How to select a broker
You won't be surprised to hear that not all brokers are created equal. Some are good and add real value to the sales process, others just about do a job, whilst there are some out there that bring little more to the transaction than simply finding a buyer, leaving the seller to handle the rest of the sales process themselves.
There are a number of hurdles to overcome when buying or selling a dental practice. A good broker can assist a seller in overcoming theses hurdles, ensuring that they keep their focus on the overall objective of selling the business and maximising the return they receive. Issues arise in every sale, and an experienced broker can carefully and skilfully negotiate between all interested parties to ensure the deal is driven through to fruition.
I believe a good broker is a vital asset in any sales process. I've also worked in transactions where brokers have bought very little to the transaction aside from a hefty bill. If you decide to go down the brokered route, then it is important to ensure you undertake a thorough and comprehensive selection process to ensure you employ a broker that really does add value to the sales transaction.
This article outlines some key questions that you should use when attempting to source a broker.
1. Experience
a. How long have they been a business broker?
b. What qualifications, memberships or certifications do you have?
c. What States are you licensed to act as a broker?
d. Are you licensed to handle real estate transactions (assuming real estate forms part of the deal)?
e. Are you a general business broker or do you specialize in dental practice sales?
f. Are you an independent broker or do you form part of a larger group?
g. What geographical area do you cover?
Don't hesitate to ask for a CV. Good brokers with solid experience and a track record in dental practice sales will be happy to sell themselves and answer questions about their background and experience.
A general word of caution about 'rain makers'. Ensure that you understand who is going to handle the day to day sale of your business. It is not uncommon for the broker's 'rain maker' to make the pitch, get you to sign on the dotted line and then to pass the management of the deal to another employee within the firm, whilst they focus on winning the next pitch. If this is the case ensure you vet the broker that you will be dealing with on a day to day basis. If a 'rain maker' is being used in a supervisory capacity then ensure you understand what that means and exactly how much time you can expect from them in the sale.
2. Track Record
a. How many dental practices have you sold in the last 12 months?
b. How many dental practices for sale have you taken on in the last 12 months?
c. What is the average sales to asking price that has been achieved for practices sold in the last 12 months?
These questions should arm you with enough factual data from which to make an informed judgement on the broker's track record. Be wary of brokers that take on too many transactions, as it may indicate a lack of personal attention to your sale. Take a good look at the practices taken on to actually sold ratio.
Good brokers are selective about the transactions they take on. Also be aware of brokers that offer an over inflated valuation of your business in an attempt to get you on board. Experienced brokers know the local market and should manage your expectations as well as provide a realistic and achievable market valuation of your business.
3. Marketing
a. How will you market the practice?
b. How active is your registered buyers database?
Experienced brokers know where to best market the practice and to connect with potential buyers. Will the broker actively market the practice? Will they use a variety of offline print and online methods? Offline could include taking out a classified advertisement in State specific dental trade journal, whilst online methods could include their website, general classified advertising websites such as Bizbuysell and our site the DentalPracticeExchange.com (if they aren't advertising on our site ask why - it's free after all!).
All brokers will have a list of interested buyers. However, delve a little deeper into this and find out exactly how 'active' their buyer database is. Ask how many buyers in their database are looking for a practice in your geographical area and price range? Of these, how many of these are active and still looking? How many of these has the broker been in contact with in the last 3 months?
Don't settle for second best when it comes to marketing. Brokers sell their services and their fees on the basis that they can generate interest from multiple buyers, interest which in turn (they argue) results in an increased sales price which covers their fees.
Finally, ask to see some examples of their sales memorandum. This will form a key document in the sale of your dental practice. Needless to say these should look professional and of high quality.
4. Terms
a. What terms can I realistically achieve?
The terms of the sale are critical. Ask the broker what terms you are likely to achieve for the sale. Will it be all cash at close or will there be some element of seller financing? What contingencies are likely to be included in the sale?
Experienced brokers that understand the local dental practice market will be familiar with the terms that will likely form part of the sale.
5. Broker Fees
a. What are your fees and how are they structured?
b. Are there any upfront fees?
c. Do you require exclusivity?
d. Can you provide me with a copy of your contract?
Ensure you understand the contract you are entering into with the broker. Thoroughly read the contract and it may be worthwhile asking your attorney to spend a couple of hours with you explaining the small print.
Avoid brokers who insist on fees in advance.
Exclusivity is likely to be required by the broker, but ensure there is a time limit set on this exclusivity.
Finally, don't hesitate to negotiate terms with brokers. Good brokers will be able to justify their fees and explain how they will add value. At the very least by asking this question you will see firsthand the brokers negotiating skills!
6. References
a. Can you provide a list of references?
Brokers live and die by their referral network. A good broker will be willing and able to provide you with references from a variety of sources.
Ensure you follow up on these references. Call and speak to the brokers previous clients. You will be surprised how much information can be gleamed from a phone conversation.
Conclusion
Finally, expect to be quizzed by the broker about your business and selling motivations. Good brokers vet their potential clients. If a broker isn't vetting you then you most likely have the wrong broker!
