You’ve put your practice on the market. You found a buyer. Now you begin negotiating a proposal letter. So what do you need to do to make sure it’s an offer the buyer can’t refuse? What’s important to you as the seller will depend largely on your needs and why you are selling the practice.
What Is Most Important To Both Parties?
To be honest, most of the time practice owners are simply wanting to maximize the sale price. However, there are situations where owners are willing to sacrifice a lower sale price to close the sale sooner due to needing to move, health or family reasons, or a desire to work less hours and associate somewhere.
If you are needing the sale to close quickly, then it’s reasonable that you will be willing to sacrifice in other areas of the deal. If you are willing to wait on better offers because there are no time constraints, then you can afford to wait a bit for more offers to come in.
How Price is Broken Down in an Asset Purchase Agreement
Regardless of your objectives in a practice sale, the purchase price will be a key point in the proposal negotiation.
The purchase price is typically broken down between the various assets of the practice (the majority of transactions are structured as asset sales). This includes the practice equipment like dental chairs and office furniture like the break room kitchen table. By far, the largest asset of the practice is intangible and ambiguous and is known as goodwill.
Goodwill is a catchall for the value of the practice’s name, the value of the trust the practice has created in the community or with its patients, and the value of a good reputation. If you think this is hard to place a value, you’re right.
What Are the Expectations of the Seller?
Aside from price, there are a few other key areas to focus on. Most purchasers will want to know that the seller is not going to continue practicing in the area, lest the value of the practice be decreased due to the former owner’s competition. This restriction on competition typically includes a radius, within which the owner is prohibited from practicing in, and a set amount of time that the restriction against competition is enforceable.
Purchasers will generally want an owner to stay on and help transition the practice to the buyer once a sale is closed. Structuring how that period looks is important. Typically the seller becomes a contract associate and is entitled to some percentage of his or hers production. During this time the seller will have other duties like ensuring patients generally see the purchaser as trustworthy or helping maintain the credibility of the practice during the transition period. The specifics will vary by practice.
Consider Where You Can Be Flexible and Where You Can’t
Understanding and considering all the different risk and financial levers that are available in a transaction is the key to the negotiating well. There is a saying amongst Brokers that if both sides are grumpy yet accepting about the final terms then negotiation has likely reached a fair middle ground with both parties having given in some areas to gain in others.
Being clear with your broker and your business partners about where you are flexible and where you are not will help get expectations set as early as possible in the process. The trick is that some of these require some time to reflect and consider. Start considering them early so that when you have to make a decision you know where you stand.