But My Accountant Said I Don’t Need A Broker…
Selling your practice through the auspices of an accountant may sound like a great idea, however, it can actually cost you a lot of money and wasted time. It is true that some accountants have great access to many younger dental clients looking to buy; and it is also true that they won’t (or should I say legally can’t) charge you a commission. However, accountants like anyone else, are in business for themselves and are not inclined to provide their services for free – there is always motive. The truth of the matter is someone will pay, and unfortunately it is almost always the seller. Apart from the financial ramifications, there are also several other dangers related to using an accountant to sell your practice. Certainly, accountants should be an important part of the selling process, they just should not be the ones transacting the deals. The following highlight some of the real problems we have encountered when accountants take on the role of brokers.
Conflict of Interest: Accountants typically bring a seller and a buyer together. Usually both the seller and the buyer are accountant’s clients. This means that the accountant is acting for both the buyer and the seller which actually creates a conflict of interest. The conflict is exacerbated by the fact that the accountant has a vested interest in favouring the buyer in the transaction. The seller is at the end of his career and will shortly cease to be a source of revenue for the accountant, the buyer on the other hand is just at the beginning of his career and will likely be a long-term source of revenue for the accountant. It is in the accountant’s own best interest to “slant” the deal in favour of the buyer. We are aware of situations where a seller has obtained a third-party appraisal only to find out that the real value of their practice was hundreds of thousand dollars more than the asking price suggested by the accountant.
Limited Market: As many clients as accountants have, they will never have as many possible candidates as any of the brokers. In a market where multiple offers and bidding wars are common, an internal sale by an accountant virtually eliminates the possibility. Currently it is not uncommon for practices to sell for as much as 10% to 25% above the asking price. A sale designed to benefit an in-house client means that your practice will never have the opportunity to test the open market for multiple offers above your asking price.
Legality: Depending on the structure of the sale, it is possible that the accountant may actually be in violation of the law. It is a regulation in Ontario that anyone selling real property (any practice assets and any real estate) must hold a license with the Real Estate Council of Ontario. A non-licenced individual who sells real property is technically in violation of this law (Lawyers excluded). The fact that your accountant may hold little regard for this fact, in my opinion, does not make for a trusting foundation upon which I would want to build the sale of my practice.
Protection: Every licenced broker and salesperson carries errors and omissions insurance which they acquire as part of their registration process. This insurance is there specifically to protect the seller and the buyer against any errors or omissions that may be made by the broker or salesperson. Obviously, accountants do not carry errors and omissions insurance for real estate and business brokerage given that they are not supposed participate in those activities. The real implication to both the seller and the buyer, but mostly the seller, is that if there is a screw-up you would have to sue your accountant for the damages – a process which people would prefer to avoid.
Experience: Closing the purchase and sale of a dental office is a complex affair which is primarily handled by the lawyers. During the course of this process, there inevitably are issues that need further negotiation on the part of the broker and usually the buyer or their accountant. Brokers enter these kinds of negotiations all the time – accountants, probably not. All Brokers do is facilitate the buying and selling of dental practices, so they get really good at it. Their experience can help the seller avoid tricky clauses and conditions that would be beneficial only to the Purchaser.
All in all, like lawyers, we can’t exist without them and they do provide a very valuable service in the buying and selling process. Where you do need to be careful, however, is when they step outside of their normal areas of service and expertise. This is particularly true of accountants when they try to get in the middle of a practice sale.