Looking to buy a practice? You may want to involve another party.
By Richard S. Kattouf, O.D.
Q I'm attempting to purchase a practice but the seller is secretive about sharing financial information and is attempting to control the entire buy-sell agreement. I really want to purchase this practice but I'm getting frustrated with the seller. Do you have any advice?
Dr. L.R. Snyder, Via e-mail
A: The seller of a practice must make available the following information to a prospective buyer:
- professional appraisal
- the last five years of profit-and -loss statements
- the last five years of income tax returns.
Any seller who is reluctant to provide all of the above information should realize that potential buyers won't enter into any negotiations. Buying a practice is often one of the largest single purchases a doctor will make in his lifetime. That's why many buyers and sellers hire consultants to represent them in negotiations.
ILLUSTRATION BY JOHN PATRICK
When it's time to call for help
Many buyers have a deep respect for a senior doctor and don't want to question anything that he presents. Buyers must be aware that some sellers attempt to take advantage of naive potential buyers. My experience in consulting has seen many practice purchases that were one-sided, unfair and costly to the buyer because of a lack of professional assistance.
The ideal way to develop a buy-sell agreement is for both buyer and seller to share in the cost of a consultant to negotiate the terms. Another option is for each party to hire its own agent and to have the agents negotiate. In most practice sales, both parties work together for many years.
When doctors negotiate directly with each other, it almost always leads to an adversarial posturing with a lot of tension and stress. It's difficult to work together in harmony after "battling" over the purchase of a practice. Consultants act as referees that don't allow direct negotiations between the doctors.
Bringing in the backup
Dr. Gross (not his real name) called my company because he had worked with an O.D. for five years with the promise of being able to buy into the practice. The two parties had begun a buy-sell agreement without a consultant and when Dr. Gross sent me all of the information he had, it was one-sided in the owner's favor.
The senior doctor resisted giving Dr. Gross any of the information I listed previously and had been secretive. Dr. Gross hired me to contact the owner to request all the necessary information and to negotiate and develop a buy-sell agreement. The owner refused to answer my telephone calls and e-mail. He was "insulted" that his associate hired an agent. Because of the owners' reluctance to give me the necessary information, I advised Dr. Gross to withdraw from purchasing the practice. On a positive note, he is now the proud owner of a practice that was willing to cooperate in the spirit of good and fair business.
We're in a buyer's market. The entire buying/selling process can be stress free and profitable for both the buyer and the seller if they conduct themselves in an open professional manner.
Buyers and sellers have much to gain from fair and equitable negotiations if neither party tries to get the upper hand.
Dr. Kattouf is president and founder of two management and consulting companies. For information, call (800) 745-EYES or e-mail him at firstname.lastname@example.org. The information in this column is based on actual consulting files.