I was talking to a broker recently and learned something so mind-blowingly stupid that I was literally speechless. You should know about it, too, in case it comes up in a transition you’re involved in.
In almost every dental transition the decision of whether or not to purchase the accounts receivable (or “A/R” – the money owed to the practice by patients who had work done by the seller, but didn’t pay before the buyer bought the practice.)
Usually, the buyer gets the A/R at a discount and is happy to pay extra because it’s like buying a stack of cash with a shorter stack of cash. The seller likes it because it’s a clean break from the business. They get the price of the practice PLUS some extra for the bills they haven’t collected, and they can walk away into the retired dentist sunset.
But some sellers didn’t want to sell the A/R. And on some deals, it didn’t make sense to me. I was confused.
Until I learned something new about brokers.
Some brokers will charge the sellers EXTRA for A/R that are sold as part of the deal.
Most brokers charge a percentage of the sales price of the practice. The standard amount is 10%, though that number can vary. Thus, if a seller pulls a deal together at a sales price of $1 Million, the broker’s take would be $100,000.
Some brokers say that if you, the buyer, purchase the A/R…that amount gets tacked on to the sales price.
So, if the sales price of the practice was $1 Million, and the A/R cost was an additional $75,000 – some brokers apply their 10% fee to the $1,075,000 … bumping up their fee by $7,500.
But now it makes more sense why some sellers don’t want to sell the A/R.
I’m still trying to decide if a broker doing something like this falls into what I’m calling the bad broker category. Either way, it’s dumb.
And now you know an additional question you can ask a broker or seller if you’re having trouble negotiating the A/R on your deal.