This is the second article of a multi-part series on the process of healthcare practice transitions prepared by Samuel N. Klewans and Michael Skerritt. This article focuses on the topic of using a healthcare practice broker.
The Healthcare Practice Broker
The first part of this article addresses whether or not to use a broker when buying or selling a professional healthcare 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 professional healthcare practice 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 Healthcare Practice Broker to Sell Your Practice
There are basically two ways to purchase or sell a professional healthcare 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 healthcare practice 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.
A Healthcare Practice Broker Adds Value
In all of the years that we have been handling the purchases and sales of professional healthcare practices, the only transitions that did not close were those that did not use a healthcare practice broker. Brokers can help potential purchasers assess the transition in order to make certain that they are a proper candidate. Brokers can also assist with getting the financing necessary to purchase the practice and to purchase it at a fair price.
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.
Healthcare Practice Broker Fees
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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