Practice Transition on the Rocks

The new dentist is OK with the asking price… but his wife is not.  She feels the senior dentist is trying to take advantage of them.  She doesn’t trust the selling broker’s valuation numbers.  Then the selling dentist’s wife gets into the fray, feeling the buyers are trying to steal the practice that they both worked so hard on for so many years. Sound familiar? I bet it does if you’ve been around dental practice transitions for a while. It reminds me of a time not long ago.  I acting as mediator for two men that had been friends and business partners for more than thirty years.  The discussion of retirement came up, and they both thought their children should take over… leading to difficult feelings.  As I stepped in, I helped them work out the division of assets.  This was difficult because they both had spent money for appraisals and they suggested vastly different values.  The total of the assets they needed to split was several million dollars. We worked for days on resolving the differences in valuations from their appraisals.  We worked on overcoming the lack of trust they had built up through the disagreement, and finally we were within about $2,000 difference.  I suggested they split the difference, since it was such a minor number compared to the total.  Then, as they were about to sign the agreement, one of the men felt slighted in a social event by the other and refused to finish it off. They both hired attorneys and dug in for the long haul.  Several years later, they had both spent multiple hundreds of thousands of dollars suing each other, and were in a court mandated mediation.  By that time, the feelings had grown to hatred, and they were both doing everything they could to hurt the other.  The mediation took place, and they split what was left after the attorneys took their share.  Neither was happy with the result, and both were significantly poorer for the experience. Sounds silly… losing years and hundreds of thousands of dollars over $2,000… you’d never do that, right?  Well, I started this post with a story all too similar.  At the last minute, the transition was not completed.  Both parties had hard feelings. Similarities of note: valuations can vary widely and emotions/pride can trump a few dollars. The take aways: 1) Don’t get stuck on the valuation.  Hire a third party valuation expert that does dental practice valuations, and both agree to accept the results.  The buyer’s bank is likely not going to use an evaluation anyway.  They will look at the cash flow to verify the practice can handle the debt. 2) Don’t let emotion get in the way of a successful transition.  Buyers, try to understand the point of view of the seller and his wife.  Sellers, your buyer probably has WAY more debt than you had coming out of school.  That is weighing heavy on her mind.  She is mentally trying to understand how she can handle the school debt and the practice debt.  Don’t get offended by questions.  Create a due diligence package before you meet the first time so most of the questions will be answered without you needing to dig them up. 3) Work together as buyer and seller without a practice broker in the middle.  Misunderstandings happen easily enough without a third party in the middle… and as seller, you will be saving most of that 10% so you can feel a bit more generous with your buyer.