The Importance of Keeping the Vendor as an Advocate
The success or failure of any practice transaction significantly hinges on the ability to transfer client relationships from the vendor to the purchaser. After all, this is essentially what is being transferred, the right to revenue generated from the continued servicing of a group of clients. However, as we all recognise, there is no guarantee regarding the continuity of these clientele. Aspects such as similarity of cultures, continuity of staff, the transition of partners and the message that is communicated following the transaction are all key to obtaining success.
A big part of that communication piece is having the exiting partner or partners as advocates. You want and need them singing your praises; hopefully that’s not a difficult task. If the most appropriate and best suited purchaser has been selected such support should be easy. Obviously the message is that the current partners are retiring and will be phasing out, however they have found the best party suited to continue the ongoing servicing of the clientele.
Generally, upon reaching an agreement, all parties are happy and content that they have found a suitable match to ensure a successful transaction. No party starts off a deal disillusioned, or at least they shouldn’t! Likewise, given part of the purchase price is generally held over as a clawback, it’s especially in the interest of the vendor to help retain clients immediately following settlement. However, where actions start to differ from expectations or initial discussions as settlement approaches and passes, the advocate vendor can very quickly turn into the adversarial vendor.
You might ask, ‘but why would they do this, essentially when part of the purchase price is yet to be paid’? and you would be correct. Often the vendor is unaware that their growing discontent is evident to staff or clients and that the positive message intended has become clouded. On occasion, they simply don’t care.
So why is this also an issue for the purchaser? Because, generally the clawback of price is limited to the retention sum yet to be paid. Therefore, if more clients are lost within that retention period than is representative of the retention sum, there is no further adjustment that can be made to the purchase price. In other words; you’ve done your money. But moreover, you as purchaser are now the proud owner of a toxic dysfunctional fee base or practice, and that leads to disaster.
So it’s far more pleasant and successful to have an advocate than an adversary, don’t you think?