Asking price…Often this can feel like one of those awkward conversation topics like when your aunts ask you if you’re dating anyone, or when someone asks how much money you make.
Unlike those questions, this one is an important one to ask. Understanding what this number is can really impact how a transition progresses.
If you’ve done all the leg work and finally found a practice you really like, hearing the asking price will help you understand what the seller is expecting and may give you an idea if this is something you still want. No duh, right? But there’s a problem.
Seller expectations are all over the map.
I’ve seen very reasonable sellers that ask less than what they could. These sellers generally have made their money and they’re ready to pass the baton to the next runner.
I’ve seen sellers who maybe inhaled a little too much nitrous right before you asked them what they’d sell for. These sellers sometimes have made poor financial decisions and want “top dollar.” Maybe they just overvalue their worth to the dental world. It’s possible they heard “Now is a good time to sell your office” and they really ran with that.
I’ve seen many sellers that don’t really know what their office is worth so they throw a number out. Often, this number is very high but the seller is open to negotiating once they see the true profitability of their office.
Like this last seller, you may not even bat an eye at the number a seller throws out so maybe you commit before you see the true profitability of the office. I have some tips to avoid backing yourself into a corner and ruffling the feathers of a seller who was hoping to get 100% of collections.
Now, before you make an offer just based on what I’ll tell you, I want to emphasize that these are just typical ranges. There are multiple factors that go into the worth of an office. However, generally, offices sell for about 75%-85% of collections.
There are the “unicorns” out there that can go above 85% and there are the “trolls” that can go below 75%. Both ends of the spectrum are fairly rare. However, sometimes these outliers exist because of your interest in the practice.
It’s a little bit like shopping.
You’re walking through a store and you notice a really good looking pair of shoes [or insert your shopping vice here]. As you walk up to them you like what you see. You pick them up and you like how they feel. You look at the price tag… Here is the freeze-frame, self-narrating moment like in movies. You’ll either see a price on that tag and think “Yeah, I’d pay that much for these” or you’ll see a price and think “No way, these aren’t worth that much”.
One of the greatest tools you have in your possession when it comes to negotiating the price of a practice is your willingness to walk away. On the other hand, the seller’s best tool in a negotiation is, first and foremost, a willingness to negotiate.
Let me put it this way: Imagine if the shoe salesperson comes up to you and says, “You know, we’re really open to negotiating the price. What would you pay for it that’s fair to both of us?” Your likelihood of walking out of the store with those shoes just increased again, didn’t it?
That being said, it’s important to remember that you are buying an income stream, not a phone. If the seller is asking $800,000 for the office but your advisors tell you it’s worth $775,000, don’t walk away yet. That extra $25,000 may seem like a lot now but it means a lot more to the seller now than it will mean to you in the very near future.
Overall, ask what the seller is expecting to get for the office but don’t let that price ruin a good thing by either backing yourself into a corner and overpromising early or driving such a hard bargain that you ruin the potential for your dream practice.