Transitions Roundtable

We ask two experts the same question to give you two different answers on a complex issue

QUESTION

“Should I sell my practice on my own to avoid paying a commission?”

Tom Snyder, DMD, MBA

In our experience we have found that many mistakes can be made in negotiating your own sale. First, the average practice sale can take 150 to 200 hours of time. For example, it takes time to determine the sale price, look for a purchaser, market the opportunity, deal with lenders and advisors, negate the “Bill of Sale,” i.e., Practice Purchase Agreement, and finally, close the deal. This all contributes to lost production on your behalf if you’re doing the sale “on your own.” The cost of lost production comes directly out of your profit, and this loss may exceed the commission you would pay if you used a broker.

Furthermore, we see that the average sale price for a practice sale on your own may cost you money. Brokers will often get you a higher price as they are vested in your success, and although you pay a commission, you may still be ahead if you engage a broker’s service as opposed to doing it yourself.

Another important point to consider is that you may not know to have a properly prepared Practice Purchase Agreement to document your transaction. Many brokers use contract templates that include all key terms and conditions of a practice sale. These agreements can save you thousands of dollars in legal fees, especially if your attorneys do not have considerable experience in negotiating dental practice sales. Wouldn’t you rather have an agreement that has been used in numerous practice sales, thus ensuring that your needs are completely addressed? You still need a lawyer to represent you, but using time-tested agreements as part of your sale can only benefit you. Many brokers include these templates as part of their sales commission.

Experienced brokers will also recommend proper tax allocation strategies, and this can save you, the seller, thousands of dollars, as opposed to if the allocation is not properly structured.

So you need to weigh the costs and benefits of engaging a broker with the most valuable asset in your portfolio . . . your dental practice!

Tom Snyder, DMD, MBA, is the director of transition services for The Snyder Group, a division of Henry Schein. He can be reached at (800) 988-5674 or [email protected].

Guy Jaffe, MBA

Dentists should not attempt to sell their own practice for five key reasons:

1. Not knowing what your practice is worth – If you sell your own practice, who would appraise it? Using someone inexperienced to appraise your practice can be risky. Worse yet, using a rule of thumb is a poor idea. The riskiest way to determine value is not having the practice appraised at all (guessing).
2. Confidentiality – If you attempt to sell your own practice, it is highly unlikely that you can keep your intentions confidential. If your staff members find out you’re selling your practice, they may begin looking for another job. If your patients hear that you’re retiring or relocating, some will look for a new dentist.
3. Intermediary – It is not usually a good idea for buyer and seller to negotiate directly. Many issues arise during negotiations, and some are difficult and contentious. Having an experienced agent negotiate on your behalf gives you the time necessary to think through various scenarios before committing yourself. Also, it is extremely important that the purchasing and selling dentists get along once the sale closes and the transition begins.
4. Experience – A good dental practice broker knows where to find prospective dental buyers and how to interview and screen qualified prospects. The broker has developed methods to keep the practice sale confidential and to determine what information is essential for appraising a practice. A broker also knows what information needs to be given to interested prospects, how to structure a sale properly, and which lenders are interested in financing. A dentist trying to sell his or her own practice does not possess these skills. This is not the time or place for “on-the-job training.”
5. Marketing – When a dentist lists his or her practice with a broker, that practice is immediately placed on the broker’s website and in the dental journals. It is the reputation of the dental practice broker and the years of successfully selling dental practices that attract most dental prospects. A dentist selling his or her own practice cannot match the traffic that a successful practice broker can generate.

When thinking about selling your dental practice, this is no time to be thrifty. Be prepared to pay the commission to a good dental practice broker. It is the best money you will ever spend. Remember that you have a valuable asset that took many years to create. Keep in mind that it is not easy to sell a dental practice, and you have only one chance to do it right!

Guy Jaffe, MBA, is a principal of ADS Midwest and past president of American Dental Sales. He provides brokerage, appraisal, and consulting services in St. Louis, Columbia, and Cape Girardeau, Missouri, and Peoria, Bloomington (central), and southern Illinois. You can reach him at (800) 221-6927 or at [email protected]">[email protected].