There is nothing more comforting than knowing that everything is going to be all right. Whether it’s a small child with their favorite teddy bear or your insurance being in “good hands”, the knowledge that a project will be handled properly gives one peace of mind.
The same is true of a practice broker. When a doctor hires a broker to handle the sale of his/her practice, the selling doctor must have ultimate confidence in that the practice broker will handle all the details ethically and capably. The two broad criteria I would recommend for hiring a practice broker are: (1) the broker must be competent; and (2) the broker must be honest.
Although a broker may be honest, if they don’t have the degree of experience and expertise necessary to handle your transaction, your practice sale might be fraught with mistakes, stress and failure. A capable practice transition specialist must be well versed in a variety of different areas, such as: (1) proper appraisal methods; (2) fair and effective sales techniques; (3) in depth knowledge of the legal and tax implications incidental to the practice sale. Overall, your practice broker must have good business judgment that they can apply to your practice transition.
Some questions you can ask your practice broker in order to ascertain their competency are:
a. Would you give me names and telephone numbers of sellers you recently represented?
b. Could you explain to me the tax implications of the practice transition (especially if it involves a corporate practice and/or real estate)?
c. How many practice transitions have you participated in during the previous two years?
d. Explain to me the practice sales process from start to finish.
In sum, it is critical that you retain a practice broker with a high degree of competency, so as to minimize costly mistakes.
The next main criteria for a practice broker is honesty. Like determining the competency of a broker, you can certainly request references from the broker. In addition, you can check with colleagues and other individuals in the dental industry to verify the broker’s reputation. In the end, you must trust your broker to do the right thing.
One area to test for a broker’s trustworthiness is their position on dual representation. Dual representation entails the broker representing both buyer and seller in the same transaction. In many jurisdictions, there has been litigation or statutes enacted that limit or prohibit dual representation, yet today dual representation remains commonplace in practice brokerage. In my opinion, practice sales are so important and so complicated that it is impossible to serve two masters. Dual representation has inherent conflicts of interest which put the parties in extremely precarious situations and often negates the broker’s objectivity. Moreover, dual representation typically adds to the cost of the transaction since both parties are paying the broker a fee, as well as the other costs incidental to the transaction (e.g. attorney and accounting fees). Through my years of experience, the most disastrous results from practice sales have involved brokers “representing both parties”.
Another common scheme for the less than honest broker is bait and switch tactics or ticklers. These sales tactics usually take the form of a cheap give-away or a “valuable secret” that will only be disclosed to you if you list your practice for sale. Recently a brokerage company touted “tax free practice sales”. Naturally such a claim sparked curiosity in the dental community (and probably by the IRS as well). However when potential sellers inquired about such scheme, they were told that such “top secret” information would only be revealed if they listed their practice. Shamefully after some unknowing sellers fell into the trap, they discovered that the transaction, in fact, was not tax free, and that they would have to forfeit a substantial amount of their practice for such a scheme to be effective. A truthful broker has nothing to hide and is forthright about the methods they use in order to assure you the best results in your practice transition.
The sale of your practice is certainly one of the most important decisions of your career, thus it is essential you hire a broker with the highest degree of knowledge and integrity. As one doctor related to me, “it doesn’t cost any more to hire the best”. Hence if you find the broker with these qualities, you will have the peace of mind in knowing that your practice sale will be handled right!
By: Kevin Shea, President of Shea Practice Transitions, P.A.
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A Good Broker = Peace of Mind