almost always learn the identity of the sellers before signing a confidentiality agreement. The same happens when sellers try to use dental supply company representatives to find their potential buyers. Experienced brokers will advertise sellers' practices for them, in a generic format that tells basics about the practice, but does not identify the seller, and will then obtain confidentiality agreements from inquiring buyers before releasing the seller's identity and more detailed information.
2. Prevent Underselling. Many practice sellers inadvertently under price and undersell their practices. A logical practice appraisal process, utilizing multiple methodologies to capture the different aspects of a practice’s value, prevents this mistake.
3. Favorable Tax Treatment. Taxes on practice sales are inevitable. The goal is to structure sales correctly and then justify purchase price allocations to buyers and their advisors to thereby provide the most favorable tax treatment, allowing the seller to retain the maximum amount of his/her sale price. A qualified broker or transition consultant should have the experience and knowledge needed to work with your accountant to achieve this result.
4. Less Attorney Work Results In Lower Legal Fees. The advice and counsel of an attorney is critically important for sellers. But, in the absence of an experienced broker’s or consultant’s services, sellers’ attorneys often have to handle many, many aspects of the sale process that do not require their legal expertise. Relieving seller’s attorneys of this peripheral work can result in significantly lower legal fees.
5. Negotiation Assistance. Price negotiations are inevitable. Very few sellers have the experience, knowledge, and skill required to achieve the best results. An experienced broker or transition consultant should have the understanding of issues that are important to buyers and their advisers that is required to help sellers achieve better prices from the negotiation process. The goal is not to “over-sell” the buyer, but rather to help the buyer understand why the practice’s full fair market value is correct, and to help the buyer see and understand how he/she can be financially successful after paying the fair market value.
6. Draft Documents/Contracts. After assisting and guiding you in structuring your sale, an experienced broker or transition consultant can provide you with draft copies of sale contracts to match your chosen sale and transition structure. These draft agreements are a convenience for you, your attorney, and your accountant. The drafts can be provided in Microsoft Word format by email attachment so that you, your attorney, and your accountant can easily and quickly review and revise them as deemed necessary. Based on the broker's or consultant's knowledge and experience in practice sales and transitions, these draft agreements: 1) frame the issues that have been discussed and agreed upon during negotiations, 2) provide approaches to events and steps necessary in the sale and ownership transition process, and 3) outline the sequences, steps and stages of the sale and transition process.
7. Purchase Loan Sources. Today, practice purchase loans are not as easy to obtain as they once were. Experienced brokers and transition consultants should know the banks that are most likely to make purchase loans, who best to contact within those banks, and how to best present the seller’s practice to the banks. This increases the chances of buyers getting the required purchase loans, at favorable interest rates and repayment terms, and therefore reduces the chances that sellers must take the significant risks inherent in owner financing.
8. Increased Chances Of Actually Selling (Actually Getting Paid). Buyers, their attorneys, or their accountants often inject complexities. Few sales are simple. Many fall apart. An experienced broker’s or consultant’s handling of these complexities increases the chances that sales actually make it to a successful conclusion. No savings in broker or consultant fees offsets the cost of a sale’s failure that deprives the owner of the entire sale price.
George D. Stollings, DDS