Should You Use A Broker To Sell Your Practice?
Practice Sale Trends
Are you considering selling your practice in the near future? If so, you will be entering the most favorable sellers’ market in recent history. The supply of practices available for sale is nowhere near enough to meet the demand from a growing number of buyers, both individual and corporate. As a result, prices are up and practices are selling at a faster clip than ever, says Roger K. Hill, MSA, ASA*.
Handling the Sale
But how will you make it happen? Will you use a broker or handle the sale on your own? If you’re planning to go it alone, make sure you have these bases covered. Can you maintain the confidentiality of your practice while it is for sale? If the word gets out, staff and patients may head for the door, leading to chaos and a decline in the value of the practice.
Can you market your practice to receive maximum exposure in order to generate the highest sales price? Knowing where and how to list your practice’s availability is critical.
How will you determine the true value for your practice? Many sellers overestimate their practice value based on emotional factors such as time in practice, knowledge of the community, reputation, etc. Meanwhile, potential buyers are focused on other factors, primarily the cash flow generated by the practice and its future potential.
Are you an effective negotiator? Buyers are becoming more experienced and sophisticated these days, making negotiations more difficult. You’ll need to be prepared to handle negotiations with multiple potential buyers simultaneously if you’re going to attract the highest price for your practice.
As you can see, there are numerous responsibilities involved in selling your own practice. While a small percentage of doctors may be able to pull this off, the vast majority need professional help, and often will need to use a broker. If so, here are three factors to consider:
- Free “no obligation” appraisals – Brokers often offer a free “no obligation” practice valuation, with the hopes that the resulting value will prompt you to list with them. All “valuations,” free or not, are NOT created equal. The old adage “you get what you pay for,” often applies. In most cases, the free valuation involves nothing more than applying a percentage of collections (usually 70-75%) in order to determine the practice value. While you can’t beat the price of the appraisal, the practice’s real value may be substantially different, after all of the due diligence has been completed and the facts are known.
- The promise of a built-in buyer – Brokers sometimes make empty promises of already having a “qualified purchaser” ready to go, to motivate you to sign the listing agreement. Take this promise with a grain of salt. Rather, consider the broker’s experience and geographic coverage area as the primary determinant in how many potential buyers may be generated. A broker with more experience, covering a broader geographical area, is likely to “scare up” more potential candidates interested in purchasing your practice.
- What about the legal documents? – Find out whether your broker is licensed to practice law. Most aren’t. Rather, a broker typically will provide a set of “boilerplate” legal documents as a starting point after an offer letter has been signed. The broker will advise you to have these documents reviewed by attorneys, whose fees will usually be in addition to those you’re paying the broker. Since every practice transition is different, it’s important to have an attorney representing your interests in the numerous legal issues involved, including ways to minimize federal and state income taxes on the sale.
Many doctors view the responsibility of a broker as simply finding a purchaser for their practice. As you can see, however, their responsibility extends to include selling your practice at the optimum price, negotiating the terms of the sale, suggesting strategies to minimize your taxes, providing assistance to obtain financing from banks, dealing with office leases, acting as an intermediary (lightning rod) between the buyer and the seller, and making sure that your interests are protected through proper legal documents. Accordingly, before you list, make sure you know what services will be provided and what the brokerage fee includes (legal services or not), so that you can make an informed decision.
* Roger K. Hill, MSA, ASA is President of Roger K. Hill & Company, a member of The McGill and Hill Group, LLC. He provides a full range of practice transition services including practice valuation and brokerage services (including the cost of legal representation). For more information, call 877.306.9780.
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