Beware of the Bogus Broker
I recently received a call from a client who had listed their practice for sale with another supposed ‘practice broker’, wanting to discuss their dissatisfaction with the “broker’s” performance thus far and seeking some advice around what realistic market expectations currently where in terms of transaction times, price and the like.

This client was originally going to list their practice for sale with our firm, but had proceeded with the other party on the basis that they were the “biggest” in Australia, there would be a very short turnaround time on the transaction, they would obtain a very competitive price and this particular party could obtain all of the necessary data for the information memorandum from the firm’s software on their behalf. So obviously having someone else put together all the required information certainly saves the vendor time and effort, although everyone would want to be very sure about it accuracy.

Anyway, after six weeks of being on the market, the practice hadn’t sold within the previously expressed timeframe and the practitioner was becoming frustrated. This also highlights how unrealistic the originally provided timeframes must have been.

Thus, I did some investigating on behalf of the practitioner. Upon searching the various government websites, it become apparent that neither this brokerage firm, nor its principal/agent, were licensed to sell businesses in the practitioner’s State. Furthermore, they didn’t even seem licensed to sell businesses in their own State of origin. Upon visiting the broker’s website, there was absolutely no reference to any practices for sale or practice listings. Again, a little suss. Furthermore, the practitioner had paid a significant upfront fee that was now blown when they decided to terminate the services of the ‘broker’. Thus essentially what had happened was this party had earned several thousand dollars for six weeks work providing few serious, qualified and appropriate introductions for a service they weren’t even licensed to provide.

So you may wonder why this makes me so mad. Yes obviously such parties are competing with us in the provision of broking services. However, more so, it is parties like this, that don’t carry the appropriate licenses, which to me illustrates their ethics and professionalism or lack thereof, that won’t have PI insurance, that provide poor service, that see it more so as an introductory agency than a full brokerage service, that give those who do the right thing and provide a beneficial service, a bad name. It’s akin to anybody coming along and calling themselves an accountant, financial planner or lawyer without the qualifications and registrations. If it didn’t matter, why would professional bodies exist to represent these professionals and why would individuals spend years to be able to call themselves a CA or CPA or CFP etc?

Seeking the guidance, advice, and assistance from an expert who is involved in the sale of professional firms on a constant basis, whether from a full or abridged brokerage basis, and provides a potential vendor with realistic information around which they can form their expectations in terms of the likely outcome of their transaction is essential. Trust me when I say the service provided across those who sell professional firms is not the same and taking the cheapest options is not always best.

So, just some tips when endeavouring to select a broker to represent you in the sale of your practice:

Be sure they are licensed within your State. Even if they are licensed in another State, it is still mandatory to hold a current license in the State where the practice is based. As mentioned, each State will have a website that can be utilised to check this
Have a look at the potential provider’s website. Is there any mention of practice sales or listed practices? If not, why? It is very hard to sell something that no-one knows about and if it isn’t being listed and promoted on their website, I would suggest there would need to be a very good reason. It is still possible to promote a practice for sale and retain its anonymity
Ensure there is an agency agreement, rather than an engagement letter, outlining the services to be provided, the length of the agreement, the broker’s license number, all costs and fees, executed between the two parties
Collect a detailed scope of the precise services that will be provided and ensure these match your expectations for the associated costs. Presumably you would like to engage someone who is more than simply an introduction agency, instead managing a significant proportion of the transaction process for you
Be clear who is being charged by the broker, as it isn’t legal to charge both parties (vendor and purchaser) as part of the deal
Know upfront to whom and when the identity of your firm will be released to interested parties
The above are certainly not exhaustive in terms of the questions that you may wish to ask, however it will definitely assist with evaluating the professionalism of your proposed broker. The selection of the right broker for you can add and contribute significantly to the success, or otherwise, of your desired transaction.

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