**Red Flag Reasons for Sale**
Whenever you are buying a practice, it is really important to find out the reason for sale and to assess whether this reason actually is plausible.
I have refused practice purchases myself and also advised clients to stay away when the reason for sale doesn’t make any sense whatsoever.
It is also important to involve a very good commercial lawyer and an accountant who understand the due diligence process of buying a dental practice. Often they can uncover things that bring into doubt the reason for sale.
Two big red flags are if a dentist that is not of retirement age is selling or if the lease has less than two years left. I have seen instances where dentists have sold practices, earnt a tidy sum for goodwill and then have opened up again in the same suburb or nearby and stolen back the goodwill. In fact, it’s happening to me right now. In my case, I assessed the risk of this and determined it would be a non-issue for me if it did happen. For others, it can be disastrous.
The other red flag is if a multiple practice owner wants to sell. It’s unlikely they would be selling their best practice right? Make sure you don’t overpay for a practice that may not be a good purchase.
Also recently started practices being sold. These should be an automatic red flag.
Now onto some actual red flag reasons for sale:
1. looking for a change.
Oh c’mon Mr/Mrs Vendor – at least try and make up a real reason!
2. Selling to pursue other business interests.
This is almost as LOL as reason (1). Especially if it’s a recently started practice.
3. Health reasons
I’ve seen people use this reason for sale when it’s been complete bullshit and they have been back practicing soon after. Not trying to trivialize this, but there are people who know that people won’t really question this so they give it as the reason
4. Taking an extended break to travel etc
You can travel for a year and not sell your practice. When you consider that practice ownership can be a 30 year endeavor that makes you quite a bit of money, why wouldn’t you just have a dentist on and have the practice managed while you travel? I own many practices and I could easily move away for 1 year and not have any real consequence on the business. Why can’t others who just own one practice?
Now onto some ideal sale reasons (from the buyers perspective):
1. Retirement
If your seller is 70 years old with shaky hands and a twitch, you probably don’t need to question the reason for sale
2. Selling to pursue specialist training
Safe reason. However, you wonder if they are specializing because their general practice isn’t doing very well.
3. Moving interstate
Almost as safe as reason (1)!
Basically, if the reason for sale doesn’t make sense, it pays to be hyper-suspicious. Ensure you leave no stone unturned, lest you buy a dud!
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In my practice ownership seminars, we discuss all this and more! The next one is in Sydney in March next year. Hurry – early bird ends in just under a fortnight and only limited seats remain!
We also offer a service for people buying practices where we assess the practice thoroughly to help you examine the numbers and assess chances of success. We have extensive market knowledge and this allows us to give you feedback on purchase price too! https://www.practiceownership.com.au/dental-practice-purchase-assessment/