- Why buyers should want practices to sell through brokers
As a dental practice business broker, my job is to represent the vendor’s interests in a business sale and get them the best possible price and terms in a transaction. Knowing this, some buyers feel that it isn’t in their interests to have a broker like me involved in their sale, as my sole function is to act for the other side. What these buyers don’t realise is that by faithfully representing the vendor in a practice sale, I also bring many benefits to the buyer that would not be there if the vendor was acting alone.
What are these benefits?
1. A practice sale is usually better prepared and documented through a broker
A dentist putting a practice on the market by themselves will usually not do much in the way of preparation. They usually spend some effort putting together an advertisement and then, when they get responses, arrange to meet the potential buyers and give them a tour of the practice. During the meeting the vendor would verbally give them the highlights/history of the practice and staff and give them some raw financials to consider.
The buyer then goes home and needs to make sense of what they have heard, and communicate the information they heard to their spouse, accountant, lawyer, financiers. These advisers will have questions that the buyer either can’t remember or hadn’t considered when they met, and will undoubtedly will require more clarification, confirmation of what they heard and documentation.
Advisers will ask for details of staff employment, the lease on the premises, details of major equipment, zoning permits, etc. When the buyer asks for this from the vendor, these documents they aren’t always easy to put together or find… documents are misplaced, lawyers and accountants who have information are busy or away… Sometimes the vendor pushes back, saying that the buyer’s (reasonable) questions are too invasive or irrelevant. It’s hard to know if the vendor is interested in selling but disorganised, or in two minds about selling in the first place.
Having a broker involved should mean that (if possible) all the relevant documents and information are collected and summarised in advance. It means that reasonable requests for information are reinforced by someone who is on the vendor’s side. All this should make it much faster for the buyer to understand the opportunity and for their advisers to get the complete picture. Ultimately it should make it easier for the deal to progress.
A dentist selling a practice is often selling something that they have taken decades to build. They are handing over long-standing relationships with staff and patients. It can be hard for them to be objective in the face of this and emotions can often cause them to stall, delay or react harshly when conversations about the practice are not what they want to hear.
When a broker isn’t involved, a buyer needs to be sensitive to the vendor’s feelings when talking about the practice and their plans for if they owned it, so that they don’t offend the vendor.
Having a broker involved adds a buffer to the process. It allows:
- the buyer to talk more openly about their plans for the practice and what they don’t like, without fear of insulting the vendor.
- someone who is on the vendor’s side to remind them when they are not making decisions objectively.
3. A broker is more available than a vendor
If the buyer has questions, needs clarifications or further documentation, the vendor won’t always be available to answer these questions…usually they are seeing patients and can only deal with these at the end of the day or on the weekend.
A broker should be far more available throughout the day to answer questions and give clarifications if needed.
4. Price verification
While buyers may complain that the role of a broker is to get the best price and terms for a vendor, what they may not appreciate is that the absence of a broker does not indicate a bargain is there to be had.
A buyer presented with a practice opportunity by a vendor is usually uncertain as to whether the price represents good value or not. Even when a buyer is presented with a valuation by a reputable company, they often question whether this represents “what the market would bear”. It is only when a broker introduces competitive tension that the social proof of buyer interest ensures that what is paid for the practice is market rate.
5. Structure a deal
Without a broker, the buyer and seller can hit what may seem like an insurmountable hurdle and the deal can easily fall apart. If a broker is involved in that same deal, there is a very real chance that they may be able to use their experience to come up with ways of structuring a deal that can navigate around the problem.
Business brokers (like myself) have been involved in hundreds of deals… and when you see that many deals in a particular industry, where the same issues arise over and over again, you see many different creative ways of navigating those and resolving issues.
Real estate agents and business brokers are typically engaged by, work for and are paid by a vendor. However, this doesn’t mean that buyers should feel that they are working against their interests. When you consider that agents and brokers usually only get paid if and when a deal goes through, you will realise that they are strongly incentivised to make things run as efficiently as possible for all parties involved. They should be working hard at all times to make the buyer happy to buy, and to remove as many hurdles as possible between you (the buyer) and the finish line.