Seminars

How to avoid the emotional roller coaster when buying and selling a practice

Most people buy or sell a practice once in their lifetime. The process is complicated and includes a variety of steps including business analyses, negotiations, disclosures and written agreements. It can also be very emotional.  Emotions play a significant role in completing a successful sale.  Buyers want to purchase a practice for the best or lowest price – whereas sellers wants to get the most return.  This is true for any valuable asset being sold; whether it is a car, house, or business.  The ultimate goal is a successful sale that meets the needs of both parties.  Sometimes this goal is clouded in the heat of emotions. Aggressive advisors can often heat things up further even more with overly aggressive or bullying actions.

Staying focused on the end goal helps reduce the level of emotions.  While everyone has their own style of negotiations, buyers should realize the emotional and subjective values that owners placed on their practice.  Right or wrong, some sellers place very high values on their business. Having a third party intermediary is often the best method of achieving a win-win for both sides.  (More on using a broker/intermediary later)

Sometimes heavy criticism from a buyer does little more than anger an owner. A buyer may believe that by emphasizing the negatives they will obtain the practice at a lower value.  A seller may feel that the buyer should know everything and buy at face value.  The biggest problem occurs when one party makes a statement and it is taken in the wrong way by the other party.  A seemingly innocent (or required) question can turn ugly.   Owners spend more time at work then with their family and selling any large asset is an emotional undertaking.  Buyers should recognize this bond when dealing with sellers.  Being respectful and pleasant will improve your chances of purchasing a practice for the price and terms you want.  Seeing the other party’s perspective often helps in creating a successful sale that meets both party’s needs.

The biggest mistake buyers and sellers make is in trying to sell, negotiate and complete a business sale without help of an experienced practice broker. Brokers are in the business of completing deals. They should be hands on throughout the process. They guide clients to insure the terms of the agreement are followed, help to make sure loans or liens are paid off,  help overcome obstacles from landlords, lenders and other third parties and work with all the third parties (often chasing them) to complete the transaction.  Think of them as the general contractor who oversees, tracks and follows up with everyone insuring that all the parts get completed. (i.e. lenders, insurance agents and other third parties.)  The role of a broker is an important process to a successful sale.  A good intermediary will insure that both sides complete the proper documentation. Prior to a sale agreement there should be signed confidentiality agreements with prospective buyers to insure the seller’s goodwill and business are protected prior to any sale.  While CPAs, attorneys and consultants offer great services in analyzing the business or preparing the documentation, it’s the business broker that “moves things along” and insures the deal doesn’t fail.  They look for common ground between buyers and sellers, and chase third parties like landlords who are often not motivated.  It’s important to work with advisors who are good negotiators and work in a collaborative manner.  There is always give and take with any transaction and having someone who understands the “big picture” who can guide you makes a world of difference.

#1 Case file:

A Seller engaged our services after initial talks with a previous buyer came to a standstill — or more like an abrupt halt.  All parties were very emotional.  The seller received critical comments from the buyer in an effort to purchase at a lower price.  The hardball tactics from the buyer and their consultant angered the seller. Communication from the buyer were pushy with a take-it or leave-it attitude. The seller felt as if someone attacked their family. Fed up with the buyer’s tactics, the seller asked us to represent them. We contacted the buyer and their consultant.  We concurrently marketed the practice to other buyers while continuing dialogue with this buyer.  The buyer continued to be critical and demanded that the seller respond with an offer.  The seller declined to respond without an initial written letter of intent or offer from the buyer. The buyer never submitted an offer in writing – yet consistently told us they were serious.  Not knowing the buyer’s terms and without a written offer we continued to market the practice.  Shortly thereafter we found a successful buyer who purchased the office for a price close to that discussed by the original buyer. Had the first buyer been more positive and cooperative with the seller they might have purchased the office at a similar price.

#2 Case file:

We represented a buyer in the purchase of a large practice.  The seller had a strong personality and was very pushy.  This really intimated the buyer.  Having guidance from a professional the buyer was able to better understand the process and help keep things fair. We instructed the buyer to properly use an escrow service, complete all documents and protect their interest.  Even after documents were signed the seller attempted to change some terms and kept pushing the buyer.  Inventory challenges, outstanding payables and patient deposits created for a bit of drama.  However, we worked with the buyer to keep things moving along, keep them even keeled. Helped negotiate with the seller (including overcoming some rough spots) and successfully closed the deal for the buyer.  In this case we helped insulate the seller and the buyer keeping emotions down) while giving support to the buyer who felt a bit pushed at times.

A great, licensed broker understands the process and is able to negotiate and work through obstacles so both sides are able to complete a deal.   Sometimes things can be emotional, but the broker’s job is to find common ground and negotiate an acceptable compromise for both sides.  Every transaction involves emotional steps with some “give and take” on both sides.

#3 Case file:

Purchasing a practice along with the real estate is a complicated process.  There are two transactions with multiple moving parts. Both need separate purchase agreements.  The real estate requires outside appraisal, inspections and sometimes environment inspections as well.  The buyer and seller were ready to close.  Staff had been informed, both parties sat at the closing table.  The escrow courier arrived to sign the real estate loan documents and the practice loan documents but on review the loan documents had incorrect amounts (the seller note was missing and the loan amount was incorrect. Both buyer and seller were confused and unsure what to do.  I contacted the bank representative and walked them through the deal to have the documents corrected.  The problem was fixed and new documents were emailed within the hour. This could have easily resulted in a major delay of several days.  Both parties really wanted to close by month end.  I knew who to contact at the bank to make sure the problem was solved right away avoiding a lengthy delay.  By noon the deal had closed, buyer’s working capital was in their account and seller got their proceeds the same day.

Scott Daniels is a licensed real estate practice broker and is a member of NACVA (National Association of Certified Valuators and Analysts) and is completing his CVA certification.  He is also Certified Negotiated Expert with CNE.  He has completed over 500 transactions with over 20 years’ experience. His wife Dr. Alissa Wald owns a large optometry office and is managing partner in 2 others.

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