Choosing a buyer representative when you decide to purchase a dental practice is an important decision. Who you choose should first and foremost be an industry expert and help you identify and sort out the best opportunities for your situation.
First Things First: Why Do I Need a Buyer Rep?
Are you considering buying your dental practice on your own? Especially if you’re a first-time buyer, even the simplest transactions can have unintended consequences. Once, we advised a buyer who already found a practice wherein he would purchase half the practice value in the seller’s stock. Even though the buyer professed not to need due diligence, price assessment, or purchase agreement guidance, the sale was heavily – and obviously – sided with the seller. Eventually, we also had to help this buyer out of the situation he thought was ideal.
Therein lies the value of a qualified buyer rep before you find a practice for sale. Identifying qualified practices, conducting thorough due diligence and an independent valuation assessment, and negotiating the purchase agreement are all things that a dentist usually cannot do on his or her own.
Characteristics of a Qualified Buyer Rep
The buyer rep you choose should be exclusive to the dental industry. While many buyer reps will be familiar with healthcare and other medical providers, a representative who only works on dental deals will be better equipped to look for and handle any unexpected aspects of the deal. A knowledgeable buyer rep will also help you secure financing and negotiate the terms of the sale.
The buyer rep you choose should be well-known in the dental industry and have a substantial network of contacts. A well-established industry network is helpful because you will gain access to a wide variety of potential practices for sale. Ensuring the buyer rep is independent of a dental supply company is important too, as you want your interests to come first, not the relationship with the supplier.
The buyer rep should help conduct due diligence like practice demographics and patient data, and financial due diligence, too. Documents like prior year tax returns, CPA-audited financial statements, and W2s are just starting points for a buyer rep skilled in assessing the financial performance of a dental practice. He or she will also evaluate and organize the financial data, like overhead, variable and fixed expenses, profit and loss, expense groupings, and more. Expect your buyer rep to translate these numbers into meaningful discussions that help you see the whole picture of a practice before you buy it.
In some states, dual representation is illegal. It is legal in Maryland and some buyer reps make the argument that it’s simpler and less expensive. In most situations, it’s a conflict of interest. Sellers and buyers naturally have competing interests. Look for a buyer rep who will only represent your interests in the transaction.
Many dentists make the mistake of engaging a buyer rep for the transaction, then parting ways to run the practice. Post-sale buyer representation involves post-closing income tax planning related to the transaction. The benefit here is that the buyer rep can help the new practice owner take advantage of tax planning opportunities that in our experience, can save thousands of dollars.
The most important part of choosing a buyer rep is working with someone you can trust. Buyer reps know how to manage the emotional side of a transaction with the business needs, and will coach you on finding and closing on the right opportunity.
For more information on what to look for when buying a dental practice, download our Dental Practice Purchase Checklist here.