Goodwill goes a long way
There are a number of key issues that the buyer and seller need to be aware of in the exasperating but satisfying area of practice sales.
I have found that if both parties act in an honest manner and build a sensible stream of communication throughout, numerous obstacles can be overcome. Generating trust can trim weeks off the sale process. Here is a run-through of the major points to consider.
1. The seller’s oddities
Surprisingly, the decision to sell a practice is rarely taken on the grounds of a logical financial decision. More frequently it’s a step taken for urgent health reasons, emotional problems with colleagues or spouses, boredom or just an inability to cope with the stress of being a principal and profit producer.
It is for this mixture of reasons that most sellers are so unprepared for, and so often unaware, of the process that they expect a quick sale. And that since they only work six months in a year, the practice is worth twice as much as the valuation because the new owner will have so much potential to develop.
A similar argument is presented when discussing the possibility of adding extra surgeries in the bathroom, in the cupboard under the stairs and in the greenhouse. Most sellers have long since forgotten what it was that motivated their choice when buying the practice originally. Getting together the information that will be required for a sale to happen is often close to impossible.
The worst sin of all is the unreliability of the decision to sell and to whom. Swapping a buyer midstream, or withdrawing the practice from the market, was such a daily occurrence that, many years ago, we introduced a hefty fine for such behaviour. This almost cured the problem, but there is always a potentially cunning associate in the wings, awaiting the opportunity for a little blackmail (sell to me or I leave).
2. The buyer’s behaviour
No matter how long a practice is on the market, when an offer of purchase is made, it seems that within minutes another crops up. Whether it is the seller’s choice, the higher amount, or the agent’s pressure, a buyer is then chosen. This process must begin by exploring what, in the mind of a purchasing dentist, is a perfect practice. Every opinion is different of course, but a buyer must submit to a process in order to achieve the desired conclusion.
It is strangely difficult to get practitioners to understand that a practice is a success or otherwise entirely because of its principal and his or her policies. Poring over figures and records down to the tiniest detail is a waste of time. When purchased, the practice will perform according to the abilities of its new owner. In the end, a purchase is about the value of the equipment, the quality of the goodwill and the buyer’s ability to generate a profit.
Because a sale is not a sale until exchange of contracts, the character of the buyer is the great gamble. Will the offer price be dropped the day before exchange? Will endless delays lead to the collapse of the sale? Who knows?
In my experience, the behaviour of many would-be buyers has been deplorable, extremely irresponsible and certainly less than professional. The hostility or reluctant attitude of the seller has therefore occasionally been justifiable, but a serious seller must employ agents who are experienced enough to filter out the worst of the potential buyers and to exert pressure on whichever buyer is chosen.
3. The communication void
When a sale is actually agreed, that is to say that buyer and seller have instructed their solicitors to act for them in the transaction, a strange new attitude develops. The immense amount of help that each could be to the other in plenty of issues simply does not happen. They could benefit each other hugely in terms of booking requirements, stock arrangements, patient information, staff detail at the human level, possible holiday or sickness locum cover and exactly where to kick a temperamental item of equipment etc.
Instead, a stubborn silence or a process of routing questions through solicitors (which is very expensive and often time consuming) takes place. Why not cut to the chase and speak directly to each other? Confidentiality is not an issue with a phone call in the evening or at the weekend, and it makes huge sense for a buyer to build personal goodwill with the seller.
4. The banks and funding agencies
The purchase of a dental practice almost always involves the borrowing of money to pay the purchase price. This involves banks cutting each other’s throats to sell you their money. They vie with each other and train up truly excellent teams of ‘healthcare specialists’. However, there are snags: banks have credit assessment departments, their own solicitors and they don’t understand the needs of your timetable. In a nutshell, your chosen bank can lose your sale, or your purchase, simply because they can be too unwieldy as organisations.
The delays are seldom, if ever, the fault of a healthcare manager with whom you deal, but that specific post rarely has sufficient clout to make things happen in the inner sanctums of banks at the speed you often need.
Another snag is the bank’s panel of valuers, many of which operate hundreds of miles away from the location of the freehold(s) in question. As a borrower, be ready to fill in forms about yourself and your assets and liabilities, down to what you spend on newspapers and the milkman. If you quibble and protest, you will only slow down the process further. As a seller, here is a sound opportunity to give your buyer a legal mortgage and gain a very good investment.
5. The passion for secrecy
This is the classic seller’s disease and, through their body language, is easily recognised and diagnosed by other staff members at a practice.
Although all agents will respect the seller’s wishes in this matter, if their body language has not given them away then their mail certainly will, so why this passion for keeping the inevitable a secret? If you are selling, share your plans with your staff. This will gain you the stability that otherwise is at risk.
Nine times out of ten, the news leaks out because your buyer drops a casual word in front of his/her nurse who gossips with her cousin who works with your nurse’s sister who was down at the weekend. Why go through all the guilt of not telling your associate(s) the score? The good ones will stay, and if they are not good, then good riddance.
6. Staff at sale time
It is well worth considering, from a seller’s perspective, the value of your workforce when it has become known that your practice is to be sold.
The reality is that all members of staff are more valuable at this time than at any other. There is no need for them to assume impending unemployment because the staff team is the most important, if not the only, knowledge bank the new owner will have with the patients he/she has bought.
7. Professional standards
Finally, it is difficult to believe the contrast in attitude and standards that dentists can sometimes extend to each other. There have been examples of sellers falsely claiming all is well in their practice despite a number of unhappy patients on the books.
On the other side of the coin, buyers have purchased a practice and then complained that not enough work has been done in order to try and get money back from the seller. Differences of opinion are inevitable, but a great deal of nastiness could be avoided with more direct and rational communication between buyer and seller.
• Take time out to consider whether you are selling your practice for the right, logical reasons
• Don’t have unreasonable expectations about finishing the buying/selling process quickly. You must be prepared for a lengthy, thorough project
• A seller should employ experienced agents who can filter out the worst of the potential buyers and focus on the more serious, impressive bidders
• Buyers are strongly recommended to build personal goodwill with the seller
• If you are selling, share your plans with your staff. They will find out anyway and it’s better that they hear the news from you
• Keep your head and act professionally at all times. A great deal of nastiness can be avoided with sound communication between both parties.
Frank Taylor is a director of Archer Hayes, the specialist chartered accountants and dental consultancy. He has more than 30 years’ experience in the field of practice sales. You can contact the company on 0870 7740860 while the AH website is at www.archerhayes.co.uk. The first part of this article was written by Russell Abrahams. Russell is a partner in Abrahams Dresden dental solicitors, who can be reached on 020 7251 3663.