In my previous column, I wrote of the outrageous fees accompanied by underserved deliverables of the existing dental broker or transition industry. Being paid $600,000 to sell a $5 million group of practices seemed inappropriate, considering the broker does not have the skill to prepare a unique sales or solicitation package and instead relies on old-fashioned boiler-plate packaging lacking in the individual attention of the group practice up for sale.
Thomas Climo, PhD, is a dental practice management consultant and a past professor of economics in England.I wrote of the kind of solicitation package containing an internal audit that examined the internal control and accuracy of the record-keeping at the practices, as well as a pro forma of anticipated revenues and how these revenues roll into a recalibration of the income statement showing earnings before interest, taxes, depreciation, and amortization (EBITDA) and true net income (without the phony adjustments used in dental practice appraisals by dental brokers). Each of these two recalibrated line items is important for shaping the correct price or value of the selling practice.
This activity I considered essential, as the certified public accounting (CPA) industry for the most part has disavowed an opinion regarding the veracity of dental practice financial information. The fact that this was done for a flat fee of $100,000 speaks volume for the need for a change in the current manner dental practices are being sold and the commissions being charged to selling dentists.
Content with the legitimacy of my argument, I then had my world shook up a day or so later, when I was approached by a solo practitioner dentist who is also with a dental practice management company (DPM) to consider being his (buyer's) agent for finding group practices that meet certain stated criteria as to total revenues, type of practice, EBITDA/net income margin, and location. In doing so, he offered to pay me a success or finder's fee of 2% of the total sales price.
After reading the doctor's proposal, I realized the incredible implication of his offer. Provided the selling dentist has not been lured into signing a binding broker contract, this meant no broker fee to the seller.
For the seller of a dental practice, the idea of a $0 commission clearly surpasses my idea of a reduced commission, even if, at 2% of total sales price, it is substantially below the much higher commission rates being charged by the existing dental broker industry.
Here, the buyer takes on the sales commission, and thereby leaves room for negotiation of the extant sales price to reflect a $0 commission to the seller. It is an idea whose time has come, and I encourage prospective selling dentists to think of this as an alternative.
Recently, there was a slam on payday loan companies on "Last Week Tonight with John Oliver" showing how payday loan companies often feature celebrities receiving seemingly free money and holding it up high for the low-income customers to see as if they too could be in a position of holding this money with seemingly little obligation (when interest rates on payday loans can soar as high as 300% a year).
As a satire on this kind of commercial, Oliver introduced comedian Sarah Silverman who was being retained by an antipayday loan campaign that operated under the slogan: "If you are thinking of picking up the phone to call a payday loan company, don't. Hang up -- and DO ANYTHING ELSE."
This is not a bad forging proposition for a prospective selling dentist. If you are thinking of picking up the phone to call a dental broker to sell your practice, hang up and instead think of a new arrangement in which the commission for the sale of your practice is deferred from you as the seller to the buyer of your practice.
Since the choice of sale price will always remain with the seller, certainly, this is a proposition worthy of consideration.
Author's note: If you are a dental broker, we understand that you want the selling dentist to pick up the phone and call. But the point is the selling dentist has the absolute right to consider alternatives. Surely, alternatives are what market forces are all about. Complaining about this article is merely reinforcing the fact that you like the way things are. That is not the way change occurs or market forces improve. I am reminded of the IBM executive in the late '50s or early '60s who when asked to estimate the entire world market demand for a personal computer put the number at three.
Thomas Climo, PhD, is a professor emeritus of accounting and finance at a major university in the U.K. He has published extensively about the importance of modern managerial and financial decision-making for dentistry. He is a consultant to corporate and solo practitioner dental practice management companies in the states of Arizona, California, Connecticut, Nevada, New Hampshire, New York, and Massachusetts. He can be reached by email at [email protected] or by telephone at 702-578-2757.
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