Transition brokers not only play a key role in the transition process, but wear many hats as they work with sellers and buyers to complete emotional and challenging transitions.
Not every dentist may need a broker to assist with the transition, but an informed seller will at least explore and understand how a broker can facilitate it and lead the parties through the maze of paperwork and decisions.
Brokers bring a fresh, impartial viewpoint to a transition, even though the broker is customarily the agent of the seller. Brokers will be looking out for the best interest of all parties. You may be thinking, “No, that cannot be, there is an inherent conflict of interest. What’s in the best interest of the seller is to the disadvantage of the buyer.”
In some cases, this may be true, but when it comes to the transition of a dental practice, whatever the end results are, they need to be fair to both parties. This is due to the fact that what is really being transferred is the “goodwill” of the seller. Sellers should feel they have been fairly compensated and buyers need to feel they were paid a fair price.
If the broker has both parties’ interests in mind, then he or she will be wearing many “hats” to ensure a successful transition. One of the most important concepts a seller and buyer has to understand and strive to achieve is to put themselves in the other party’s shoes and ask themselves, “Is this how I’d like to be treated and would I consider this a fair transition if I were that party?”
If both parties can answer yes to these questions, then the broker will be acting as an intermediary to help facilitate the fairness of what both parties want to accomplish. The broker will be part confessor, part psychologist, part counselor (marital, personal, and financial) as the transaction moves through the maze of paperwork and decisions.
A good broker can assist the seller in determining the economic and market values of the practice and explain how they differ from “seller’s value” (see column in August 2005 issue of DE). In many cases, the broker can help the seller maximize the value of the practice, which will still represent a fair price for the right buyer.
Once the fair-market value is determined, then the real work begins. Developing a marketing strategy and identifying the right buyer from a philosophical viewpoint - as well as from the standpoint of the continuing care of the patients - is key.
Many dentists who sell their practices will either agree to carry all or part of the purchase price, but they won’t determine if the buyers are financially qualified to purchase their practice. This is where brokers can really add value their due to contacts they have with specialty lenders who focus on dental transactions. With these contacts, sellers should be able to transition the practice for 100 percent cash and thus avoid the risk associated with carrying back part of the purchase price.
Another “hat” for the broker is to negotiate with the buyer (on behalf of the seller) the purchase price, contingencies, and the actual transfer of the practice. During the negotiation stages (which can take several weeks), the broker is working behind the scenes with the seller’s and buyer’s attorneys, accountants, consultants, and lenders to facilitate the transition process.
Many brokers will serve in another capacity by providing draft documents of the sales contract representing the initial understanding of the buyer and the seller. These documents then can be taken by the buyer and seller to their individual attorneys for final review prior to the completion of the transition.
One of the most important parts of the transition process is being sure that the transaction has been accurately documented with a “paper trail.” This is accomplished with the use of an escrow company. The real estate laws in many states allow brokers to act as escrow agents with their own transactions. This is normally done at a savings to both buyer and seller. However, there are third-party escrow companies that are familiar with dental practice transitions. I cannot stress enough the importance of using an escrow company so there is a clear “paper trail” to account for the disbursement of funds.
A good practice broker also can counsel the buyer and seller (another “hat”) by providing checklists of issues that need to be addressed during and after the transition process. With the “counselor hat” on, the broker can provide a wealth of knowledge and access to attorneys, accountants, insurance agents, lenders, and consultants familiar with the transition process.
All this adds up to the fact that the “right” dental practice broker can ensure a smooth, successful transition.
John M. Cahill, MBA, of John M. Cahill Associates, has more than 30 years of experience in the dental industry, including all aspects of appraisal, sales, purchases, and buy-ins in connection with dental transitions. Cahill is a member of American Dental Sales Inc., and can be reached at (510) 844-0330 or by e-mail at [email protected]. See the classified ads for names and addresses of ADS members in your area.
