Negotiating a Sale

The negotiation phase of the sales process can often be the most stressful and sometimes a somewhat confrontational period as both buyer and seller jockey for the best price and the most favourable terms of sale.

However it is worth keeping in mind that in 95% of cases the seller will be obliged to work with the buyer for a period of 12 months or more, so ensuring the sales negotiation goes through in a cordial and professional manner is essential and where the services of an experienced broker can make a critical difference to the outcome.

The most effective way of diffusing any potential conflict is by engaging a broker to act as a conduit between the buyer and seller. By diluting or eliminating any unnecessary confrontational dialogue, your broker can achieve an amicable outcome and a win-win result for both parties.

So what are the most common points that are subject to negotiation?

1. Sales price

The overall sales price would generally be the first consideration for most practice principals but may not necessarily be the most important in the negotiation process. Other conditions of sale can considerably alter the final outcome for you. A good example would be tying the price paid to the required handover period. A higher price may feel good in your bank account but may significantly hamper your ability to move on with your life.

2. Distribution of Price

The total sales price may need to be broken down to reflect the relative values of Goodwill, Plant & Equipment, Furniture, Fixtures, Fittings and stock. This would apply if the negotiated sales price needs to be apportioned on the contract.

3. Payment method

The standard payment method would be 10% of sales price on exchange of contract and balance on completion.

4. Service Agreements

The seller is normally expected to remain at the practice for a period of time to assist with a smooth handover. A service agreement will spell out the specific conditions that are agreed upon in the following areas:

Duration of appointment.

Days and hours of work.

Service fee paid to practice (ie. 30% – 40% +GST)

Holiday periods and additional work requirements.

Sick leave and provision for illness (non-claw back clauses)

5. General terms and conditions of sale

The following general terms and conditions of the sale would also need to be negotiated:

6.  Purchase of the premises.

Some medical practice sales will include the sale of the premises. Whilst they may be transacted as a package, the terms of the property sale would be negotiated separately.

7. Lease of the premises

You are not buying a viable business if you do not have security of tenure over the premises. A lease would need to be negotiated with the seller if they own the property or a third-party landlord if they don’t.

8. Contracts for Doctors & Staff

It is the interests of both buyer and seller to ensure the retention of doctors and staff to maintain stability of the business after sale. Some negotiation may be required to secure the current working conditions of staff without restricting the future plans of the buyer. Special conditions may need to be negotiated for staff members related to the principal i.e. wife or children.

9. Sale or retention of fixed assets

The seller may wish to retain some fixed assets such as specialised equipment, specific artwork or furniture.

10. Restriction of Trade

Both the buyer and seller will want to ensure that their respective future business plans are not negatively affected by the other party. This is particularly important for the buyer as they would not wish the seller/principal GP to set up a practice down the road and threaten their patient base. Geographic restrictions may need to be negotiated.

At the end of the day it is essential to negotiate a deal that is a win-win for both parties.

The buyer wants a profitable and stable business, staffed by a happy and effective team, a high retention rate of patients after the sale and opportunities to grow and expand in the future.

The seller wants a price that reflects their years of dedicated work, to protect their reputation and legacy in the community and the freedom to pursue new endeavours.

A successful negotiation process should achieve the optimum price for both parties, minimise onerous restrictions or conditions, ensure a smooth handover and secure the stability of the business going forward.