Selling your practice privately is a great way to save on commission, but at what cost?
Consider the following three reasons why a private sale could prove penny smart, but dollar foolish.
The Sale Price
How will you handle the process if you have interest from multiple parties? What specific negotiation strategy would you employ to best leverage the situation?
Whilst there is general consensus on ballpark practice values, a difference of five cents on the dollar in the valuation could add tens of thousands of dollars to what you receive, depending on the size of your practice.
Price negotiations can sometimes end up quite combative. A skilled negotiator can moderate the process in your favour without poisoning your relationship with the other party.
Whilst the purchaser might begrudge your broker for making them pay above the odds, they will not generally blame you for that personally.
Given that most sales involve a transition period where you have to work side by side with the purchaser, maintaining a healthy relationship with them will make the process much more pleasant for you in the long run.
Neither You Nor Your Lawyer is Well Suited to Manage All Aspects of a Sale.
Can you or your legal counsel afford the time away from the daily demands of your business to work on this project 24/7?
This is an engagement which requires hands-on guidance from start to finish. Furthermore, there needs to be some “give and take” in order to accomplish the sale in an amicable manner.
Most private sellers work quite ad hoc deals, usually needing to consult multiple times with their legal counsel along the way.
Unfortunately, lawyers have a tendency to be very protective of their clients. Given the nature of most legal work is quite adversarial, this default posture can be harmful to the desired outcome.
The sales process requires a lot of face to face discussion. Many solicitors, whilst excellent on paper, find themselves out of their element when dealing in person.
The detail oriented nature of legal study can also mean that lawyers have a predisposition to becoming fixated upon the wording of minor clauses, rather than looking at the big issues. Pedantry can introduce enough friction to crash negotiations altogether and you risk losing your best buyers through frustration.
It is best that the process be handled by a skilled negotiator until an agreement on principle is reached. At this time a heads of agreement can be given to your legal counsel for scrutiny and they can produce a binding contract that reflects the spirit of the broader discussion.
A Good Broker can Add a lot of Value as a Consultant.
When do you intend to inform your staff, and how do you intend to attract buyers on your own?
A sales consultant does just that, consult. Advice on how to manage the procedural aspects of a sale is a dimension that is not often considered by private sellers. Given that most sale contracts involve a clawback or retention clause the right advice on how to manage a transition can be of substantial value in its own right.
If you aren’t careful in how you advertise your practice for sale, you risk publicly exposing your intent to sell. If your staff and clients figure out you are selling on their own, many will feel betrayed and you could be facing a mass exodus.
Conversely, if you tell your staff and clients your exit plans well in advance of having organized a firm sale they will often feel insecure and will stray from you.
A skilled broker should already have a deep list of contacts to speed up the sale process and mitigate these sorts of risks. They can also assist with advertising best practices to keep the transaction confidential.
To conclude, brokers should rightly be viewed as an investment, not merely an expense.
That’s not to say that it is necessarily a clean cut decision. A bad broker could prove a liability as well as an expense.
A focus strictly on saving commission can have an unintended negative effect on your bottom line though, as it may lead to compound losses in other areas.
Invest only in things in which you fully understand. If you choose to sell privately you are essentially investing in yourself. Make sure you do your research and don’t be afraid to ask for help if you need it.
