Lis Hughes, Managing Director of Frank Taylor Associates, outlines some of the most common mistakes when selling a practice….
Q: What would you say is the most common mistake when selling?
Lis: Without doubt it’s not getting a proper valuation. People get flattered by informal unsolicited offers, perhaps from an associate or a corporate but not knowing what their practice is worth means many often accept lower offers than they should and some unfortunately lose out on vast amounts of money.
Q: Any pitfalls to be aware of when selling to someone you already know, like an associate?
Lis: Naturally it depends on the person and relationship you have with them, but remember the relationship of boss/employee will change dramatically. For some principals it’s difficult to say they want to get an independent valuation first as it may seem unfriendly – especially if they know that the associate is working hard to raise finance. It’s so important to remove the emotion and focus on the business and that means getting a valuation before accepting an offer. I’ve seen many cases where an associate has started to negotiate the price down just before contracts are signed. These situations can be tricky but an independent broker can make all the difference as they’ll handle those difficult conversations.
Q: So if you’re selling to people you know are you faced with any other issues?
Lis: Yes. Throughout a sale the banks financing the deal will keep an eye on the numbers. If things become difficult the staff and patients may pick up on this and ultimately it’s the practice that suffers. Staff may leave if they become aware of a potential sale or patients may notice a strained atmosphere. All in all, this impacts on income and if this starts to drop so does the practice value.
Q: What’s the best way to avoid this type of situation?
Lis: There’s no harm in selling to an associate but sit down at the outset and set ground rules. A third-party really does help with the negotiations as business is business. It takes a strong friendship to withstand the pressure of selling an incredibly valuable asset like a dental practice.
Q: Apart from the pitfalls of selling to an associate, are there any issues you see crop up with other types of buyers?
Lis: Currently there are a lot of ‘corporate’ buyers looking to grow their portfolios and they often approach owners directly. Getting an independent valuation holds true with corporates too; without one, it’s really hard to know what a realistic offer is.
Q: Anything to bear in mind if selling to a corporate?
Lis: Corporates usually want a principal to stay on for a few years as an employee, particularly as big disruptions may have an impact on the practice income. If so, it’s important the contract is negotiated properly and requests are reasonable; as an employee you may have targets to meet and different corporate policies to adhere to. For some this can be a relief, after all running a dental practice is a big responsibility, but for others the loss of control can be difficult.
Q: It sounds like selling can be stressful?
Lis: Absolutely. With the best will in the world it will feel personal. Most dentists really do care about their staff and patients and selling is possibly one of the biggest life decisions they’ve ever made. We really understand this so go beyond the call of duty to hold people’s hands, take the hassle out of the admin, and have those tricky conversations. Very often it’s the emotional support as much as our technical expertise that our clients really value. For us, sellers always come first.