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The Dental Shopper Blog

Protect Yourself When You Sell Your Practice

Monday, December 10, 2012

Information to help you protect yourself when finding a practice broker to sell your practice. By Ken Rubin


1. Always Interview More Than One Broker

The sale of your dental practice is one of the biggest financial transactions of your life.  Your decision will directly affect the quality of life that you will enjoy during retirement.  Think about it!  This should be a well thought out, logical decision based on facts and information.  Don’t make a snap or emotional decision based on “a feeling,” a smooth talker or old information that is no longer valid. Like the dental profession, the brokerage profession has also experienced many changes over the past several years. All practice brokers have different methods, skills, experience, knowledge, marketing methods, buyer databases, ethics, business volume, personality, reputations, etc. Be careful and develop a list of important interview questions to ask.

2. Request a Broker’s Performance Report for the Past 12 Months

This is absolutely critical. Insist on getting the names of your colleagues in your immediate area (not 50 miles away - unless your practice is a very rural area) whose practices they have sold recently.

3. Get Proof of Broker’s Malpractice Insurance

Litigation is on the rise. Request a copy of the policy Declaration Page. Active brokers should have a minimum of $2,000,000 in coverage. Buyer failure rates and lawsuits have skyrocketed! Because good insurance is very expensive, many brokers have been “going bare” or are inadequately insured. Things don’t always go 100% as planned and if there’s a problem, you don’t want to find yourself solely left “holding the bag” and suffering a massive financial loss with no recourse.

4. Insist On Having A Protective Escape Clause In Your Listing Agreement

This will make it possible for you to get out of a listing early with a non-performing broker. Even though a broker may tell you initially that they’ll let you out of the listing agreement, insist that it appear in writing. If you’re not extremely impressed with the marketing campaign of the broker after the first 30 days, it’s time to move on to another broker. PERIOD! Even in today’s tough market it’s still possible to sell practices quickly (except in very rural areas). The results of a strong marketing campaign will be blatantly obvious. Don’t get sucked into detrimental excuses and continued false hopes that could string you along for a long, long time.

5. Make Sure The Broker Will Always Be Present To Show Your Practice

Showing the practice to prospective buyers is their job, not yours!It’s what you pay the broker for - their time, expertise and ability to facilitate a smooth transaction. You (and/or your spouse) shouldn’t be left alone to show your practice and try to function as a professional dental practice broker. The larger a geographic area that a broker covers, and the further away the broker is from your practice, the less likely it is that they’ll be involved in showing your practice or even meeting with the buyer.

6. The Listing Period is Negotiable

Even in today’s tougher marketplace, it doesn’t take a year to sell a practice. Protect yourself by demanding a listing term of no longer than 6 months. Better yet, start with a 3 month listing or even shorter. At the end of 3 months (assuming you’re satisfied that the broker is doing a good job) you can simply extend your listing agreement. This keeps you in control. It’s a dog-eat-dog world, and many dentists have found themselves stuck in long term listing agreements that they desperately wanted to get out of but were legally bound to the broker. With declining practice values in this current economic situation, the damage is amplified dramatically. Negotiate the listing period.

7. No “Multiple Listing Service”

Unlike selling a home, there is no Multiple Listing Service (“MLS”) for dental practices. It’s customary for practice brokers to sell their own listings and avoid having to split the commission with a buyer’s agent. Because dental practice brokers rarely “co-op” their listings with other brokers, your success in selling will solely be determined by the efforts, experience, resourcefulness and reputation of the broker you select. Like dentists, all brokers are not created equal, so choose wisely!

8. Don’t Be Fooled By A Broker’s Current Listings

To make it appear like they’re more active and successful than they really are (in order to help deceive sellers into listing with them), some brokers will actually include “false and fictitious” listings on their websites and display ads. They will include practices that they sold a long time ago; old expired listings that they were unable to sell; listings they expect or hope to get in the future; and in some cases fake listings that they completely made up. A long list of legitimate practices for sale can also be an indicator of the broker’s inability to actually get practices SOLD. (See #2 above)

9. The Commission Rate Is Negotiable

Although most brokers charge a 10% fee, some are willing to discount the rate, especially on very large practices. More importantly than the commission percentage charged, focus on the amount that you net in your pocket after paying the commission.  Keep in mind that there is a huge difference in the sales price that different brokers are able to command for your practice, and although you may have saved 1-2% in commissions, it may end up costing much more in terms of reduced sales practice price than the discounted commission savings. You can’t get something that you don’t ask for, so it’s always worthwhile to at least ask for a discounted commission even if a confident broker won’t discount their fee. For example it would be better to pay a 10% commission to a broker that is able to sell your practice for $800,000, than to pay an 8% commission to a broker that is only capable of selling your practice for $750,000. Do the math!

10. Don’t Be Fooled By An Overstated Opinion Of Value

In order to capture a listing, some brokers will tell you they can sell your practice for an inflated price.  It’s the oldest trick in the book. After a few months they’ll “reconsider” the price, or blame it on the market, and convince you to agree to a much lower asking price.

11. Ask Active Current Buyers Which Broker They Would Use

This is a great source of unbiased information. Since there has been very little inventory of practices for sale, many buyers have now been looking for a long time, and are very familiar with many of the brokers. They know firsthand which brokers do the best job and you can ask them who they would use if they had a practice to sell today.

Please note: This list is NOT all inclusive! It’s just a starting point.


Ken Rubin is the President of Ken Rubin & Company, Dental CPA's - www.henrubincpa.com and Ken Rubin Practice Sales - www.krpracticesales.com
Ken can be reached at 619-299-6161 or Ken@kenrubincpa.com.

Please Note: Items on this blog are not necessarily the opinion of The Dental Shopper or its staff. These items may be controversial and are here for the purpose of free discussion of ideas and concepts.
Dr. Lon Uso, owner.

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