If you’re thinking about selling your practice (or even foresee it happening in the distant future), one of the first things you’ll want to do is create a transition plan. This plan is crucial for the smooth execution of a business deal, ensuring that both you and your buyer get through the process without wasting time and money.
One of the biggest mistakes I see dental practice owners make when they try to sell is failing to have a transition strategy in place. No matter where you are in your journey, you should at least put thought into this type of plan so that you’re prepared when transition day finally comes.
There are two main parts to a seller’s transition plan. First, are you really ready to sell? Second, if you are ready, have you walked through all the details of the transaction with the buyer to ensure you are on the same page?
A lot of issues can arise because you didn’t discuss them on the front end. For instance, are you looking to stay on as an associate after the transition? Is the buyer on the same page with that? It could be critical to the buyer that you are there as an associate, but perhaps you don’t want to do that. Or, maybe you very much want to be there, but the buyer does not want you to be.
These are really crucial issues that can trip up the parties involved if they are not on the same page from the start. In some cases, they can be so serious that they lead to deals falling through.
To prevent these problems, you need to have open and honest discussions with your buyer.
There are a few key mistakes sellers tend to make when creating a transition plan and moving ahead with the selling process. Even if you are not planning to sell soon, you should be aware of these mistakes so that you can find ways to avoid them in the future.
One huge mistake sellers make when selling their practices is failing to procure a nondisclosure agreement from the buyer. If you are looking to sell your practice (or even thinking about it) and you plan on providing proprietary information about your practice, you want to ensure you are providing a nondisclosure agreement to whoever you are divulging the information. You don’t want information about your practice circulating in the dental community.
Another big mistake is failing to have a team involved. This does not necessarily mean the dental team at your practice. It also includes external parties who can facilitate your business deal. Teammates can be consultants, attorneys, CPAs, brokers and bankers. Everyone who could be involved in the transaction is a teammate.
Many owners want to do things themselves. They don’t always want to relinquish some control to teammates, but these folks can be a huge help in the selling process. The parties involved in a sale do not usually have the requisite knowledge to be the lone teammate—or they simply don’t have the time. If you are selling, do not be afraid to get help.
On the other hand, it’s also a mistake if you do not eliminate toxic teammates or players from the transaction before the sale.
I get asked all the time why deals fall through or why partnerships fail, and it’s usually for a similar reason. People may think partnerships fail because of the money or because the parties just couldn’t agree to the purchase price and valuation. But, really, deals don’t work if the personalities don’t work. It’s incredibly important that the parties align themselves with their teammates.
For example, you might have lawyers who are more about themselves and their billing than they are about the transaction. Or, you could have a broker who is so infatuated with the commission that he fails to act in the best interest of the client and make the deal more difficult.
Toxic players can negatively influence the transaction. And what does that do? It wastes time, money and headaches. In a deal like that, you are going to spend a ton of time spinning wheels while the party cannot get out of its own way. And the more time it takes, the more money you are spending on legal fees and missed opportunities to make money at your practice.
Partnerships work out much more often when core values align, which is why it’s so important to align with people who have the same mentality.
Finally, a huge mistake both sellers and buyers make is failing to negotiate fairly. You obviously have to put yourself in the best position for a transaction, whether you are buying or selling. But if you are looking to “win” the deal and making it a win-or-lose battle, you’re not really negotiating in good faith.
Negotiation is about getting more of what you want without the other side being below the status quo. It’s about growing the pie, not taking more of an existing pie.
There are many ways that both parties can get more of what they want and still have a successful transaction, but only if they do not have a toxic attitude.
With a well thought out transition plan and attentive conversations, you will be prepared to solve problems ahead of time and avoid snags that can potentially ruin a business deal.
David Cohen owns Cohen Law Firm PLLC, a multi-specialty law firm focused on serving dentists and dental specialists. He is skilled in assisting dentists with business transactions, employment agreements and various other matters. He also presents at seminars and training conferences to assist dentists in navigating legal matters within their practices.