Today’s hypothetical for accounting practice owners: Imagine you are seeking to sell your house. Somebody knocks on your door and makes you an offer. It seems legitimate, the buyer has the funds, the terms pass your first inspection. Do you sign on the dotted line?
On the face of it this seems like a pretty silly question. Obviously you’d have some questions for your buyer, first among them being “are you prepared to offer me market price?”
“You bet! The price I’m offering you is market price!
And at that point they’d actually be correct, because if they’re a market of one then whatever price they offer is the market price by definition.
And that’s why you’d shut the door in their face, right?
Well, not always. A surprising number of practice owners looking to sell their business are willing to see things from the “bird in the hand beats two in the bush” perspective.
But it’s a false perspective. You don’t need to accept that the market only has one offer available. To do so is to guarantee that you are not seeing the true market price for your asset.
So while it may seem more convenient to sell your practice to the single door-knocker this convenience can come at a severe cost. You will most likely be sacrificing price and terms on the sale of your business, and that assumes that the door-knocker's transaction is successfully completed.
The better option is to have your practice sold via a professionally managed competitive tender process with a broader buyer marketplace. Here are some reasons why:
- Increased Competition: A competitive tender process attracts multiple buyers, which can increase the level of competition among them and drive up the price. With multiple buyers bidding for the business, there is a greater chance of getting a higher offer.
- Better Negotiating Position: With multiple offers on the table, you are in a stronger negotiating position to get the best terms and conditions for the sale of your business. You can compare the offers and choose the one that is the most favourable for you.
- Better Deal Terms: By attracting multiple buyers, a competitive tender process can also provide the seller with more leverage in negotiating better deal terms. For example, the seller may be able to negotiate more favourable terms on retention, remuneration during transition, office leasing and other important aspects of the transaction.
- Confidentiality: A competitive tender process can also help to maintain confidentiality and protect the seller's reputation, as the process is usually conducted by an intermediary in a confidential manner and the identity of the seller is kept private.
- Independent Valuation: A competitive tender process usually involves several bids for your business. It can effectively provide an independent valuation of the business, which provides the seller with a better understanding of the market value of their business and can help to ensure that you receive a fair price.
- Professional Advice: A competitive tender process is usually managed by a professional advisor such as a business broker, who has the knowledge and expertise to guide the seller through the process and negotiate the best possible deal whilst saving you a significant amount of time and risk.
Overall, a competitive tender process provides a more structured and successful method of selling a business. When compared to dealing with a single opportunistic buyer the result is better on price, better on terms and more likely to succeed.
Your practice is your legacy. Don’t leave it in the hands of the first smiling salesman to arrive on your doorstep.
