Avoid
Bad Brokers

A bad broker can ruin your chances of a dental practice purchase. Here’s how to avoid them.

I had a broker threaten to sue me this week.

What did I do wrong?

I asked the broker over email how he came up with a listing price despite not having any 2018 or 2019 financial statements or tax returns. Call me crazy, but I think you need to know how much a practice collected in the last 1 ½ years and how profitable it was to come up with a listing price.

I was even polite. I didn’t even use sarcasm in my question, despite the obvious temptation.

But that’s okay. When a bad broker threatens to sue me, I laugh it off.

If I’m not being threatened at least a couple of times a year by bad brokers, I’m not doing my job for buyers very well.

But it did get me thinking about buyers in similar situations. It’s a fact that, thankfully the exception than the rule, there are enough bad brokers out there that you should know what to do if you encounter one.

The Definition of a Bad Dental Broker

First, a quick definition of a ‘bad broker’. I’m not talking about the average dual-representation broker that will try and charge both you and the buyer a fee to broker the deal. (Though, a compelling argument can be made to put all those dual-representation brokers into the ‘bad’ bucket.)

To me, a ‘bad broker’ is one that is so inexperienced or clueless as to be dangerous OR unethical or dishonest. Someday in another post, I’ll take specific aim at the most common dirty tricks the dishonest, bad brokers use to bilk unsuspecting buyers and sellers. For now, I’m going to assume that your Spidey Sense will tell you when a broker is being disingenuous or dishonest.

Walk Away if You Encounter a Bad Broker

I recommend that if you encounter a bad broker you don’t walk, you run away from the deal. EVEN if the underlying practice is a good one that you might be interested in. I have three reasons for you below, but this is sometimes the hardest advice I have to give to a buyer.

Looking down the end of the track and seeing what you think may be a perfect practice, and thinking “sure, there are a few extra hurdles in the way…but I can make it” is almost always a quick way to heartache.

Sellers Don’t Know When a Request is Unreasonable

The first reason to walk away from the deal is that sellers don’t know what they don’t know. Effectively transferring goodwill from seller to buyer is a hugely important part of a dental practice transition. If you, the savvy buyer comes along with your understanding of what’s typical in the timing, price, tax aspects and/or transition plans in a dental transition, you can be sure at least a couple of those elements won’t be correct in the seller’s head. Without a good broker around to educate the seller as to what is normal, you’re forced to choose between sticking to your guns and not ruining the goodwill and relationship with the seller or rolling over and getting steamrolled on the deal.

You Can Never Be Sure if Another Buyer is at the Table

I’ve learned from unfortunate, hard experience with buyers who wanted to push through the seemingly overcome-able hurdles of a bad, dishonest broker only to find out –often at the last minute—that the broker hasn’t been open about other buyers. Or that they’re using your offer to leverage a slightly higher offer from another buyer, despite having a signed LOI.

One client I worked with had already quit her associate job and hired the moving truck for a cross-country move to her new practice when she learned that the seller was selling to a new buyer. Two weeks before the closing date. When confronted by a tearful buyer, the bad broker just shrugged his shoulders and moved on.

Bad Brokers Tend to Work with Bad Lawyers, Bankers, etc.

I’ve found that inevitably the broker with a bad reputation in the dental transition world will inevitably alienate all the folks with a good reputation. The bad broker is then forced to work with the list of lawyers, bankers, equipment reps, and insurance agents who can’t get any business from the good list of folks.

The bad broker then has the seller use a bad lawyer and recommends a bad banker, and suddenly the problems on the deal multiply. The buyer is running down the track and finding new hurdles popping up as she tries and tries to get to that dream practice.

…

I used to think that a bad broker is an annoying, but ultimately overcome-able obstacle for a buyer. I’ve had enough disastrous deals blow up that the only advice I can offer a buyer talking with a bad broker is to run away Monty-Python-style.

It can be hard to walk away from a practice you think might be good for you. But I promise the pain isn’t worth the potential reward.

–Brian

P.S. If you’d like a free copy of my book, “How to Buy a Dental Practice” just let me know (and pay for the shipping) here.

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