by Kevin A. Shea, JD
Although counterintuitive, retaining a broker to sell your practice will save you money!
It is often enticing to attempt to sell a practice on one's own. Superficially, the transaction seems simple enough, and it should be a quick and easy way for the selling doctor to save a few dollars. Certainly, a few have been able to complete a "fisbo" (for sale by owner), whether successfully or unsuccessfully. So why would anyone utilize a broker in the sale of his or her practice? It saves you money! Here are just a few of the reasons:
A qualified broker has the unique ability to value your practice properly. You may underestimate its value and sell it for less than the "fair market value."
Even if priced right, a "fisbo" often negotiates away tens of thousands of dollars through the seller's inexperience. Since the best brokers have been involved with hundreds of transactions, they know the best and most effective negotiating tactics.
A good broker can save you 10 to 20 percent in taxes. A critical issue in the practice sale will be the allocation of the purchase price for tax purposes. A seasoned broker will be able to identify and implement strategies to save the seller significant tax dollars. The effect is increased net proceeds from the sale. Often, a "fisbo" or inexperienced broker pays much of the proceeds to the state, local, and federal taxing authorities unnecessarily.
An effective broker has the ability to cultivate a larger pool of buyers and get them truly interested in the practice. Nothing has value without demand; thus, a broker will create "demand" for the practice. This allows the seller greater leverage in negotiations. Marketing tools are either unavailable or economically infeasible for most doctors. A broker allows the seller to take advantage of economy of scale.
A broker can "close the deal." I sold two great practices for doctors who had been trying to sell them on their own for years. They both complained about "too many tire kickers." Neither of these doctors had ever sold a practice, and they had a difficult time distinguishing buyers from the "tire kickers." Moreover, when the qualified buyer came along, they didn't know how to put the transaction together. The result was months of frustration. A broker can qualify buyers and put it all together.
Time is money. On the surface, the sale of a practice does not appear to be time-consuming. Often, the selling doctor says, "Selling my practice is just like selling a home." Nothing could be further from the truth! It's much more complicated and involved than selling a house. A home is primarily structure and location. A dental practice has not only these, but also the dynamics of an ongoing business, staff members, practice philosophies, and thousands of people the doctor calls "patients" (and often "friends").
To successfully combine these factors into a smooth transition takes expertise, effective tools, experience, patience, and hard work. Thus, it is extremely time- consuming and may try the patience and resources of the selling doctor. Clearly, it is difficult to measure empirically the amount of time and frustration, but it does have a value!
Superficially, it is very tempting for a doctor to try to sell or transition a practice when simply viewed in light of the broker's compensation. However, if a doctor is judicious and analyzes how much added value a broker brings to the transaction, a good broker's value usually exceeds the compensation paid many times over. If you are considering the sale of all or part of your practice, do yourself a favor and retain a practice broker — it will save you money!
Kevin A. Shea, JD, is president of Shea Practice Transitions, P.A., a dental practice brokerage and appraisal firm. Shea has brokered or assisted in the sale of hundreds of practices in MN, WI, IA, ND, and SD. He prepares marketing plans, closing documents, buy/sell agreements, Deferred Compensation plans, and all applicable legal documents. Shea is a member of American Dental Sales, the largest group of dental brokers, appraisers, and consultants in the United States. He can be reached at (877) 275-2727. See the classified ads for names and addresses of ADS members in your area.