Why Should I Give You an Exclusive Listing?

Several years ago I was contacted by a dentist who was desperate to sell his practice. Although he already had a nonexclusive listing with another broker, he also agreed to list his practice with me in an exclusive listing, which meant that I would receive a commission even if the other broker sold the practice. (I told you he was desperate.)

We quickly received a full price offer for the practice. Shortly afterward, we got a call from the buyer telling us that he had seen the practice advertised by the other broker at aearl_douglas-xxs $100,000 lower price. So he lowered his offer by $100,000 since the practice was being advertised at that lower price.

Why was the other broker listing the practice for $100,000 less? The reason is that the practice was a newly-started practice, and it experienced very rapid growth in the early years. The other broker had valued the practice several years earlier and had not updated the practice financials in several years. So while the numbers were appropriate when it was first listed, they were seriously out of sync with the current practice revenues.

This seller’s experience of dealing with multiple brokers points out how expensive an open listing can be, especially if one of them does not do biannual updates and provide current financials.

As one broker put it, “We all fish out of the same pond,” which questions the benefit of open listings. Brokers all talk to the same prospects, so the expectation that more brokers mean more prospects is without merit. Serious brokers market extensively through websites, contacts, referrals, etc. to develop purchaser prospects, and purchasers have no problem finding all brokers who might have a practice for sale. Most brokers are already in contact with nearly every prospect.

The problems with an open listing begin when a prospect hears about a practice three or more different ways from three or more different brokers. It’s doubtful that any two of those listings even sound as if they are about the same practice. The results of three people trying to sell a practice to a single candidate are disastrous, and what could have been a well-managed sale by a single, competent broker can quickly disintegrate into chaos, and frequently a lost sale.

Consider also that when sellers are not committed to brokers, brokers will not be committed to them either. So these sellers will be at the bottom of several brokers’ lists rather than at the top of any one broker’s list. A seller with an exclusive listing should expect commitment from his or her broker, and if that broker does not make a committed best effort, there should be provisions for termination.

When a sale finally does take place, a seller may face another serious dilemma. Remember, “We all fish out of the same pond,” so a seller may be told by two or three brokers that they were the one to identify a buyer and they should receive the commission. It is not unheard of that lawsuits and all manner of legal actions arise from what should have been a happy closing.

Open listings are even worse for brokers, who put in their time, talent, and money, only to end up helping the seller close a sale of his own doing. After all, sellers have the broker’s commission to bargain with.

This leaves us with the question: What is the best approach for listing a practice for sale? When sellers ask about having an open listing and engage every broker out there to try to sell their practice, I share issues discussed here with them. I tell them they will be better off with one mutually committed broker relationship, even if it isn’t with me. My best suggestion is that they exclusively list with a broker who has a network of resources that includes other brokers, and that the broker is willing to pay a fee to any referrers who provide a buyer. This provides the benefit of exposure to multiple brokers and still maintains a unity of effort, which leads to the absolute best selling experience.

 

by Earl M. Douglas, DDS, MBA, BVAL

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Preparing for Your Transition: Experts for Dental Practices Tax & Financial Planning Workshop

 dental office tax workshop

Preparing for Your Transition

Registration & Breakfast: 8:00-8:30 am

Program: 8:30 am-Noon Followed by Luncheon Roundtable Discussion

 

Topics & Speakers

The Experts for Dental Practices Tax & Financial Planning

Tax Offense & Defense: Tom Stowe, CPA, Stowe & Stowe CPAs

Earl Douglas, DDS, MBA

Earl Douglas of

ADSsouth.com

 

10 Biggest Transition Mistakes: Earl Douglas, DDS, MBA, BVAL – ADS South, LLC

The Legal Side of Transitions: Joe Jordan, Attorney at Law

Protecting Your Business: Victor Holloway, MBA – Consolidated Planning, Inc.

Preparing for an Exit: Brian Cogan – Bank of America Practice Solutions

Reserve Your Seat Today!

Breakfast & lunch included for just $49.99 per person

Bring your spouse for just $24.99

Please RSVP to 980.819.2212 or admin@mosaicw.com by Tuesday, January 15th!

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Contact ADS South
www.ADSsouth.com | (770) 664-1982
Earl Douglas: Earl@adssouth.com

From the ADS South Family, Happy Holidays

What is Truly Important in Life…

This is the time of year when people of all faiths look into their hearts to remind themselves what is truly important in life. If we get it, we discover it has nothing to do with our valued businesses, our money, our possessions or even our good fortune. We’ll see that the true extraordinary gift of our faith, whatever it happens to be, is the love we have for our God, our family, our friends, and everyone on the planet. We at ADS South share this gift with you and yours and marvel at the blessings it gives us.

Dr. Earl and Virginia Douglas

Dr. Earl and Virginia Douglas

Dr. Jim and Vikki Howard (with Captain)

Dr. Jim and Vikki Howard (with Captain)

Rebecca Kyatt, Dr. Victor Kyatt, Victor and Taylor Grace

Rebecca Kyatt, Dr. Victor Kyatt, Victor and Taylor Grace

www.adssouth.com
Practice Transitions Made Perfect

A Story of Three Dentists

Back in 2002 our firm encountered three dentists within a one year period who experienced the same event – death.

keys on metal key ringDr. A called our office, saying that he was going into the hospital for tests and needed a dentist to cover his practice, which we provided. I visited him at the hospital and his condition was so serious that he and his wife decided to sell his practice. I was given a key to the office and with the help of a dentist who was familiar with the practice’s software, I was able to quickly gather all of the information required to perform an appraisal and prepare a marketing package. The next day I contacted a prospect from our database, showed the practice to him and went over the practice figures and other information he requested. After several hours of inspection and study, he made a full price offer. The following day Dr. A died. During the following week, sale contracts were distributed and reviewed and a lease for the office and financing were obtained. The sale closed ten days later with the widow receiving the full price in cash.

Dr. B was exercising when he suddenly died. Our firm had coincidentally performed an appraisal of his practice six months earlier. Upon his death, his accountant and widow contacted our firm to sell the practice. Our first step was to provide a dentist to provide continued care for patients of the practice. With a current appraisal and marketing material in hand, we contacted a prospect from our database who quickly made an offer of 94% of the appraised price. Dr. B’s widow was paid in full in cash three weeks later.

If you’re looking to sell your dental practice, marketing with a professional gets it done faster!

Dr. C died in his office of a sudden heart attack. The family attorney commissioned us to perform an appraisal of the practice but elected to try sell the practice himself. After four months of no activity the attorney contracted us to sell the practice. The attorney failed to place a dentist in the practice to provide continuing patient care. The doors of the practice were essentially shut for four months, during which time practice value, as well as interest in the practice, had dropped precipitously. We immediately placed a locum tenens dentist in the practice to try to revive patient activity, which was minimal. Finally, five months after the owner’s death, a purchaser was found. The practice sold for one third of its originally appraised value.

Dr. A and Dr. B’s practice sales were as successful as if they had not suddenly died. Dr. C’s outcome was much less successful.

There are several factors in post-death practice sale success. The first is the use of a locum tenens dentist to continue the practice operation. Keeping the practice active is vital in preserving value and marketability. Many patients are lost when a practice is closed or when well-meaning nearby dentists cover the practice.

Another factor for success is enlisting a professional practice broker, even though the family may already have interested prospects. Expertise and experience are critical in marketing, prospecting, qualifying, financing and selling a practice. Having prospects to immediately contact for a sale is invaluable.

However, without complete and current practice data, even the best practice broker will be ineffective. Dentists rarely assemble this information during their lifetime. The task invariably falls on a grieving spouse who does not know what to look for, where to look, or who to call. The lack of complete practice information and a professional approach to marketing the practice may easily result in losses of hundreds of thousands of dollars.

The process of gathering practice information and pre-planning the practice sale process is practically impossible for a spouse, especially when the spouse is not involved in the practice. However, the process is relatively quick and easy for a dentist. Wise dentists will make this small investment of time and effort to ensure the best practice value and success for their family, patients and staff.

A free appraisal kit can be downloaded from our website.

Earl M. Douglas, DDS, MBA is the founding president of American Dental Sales. He is president of Professional Practice Consultants, Ltd. and personally serves the Southeast with affiliates nationwide. He can be reached at 770-664-1982 or visit our website.

Earl M. Douglas, DDS, MBA, BVAL.
Published in Dental Economics, September 2003

Meet the Founding President of ADS South: Nat’l Org of Dental Practice Appraisers & Brokers

At ADS we value our clients and respect their time. That’s why Earl can be anywhere within our service areas in as little as two hours.

Dr. Douglas can present any of the following topics in as little as one hour and up to six hours.  Most topics also include essential information on how to be able to financially be successful in retirement.

1.  Your practice transition

2.  The ten biggest transition mistakes

3.  The fifteen biggest transition mistakes

4.   Increasing your practice value and marketability

5.   Creating and finding value in a dental practice

6.   Dental practice transitions in recession

7.   Evaluating and appraising dental practices

8.   Case studies in successful and not so successful practice transitions

9.   Practice transition principles and strategies

10.  Partnership pitfalls and how to avoid them

11.  Deciding on a practice to purchase

Besides being one of the most experienced transition experts and speakers in his field, Earl M. Douglas, DDS, MBA, BVAL, is the founder of ADS South, a dental practice appraisal and brokering company serving the Southeast.  He is the founding president of ADS, a national organization of dental practice appraisers and brokers.

Dr. Douglas earned his Doctor of Dental Surgery degree from the Baltimore College of Dental Surgery, University of Maryland School of Dentistry in 1971. He practiced in the U.S. Army Dental Corps at Fort Benning, Georgia from 1971 to 1974 and in Stuttgart, Germany from 1974 to 1977 and was in private practice in Atlanta, Georgia from 1978 through 1982.

After the sale of his private practice in 1982, he began his career in practice transition consulting. He received his Master in Business Administration degree from Brenau College in 1984 and founded Professional Practice Consultants, Ltd. in the same year.

Dr. Douglas is the author of cash flow analysis software used by professional brokers and lenders. Dr. Douglas is a member and contributor of the Practice Valuation Study Group and a member of The Institute of Business Appraisers and was awarded the BVAL designation (Business Valuator Accredited in Litigation) in 2007.  Dr. Douglas has been admitted as an expert witness before courts in Alabama, Arkansas, Georgia, North Carolina, and Tennessee.

Dr. Douglas has presented at many dental schools in the Southeast and to various dental study clubs, the Hinman Dental Convention, the Tennessee Dental Association, the National Dental Association, the New Orleans Dental Association, the Rossner Memorial Lecture in New Orleans and a two year series of presentations for Dental Economics.  He has presented for several years to the National Society of Certified Healthcare Business Consultants.

Dr. Douglas is also a contributing author for Dental Economics magazine.

Dr. Douglas can be reached at 770-664-1982 or douglas@adssouth.com

Value or Price – Choose Wisely | Dental Practice Transitions

Earl M. Douglas, DDS, MBA, BVAL.

 

There has been a great deal of discussion over the years about dental practice price, but very little has been said about practice value. It is especially important that practice buyers understand these terms and be able to differentiate between them, since practice value has significantly more impact upon the futures of buyers than does practice price.

Price is the consideration (cash, note, barter, etc.) paid to a seller to acquire an asset. Sellers receive price. Value is the benefit received by the buyer from the use and ownership of the acquired asset. Buyers receive value.

All too frequently buyers zero in on price as the primary practice purchase issue while ignoring the issue of value. However, buyers stand to benefit much more by receiving high value than by paying a low price, since the primary practice value is actually the net income the buyer takes home from the purchased practice.

I illustrate this point by asking buyers to consider two similar practices. Practice A grosses $400,000 and is priced at $275,000. I ask buyers if this is a good deal. Most buyers admit they do not know.

Then we look at Practice B which grosses $400,000, of which the hygienist produces $100,000 and the buyer produces $300,000. After paying all of the overhead expenses and all of the purchase payments, the buyer will have a net income of $140,000. Without even knowing the price, most buyers believe that Practice B is a good opportunity. Knowing the price and gross alone does not make for a well-informed decision. Knowing the cash flow-derived value, or net income, received in return for the amount of work performed by the buyer, does allow for a well-informed decision.

Consider Practice C which grosses $400,000 and is priced at $300,000. After paying all the practice overhead expenses and all of the purchase payments, the buyer will receive value, or net income, of $150,000. Now examine Practice D, which is very similar to Practice C. It also grosses $400,000, but is priced at $250,000. After paying all the practice overhead expenses and purchase payments, the buyer will receive value, or net income, of only $125,000. This comparison shows that it is actually possible to pay a higher price for a practice and still receive more value, or net income. Differences in fixed expenses, such as rental cost, can cause such differences. Which practice would you choose?

While we do not suggest overpaying for any practice, we do point out the old saying, “you get what you pay for”. Since “what you pay for” is net income in the case of dental practices, higher priced practices will generally yield higher net incomes, even after paying the payments. In the case of purchasing a practice, it is often safer to pay slightly too much than too little.

We strongly suggest that if you are considering buying a practice and are seeking professional advice on price, be sure that you also receive a practice cash flow analysis to learn all of the important facts, especially the answers about practice value, the net income you will earn.

Phone: (770) 664-1982 • Fax: (678) 965-1812 • Email: earl@adssouth.com
Originally Published in Dental Economics, November 1998
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