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Selling a dental practice for free is a bad idea!

Posted on November 05, 2014 in Articles & Frank Taylor & Associates

We see more and more dentists understanding that selling a practice for no commission is dancing close to commercial suicide. There has been a long held view by many dentists that selling for free and getting their buyer to pay this fee was a good idea – surely this is money saved was the cry.

This clearly is, and has always been, a bad idea.

Regardless of whether the vendor or buyer pays the agents fee, the vendor ultimately pays for it as the offer placed for the practice is reduced to accommodate this fee. For example, if a buyer has £900,000 to buy a practice and has to pay the agent 4% (which is not uncommon) then this £36,000 will come off the amount that can be offered for the practice. So the seller only gets £864,000 – but it is worse than this as the buyer is then ‘paying the agent’ so applies pressure to make sure the price is not driven up. This sequence of events nearly cost one seller £450,000 as the practice being sold was not actively marketed by the agent – somehow makes selling for free look pretty expensive!

One dentist commented ‘This is a blatant conflict of interest and I want an agent that is working solely for me – there is no such thing as a free lunch’.

Another seller said ‘It doesn’t matter who writes the cheque because either way I am paying as the buyer will offer less for my practice to cover this fee’.

This is the commercial reality of selling for free, then there is a legal position which under the Law of Agency states – an agent must not accept any new obligations that are inconsistent with the duties owed to the principal. If an agent picks up a fee from the buyer I am pretty sure this obligation is not being met.

The day is coming where taking a commission from buyers will be given a wide berth by sellers – the case studies of where this has served sellers badly are growing day by day.

 

This article was published in Dentistry Magazine, November 2014. The published article can be seen here.

 

 

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