By Spencer Wesley, Realtor®, Dental Practice Broker
After a successful career as a dental practice owner, it’s time to sell your dental practice and retire. When you do, here are two types of potential buyers you should try to avoid.
The Rookie
This is an inexperienced buyer who gets distracted by issues that aren’t really a factor while underestimating the importance of fundamentals. They often follow the advice of someone without valid industry experience who steers them in the wrong direction. Consequently, they are more likely to fall out of contract. Here’s one example.
A “rookie” buyer was interested in a practice that checked all the boxes. It had good cash flow, was in a great location, and had excellent growth potential. The buyer knew how to perform all of the dental procedures, making her skillset a great match as well. All of the fundamentals you’d want to see for a successful transition were there. Then the buyer talked to a “dental consultant” who advised against the deal arguing the practice culture would not be a good fit. She walked away from the deal.
There are valid reasons to not go through with a deal, but office culture isn’t one of them. In reality, once a new dentist takes ownership of a practice, it doesn’t take long for the office to reflect the new owner’s approach. A common mistake among first-time buyers is to underestimate their personal power to shape the culture of an office to make it fit their priorities and preferences. Far more important and harder to change are things like procedure types, payer types, or historically weak cash flow.
By not getting good advice, the buyer missed a great opportunity, but it also cost the seller. Falling out of contract undermines the value of a practice, regardless of why. It leaves future buyers and brokers with the vague feeling that something must have been wrong at that practice or the deal would have gone through.
The Professional
At the other end of the spectrum is the professional buyer who already owns one or more practices and presents themselves as a serious candidate. Sellers are often excited to get inquiries from this type of buyer because they appear to be experienced and knowledgeable – someone who’s done this before, knows what they want and how to close a deal. What the seller usually finds out later is that this buyer has fallen out of contract four of the last six times after the seller accepted his letter of intent (LOI). These are sharks to be avoided whenever possible. They’ll tie you up with an offer and negotiate heavily during due diligence. If you’re trying to get the full value out of your business as you approach retirement, the last thing you want to do is take your practice off the market, which a LOI mandates, and dump $5-10K into lawyer fees while the buyer tries to negotiate the price down.
It’s hard to place a dollar value on missed opportunities or wasted time. If you accept an LOI from someone and the deal doesn’t go through, you’ll never know what buyers you missed. The extra money you spend on attorney fees won’t get reimbursed.
You can avoid these situations by working with an experienced professional team when you sell your practice. A professional broker can help you distinguish serious candidates from the look-sees and sharks, saving you time and money.
If you’re thinking about selling your practice and have questions, give us a call at Engage Ownership Transitioning. We have the team and experience to ensure a smooth transition and help you get the value you deserve.