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Preserve the Goodwill of the Practice You’re Buying: Keep the Seller on Your Side

It’s a common understanding that a practice is made up of equipment and goodwill, but mostly goodwill. You’re buying a little bit of value in equipment and a lot of value in the practice’s name and reputation. Buyers tend to lean on this when discussing the restrictive covenant part of the contracts and the “transition period.” What is often missed is that significant, unintended damage can be done to goodwill in the course of purchase negotiations. It is easy to avoid this. Let’s look at a few ways how:

The True Impact of Price
The amount paid for something is generally the most focused-on piece of a transaction. However, in most practice transitions, whatever amount may be negotiated off the purchase price really ends up having a negligible effect on the buyer’s long-term “take home” compensation. Hard negotiations to save ten percent of a $500,000 purchase price ($50,000) amount to about $550 per month, or roughly one-half of a crown. That same $50,000 could be the difference between a deal and no deal. It could also be the difference between a seller who complies with only the bare minimum requirements or one who goes above and beyond what is contractually required. One crown every two months is a small sum to pay for the seller’s whole-hearted endorsement and cooperation in a transition.

Un-complicating Contracts
After agreeing on a price and completing in-office due diligence, the next step is to have contracts prepared. The best transitions firms have draft contracts on hand that are designed to be complete, fair and neutral. They’ve evolved over time and represent the best feedback from educated counsel. If you hire counsel who makes excessive or complicating changes, it not only costs you, but also the seller. The longer the back-andforth goes on, the more frustrated the seller may get. This is not to say you should not have qualified counsel, but keep in mind that counsel works for you, not the other way around.

Keep Requests Reasonable
Everybody wants everything, and it is understood that you want to protect your investment. That said, repeated or “and just one more” requests pushed on a seller, regardless of magnitude, can erode a future relationship, and therefore the goodwill of the practice. Again, you should look out for yourself, but seriously consider whether a request is ‘reasonable’ and something you would agree to if the roles were reversed.

These are just a few simple things to keep in mind. Working with a tenured specialist and consulting with them throughout the process is an easy way to avoid these and many other pitfalls. While the consultant should not represent both parties in any way, they should be interested in your success and have experience in transitions. They should be used as a resource and reasonable sounding board.

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