This is the second article of a multi-part series on the process of health care transitions prepared by Samuel N. Klewans and Michael Skerritt.
Beginning the Sales Process/Brokers
The first part of this article addresses whether or not to use a broker when buying or selling a professional practice. The second part deals with the Broker’s fees.
Brokers usually come into play when you are dealing with a third party purchaser. Occasionally a broker is used when an associate in the practice buys into the practice. Rarely will you save money if you do not use a broker to sell your practice.
The Benefits of Using a Broker to Sell Your Health Care Practice
There are basically two ways to purchase or sell a professional practice. One way is to sell assets or stock to a person who is a stranger to the practice – someone who is not an employee of the practice. This type of purchaser is often referred to as a third-party purchaser. The other way is when an associate in the practice buys into the practice (assets or stock). In our experience, a seller can get a higher purchase price for the sale of his/her practice by utilizing an experienced broker. Why? Because an experienced broker knows what a prospective purchaser is looking for and also knows what is important to a prospective purchaser. The broker is often in a position to appraise your practice and help you gather the necessary information to give to a purchaser for the purpose of his or her due diligence. A broker will also find you a qualified purchaser and will not waste your time with people who are not qualified or who are not the right fit for the practice.
In all of the years that we have been handling the purchases and sales of professional practices known as “transitions”, the only transitions in our practice that did not close were those that did not use a broker. Brokers can help potential purchasers assess the transition in order to make certain that they are a proper candidate and that they can get the financing necessary to purchase the practice and to purchase it at a fair price – a price that is fair to both the purchaser and the seller. A broker has no interest in gouging a potential purchaser because, one way or another, it will come back in a negative way upon the broker. A broker can also introduce a seller or purchaser to an attorney and an accountant who are experienced in handling practice transitions. Additionally, a broker can introduce a purchaser to financing sources, and can even help a reluctant or inexperienced purchaser make up his or her mind. In short, the broker contributes significantly to the transition process, which brings value to both parties.
The broker is always paid by the seller. A typical broker charges 5-12% of the purchase price, depending on the services the broker renders. The broker also performs an appraisal, which can typically cost between $2,500 and $3,500. But if the seller hires the broker to assist in the transition process, then the appraisal fee is usually included as part of the broker’s fee, without a separate charge for the appraisal. We highly recommend that a seller hire a broker in this type of transaction, and that the purchaser also work with the broker, even if it is the seller’s broker.
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