It might seem like the perfect scenario: You just put your medical practice on the market, and within days a potential buyer is ready to take the next steps. Or maybe you haven’t even listed your practice yet, but someone approaches you who says they are ready to buy.
In our experience, this isn’t actually the perfect scenario if you’re selling your business without the support of a professional business broker. There are many potential problems if you try to handle the prospective buyer directly, but a savvy buyer actually wants you to do this because they know it puts them at an advantage.
Our team at Strategic Medical Practice Brokers wants to help you maintain control of your business sale, so let’s break down this scenario further and talk about some potential problems and solutions.
Problems with Handling Potential Buyers Yourself
Making mistakes valuing your practice and negotiating the offer
Most healthcare practice owners don’t know what their practice is truly worth. Conducting a thorough valuation is one of the most important steps in the process of selling your medical practice, and it is best to use an in-depth valuation method that will help you confidently defend that asking price to buyers. A buyer who is able to approach you directly, versus going through an intermediary, knows that they are in control when it comes to price and negotiations. They want to take your practice off the market for 90-120 days without offering any more than the asking price.
If you’re dealing with buyers without a professional broker, you’ll also have to know how to negotiate the counteroffer. Do you have a thorough understanding of the current market and business climate? Are you skilled at the art of compromise? Do you understand both the tangible and intangible values of your business and how to leverage those in negotiation? Negotiation is a tricky and delicate process, and without using a business intermediary, there is a much higher risk of causing irreparable damage between the parties. Without a broker, a buyer may also take advantage of you as the seller, negotiating to have you finance most of the sales price and work on a multi-year contract.
Bottom line: Valuing your practice thoughtfully is extremely important, and negotiating offers takes finesse and knowledge.
Not knowing how to pre-quality potential buyers
Pre-qualification of buyers is critical to a smooth selling process. Did you know only 4-5% of buyers who contact you about your practice will actually be able to buy it? You have to decide what criteria you’ll use to pre-qualify and what information you need from buyers, as well as how to rank buyers based on that information. You’ll also have to decide what level of information to provide to buyers at each stage of the process. This makes it critical to use confidentiality agreements during pre-qualification to protect yourself and your business (more on that below).
Without understanding and prioritizing pre-qualification, you could waste significant time talking to too many buyers who would never actually be able to purchase your business. And the more buyers you engage with, the more people are privy to your sensitive business data. This makes it harder to maintain confidentiality, which is of utmost importance during the selling process. And worse yet, you could go under contract with the wrong buyer and potentially pay thousands of dollars to unwind a transaction – and lose other selling opportunities in the meantime.
Bottom line: Pre-qualification is time-consuming but also critical to a smooth sale. If you don’t pre-qualify, you risk your confidentiality by giving information to too many buyers and risk time and financial loss by going under contract with the wrong buyer.
Having limited support for key contracts and agreements
Do you have an attorney-reviewed non-disclosure agreement (NDA)? An NDA is indispensable as you engage with buyers because it provides essential protection to your proprietary business information such as patient lists, employee information, intellectual property, pricing structure, marketing methods, trade secrets, and more. Engaging an attorney to create your NDA will protect you against potential buyers leveraging information against you if the transaction doesn’t go through.
You’ll also need support for a non-solicitation agreement that prohibits any solicitation by the buyer until after the sale is final. It ensures that the potential buyer will not reach out to employees or patients, which is important to protect you from poaching.
If you’re not familiar with the standard terms in a letter of intent, a business broker or attorney can help with this document also. While this letter isn’t binding, it’s still a critical part of the sale process and is the precursor to the purchase agreement. This letter needs to include details on things like the earnest deposit, exclusivity period, due diligence period, contingencies, and more.
You also need to have an experienced business transaction attorney ready to draft your purchase agreement. This contract is what transfers ownership of the business from you to the buyer. It includes all the terms of the sale, what is and isn’t included, and can contain clauses that protect both the seller and buyer once the transaction is complete.
Bottom line: There are numerous contracts and key documents in the business sale process that are important to get right. Having experienced brokers and attorneys engaged will help you avoid big mistakes.
Advantages of Listing Your Practice with Strategic Medical Brokers
Because there is so much room for error in the business selling process, buyers usually benefit if you are not represented by a knowledgeable medical practice broker who is guiding you through the entire process. When they deal with you directly, rather than an intermediary, they have more control. Many potential buyers intentionally seek out motivated sellers who are representing themselves, because they know it will put them as the buyer at an advantage.
An experienced business broker who specializes in medical practices will not only help protect you and your medical practice, but they will save you time and money by conducting a business valuation, pre-qualifying buyers, navigating highly important legal documents, marketing your practice, and advising on every single step in the selling process. If you would hire Strategic Medical Practice Brokers to take your medical practice to market, a prospective buyer is forced to compete with other buyers, and you as the seller will always receive a higher selling price and more favorable terms.
Engaging a business broker puts you back in control of the sale of your business. Selling your practice is a huge undertaking, and a complicated one. We want to be part of your team so that you can secure the outcomes you desire, letting you exit your practice confident in both your future and the business’s future.
Call or email us today or set up a discovery call to see how our experienced team of brokers can help you avoid these critical mistakes and sell your practice successfully.