Case Study: Practice Sale #2

The practice offered for $550,000 including $60,000 of inventory and was on the market for about 9 months. Two buyers has been “kicking the tires” for several months. Buyer A’s wife just had a new baby and that delayed any thoughts of an offer. In the meantime, Buyer B was indecisive and delayed any offers. A couple of months later Buyer A renewed their interest and began talks with the Seller. The seller was anxious to retire and spend time with grandchildren. Buyer B finally chose to put in an offer that was $175,000 below asking price. By this time Buyer A also submitted an offer within $40,000 of the asking price. The seller was inclined to accept this offer. Since the seller had initially met Buyer B first, they were given the option of matching that offer. Buyer B increased their offer by $80,000, (still substantially under the other offer). Two weeks later they were informed that Buyer A’s offer was accepted. Buyer B was upset because they incurred costs for a consultant to assist them. Nonetheless, the seller proceeded with Buyer A’s offer. Buyer A had already been approved for 100% financing by a lender. We proceeded in getting the buyer approved with the landlord. The buyer began due diligence and orientation at the practice to facilitate the transition. Within 30 days the transaction was completed.

Summary:

Buyer B was upset because they paid a consultant to assist them, and did not get the practice in the end. Seller was upfront in allowing them to match the other offer but felt that the initial offer was an over aggressive low bid, especially when they increased their bid by over $80,000. Furthermore, they refused to provide the appraisal from their consultant. (An otherwise emotional seller without our help might have refused to even respond.) This buyer’s offer also included a cover letter as to why the office was so bad as a means of justifying the low price.
Always present offers in a positive light. Never be critical. Never rationalize or justify your offer. Compliments and carrots go much farther then sticks and criticisms.
Timing is everything. Months might pass with no activity. Then, bamm! One, two then three offers appear. Make a decision and keep the transaction moving quickly.
Be prepared and stay one step ahead. Buyer B was pre-approved and quickly submitted all the papers to the lender for a formal approval. They showed the seller a copy of the lender approval for the full amount. The gave the seller a lot of confidence. It also insured the buyer that the practice had sufficient cash flow to justify the price and their personal income needs. (Note: Other smaller offices with much less gross revenue will not cash flow and cannot be valued simply on the net income approach.)
Be fair. Buyer A presented a reasonable offer along with a friendly and positive cover letter. The seller felt it was lower than they wanted. However, they liked the buyer and chose to accept. In the end both sides probably felt the other got a little better deal than the other. –That’s the definition of a win-win scenario. After the sale the transition went smoothly. They received a lot of help from the seller. Revenues in the first year showed about a 10% increase. The seller felt good that the buyer was successful and that the practice patients and staff were in good hands.