Doing the wrong deal is worse than doing no deal. But, getting the right deal takes time. Here are five critical factors to ensure the best result when selling your practice.
- Don’t wait too long to initiate a transaction. You risk giving the process enough time.
We all hear commentators and advisers say, ‘Plan well in advance for your succession’. One reason is you never know when a change in your personal circumstances, or those around you, will happen.
Death, illness or divorce are unexpected, and far-reaching, life events. Another reason: by the time we come to sell, the practice is no longer attractive, the client base is old with few second or third-generation clients, revenue is declining rapidly, and purchasers are unclear exactly what they are acquiring. Likewise, the performance and benchmarks of the practice may also be less competitive than market.
Vendors then fail to appreciate that the transaction itself will take around six months, although it can be more, and there is generally also a transition period post-settlement as well. I actually had one prospective purchaser that was happy to sell the fee base as a distressed sale but wanted it done in a week.
- Maintain staffing levels – this is probably one of the main questions we are asked regularly: “I just lost a staff member, should I replace them given the practice is for sale?” In short, yes. It is imperative to keep operating the practice as though the sale is not taking place. When staff aren’t replaced, we generally find that productivity reduces, the revenue of the firm starts to decline, and what was once being sold is actually not the same by the time an outcome is achieved. Furthermore, if staff are going to utilise the sale as an opportunity to move on, it’s imperative that no deadlines or time-frames are given or set, otherwise the vendor is just as likely to find the sale hasn’t taken place as yet, however they’re now without part or all of their workforce.
- Committing to expensive capital expenses – signing up to expensive IT upgrades, new phone systems, or office refurbishments close to the sale of the practice is likely to leave the vendor with unwanted commitments, assets or costs post-practice settlement. With many purchasers wanting to relocate an acquisition, they won’t want your new phone system, or your lovely refurbished premises or the brand new computers. This is not to say keeping keep up-to-date isn’t important, but just don’t rush out and spend $50K the year before you decide to sell the practice and expect to recoup this sum from the purchaser.
- Signing up to a long-term lease – I remember one vendor proudly saying to me when I asked how much longer they had on their office lease: “I’ve just signed up for another five years with a further five year option“. Doh! Many purchasers want to relocate the acquisition and won’t want your office, leaving you with this long-term commitment. If the space can be sub-let that is a bonus. But ultimately this will be an expense for which the vendor remains liable. We have also had the opposite situation where a lease is about to expire and again the pressure is on to achieve an outcome prior to D-day. Neither of these scenarios is ideal.
- Selling to the wrong purchaser – the most important factor within a transaction is culture. Similarities in services, fees, charge rates, and other such benchmarks are important. If you sell to someone who is the wrong cultural fit, the transaction will most likely turn pear-shaped, clients will leave and you can kiss part, or all, of your retention sum goodbye. The greater the differences and changes, the greater the pressure on transaction.
As I emphasise to my vendors regularly – doing the wrong deal is worse than doing no deal. But, getting the right deal will take time.