Forty years ago, when I thought I knew absolutely everything there was to know about selling dental practices, I was contacted by a dentist who had tried, unsuccessfully, for two years to sell his practice.
Figuring he had nothing to lose, he engaged me to try to sell his practice, and within three weeks, it was sold at our asking price!
Compare that to today’s sale process when, after three weeks, clients are still waiting for a non-binding letter of intent from their attorney. But back to our story.
After the closing, the seller told me he netted more money from the sale than he would have, even after paying my commission, had he sold it himself at a lower price, which he wasn’t able to do.
The buyer told me that the seller had offered the dental practice to him a year earlier at a lower price, but the buyer didn’t think the practice was worth it, even at that lower price.
So, what changed his mind? With my scant two years of experience in selling practices, I was able to explain how amazingly successful the merger purchase cash flow could be. Also, very importantly, I illustrated a risk assessment that disclosed it would be nearly impossible to lose money in the process.
Then, being much better informed on the practice value of what he was receiving in the purchase, and not just focusing on the price that the seller was receiving, he discovered that the practice was easily worth the higher price that he paid.
Also, being aware of two other full price offers right behind him helped him make a very well-informed decision in his own best interest.
So, in this case, a brilliant dental practice broker, who in two years already knew everything about selling practices, was able to create a win-win situation by bringing true value to that sale process.
So here goes a couple of urban legend myths about practice brokers. We’ve all read that you can sell your practice yourself, right? Well, in this case, the seller could not sell his practice himself. They think that the only service of a broker is to find a buyer. Well, that was wrong in this case also. This seller had found the buyer a year earlier and couldn’t even sell his practice at a discounted price. You’ve heard that brokers just add an unjustified expense for the seller, which is also wrong. In this case, the seller walked away from the sale closing with more money in his pocket even after paying the broker than he would have made without paying a broker.
If it helps you feel better, remember that the brokerage fee is deductible, so Uncle Sam is paying 40% of the broker’s fee for you, making the cost even that much less. And we need to remember that brokers perform services that a seller is going to have to pay somebody to do anyway, so outside professional help, and the cost of it, is necessary, wherever it comes from.
There are other important factors that sellers should consider. Dental brokers are the best resource for valuing a practice, examining cash flow, knowing comparable market data, and practice asset values, to formulate the most precise listing price.
They know the dental practice market better than anyone. Period. Sellers occasionally undervalue their practices, but are much more likely to overvalue them, resulting in frustrating experiences for everyone.
Dental practice buyers invariably feel that practice prices are too high, but a good broker knows how to draw buyers’ attention from price, which is what the seller walks away with, to examining value, which is what the buyer actually gets for their money.
That is how I sold the practice that we just examined.
Brokers can help the seller save on taxes. Brokers can provide suggestions for your attorney and accountant on how to structure the best tax-advantaged sale. We can refer sellers to experts who have experience in structuring sales and sharing techniques that your accountant and attorney might not be familiar with. I have participated in several sales in which the seller’s tax savings that I suggested were larger than my commission.
Brokers can help avoid lawsuits by suggesting language that should be inserted or avoided, protecting both parties from costly disputes. The huge cost of even a successful defense makes a broker’s commission seem incidental.
Brokers protect your confidentiality. We can provide volumes of financial information to buyers while not disclosing your identity. If your practice cash flow doesn’t work for a buyer, we end the process then and there, and they never even know who you are. We believe your staff and patients should not hear about your transition intentions from anyone but you.
Brokers help buyers understand the real facts about your practice. A buyer seeing a corporate tax return with a $15,000 loss may actually think that the practice lost money, rather than understanding the $300,000 net income that the owner actually made. Many qualified, but naïve buyers, may overlook this opportunity, not understanding what they are seeing. Brokers provide all the financial, practice information and interpretation about a practice for sale so that buyers, their accountants, and lenders can clearly understand the true financial value of your practice.
Brokers find the cash. Brokers know where practice financing can be found and where it cannot. Many times, the lenders who are willing to lend are a moving target, so knowing when and who to apply to for financing is so important.
Brokers will speed up the process by gathering all of the information that lenders will need, so there’s not a thousand “one more things” after submitting an incomplete application that will slow things down and frustrate everyone.
Brokers bring the most cash possible to the closing table without wasting anybody’s time or effort. Brokers know which lenders will loan when 75% of the loan amount is for an intangible asset that cannot be collateralized. Without cash, there is no sale, and brokers know better than anyone where to find the cash.
Brokers give your practice the maximum marketplace exposure. Brokers have access to the greatest variety of venues, typically having multiple websites and other digital sources, where today’s buyers are searching. We also have lists of existing buyers for specific areas.
Besides having more access to more buyers than a private seller could ever have, brokers also provide sellers with maximum confidentiality in the marketing process.
Brokers save you money. Compare the lost income a seller could have made by treating patients to the fee they would pay a broker, and you will quickly discover the cost of spending countless unpaid hours doing a critical task that you are not an expert at. Sellers’ lost income from the time spent trying to sell their practice instead of practicing dentistry could pay the sales commission alone, even if they could have gotten the same results as a broker, which is also highly unlikely. Brokers save you time and frustration. Some sellers believe that selling a practice is a social event made up of months of dinners with their prospect and the spouses, talking about treatment philosophy, techniques for performing procedures, how rich the buyer will become if he buys the practice, and other items that dentists are experienced and competent to discuss.
Unfortunately, these discussions do not include the key points about practice cash flow and if the buyer has the confidence to make this huge investment. Imagine months and months of wasted time, only to have the prospect decide against buying. I have seen sellers get so frustrated with their lack of results that they stop trying to sell their practice – the very thing they want to do the most – to avoid further frustration.
As a broker, I make it a point to see how quickly I can disqualify a prospect. It doesn’t serve anyone’s purpose to continue down a road that doesn’t lead anywhere.
Brokers can quickly, and without countless dinners with the spouses, help a prospect determine if they are willing and able to commit to a purchase that will be a success, or not. Or even quickly help a prospect discover that this practice will not meet their needs.
The best dental brokers don’t spend time trying to convince someone to buy your practice, but rather spend their time looking for the right person, someone who actually wants to buy your practice. We all have better things to do with our time than discovering rabbit holes.
Compare buying a used car at an upscale car dealership that has inspected the car, checked its damage history, provided an extended warranty, arranged financing, and follow up service to that of buying a used car from a private seller after inspecting it one night after dinner at a stranger’s home in the dark.
No background, no warranties, no assurances. Perhaps this car is even better than the dealer’s offering, but buyers will doubt it and will view the dealership as a safer and more valuable alternative. The same goes for your practice when it’s represented by a broker.
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 you.
Earl Douglas, DDS, MBA, BVAL is the president of ADS South, LLC, 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 earl@adssouth.com.
