Choice Transitions asks, "Who Should You Trust to Be Your Practice Broker to Avoid Conflicts of Interest?"

March 15, 2023 /PRNewswire/ -- We have seen a recent trend where dental vendors are expanding into the brokerage market. A dental practice broker's sole purpose should be the sale of dental practices, and not a side business to grab additional revenue streams. Furthermore, a broker's sole fiduciary duty should be to their selling client, and not to both parties. Here are a few industries that we see the potential for significant conflicts of interest:

A dental practice broker's sole purpose should be the sale of dental practices, and not a side business!

Equipment & Supply Companies. Their "bread and butter" is the sale of dental equipment and supplies. It is no industry secret that their underlying priority in selling dental practices is to maintain their revenue stream from equipment and supply orders from the buyer for the next 20-30 years, rather than finding the most qualified buyer or the highest offer. The seller may not even be introduced to buyers purchasing from other competitors, a potential major conflict of interest.

Accounting Firms with in-house brokering. This is possibly the biggest conflict of interest of all. How can an accountant truly look out for the best interest of its client, the seller, when evaluating an offer from a buyer, if they risk losing a potentially significant commission? We have also been involved in several deals where the accountant was advising their client to decline excellent offers because the sale of the practice meant the permanent loss of a valuable accounting client.

Dual Representation Brokers. Representing and accepting a commission from both the seller and the buyer. How can you truly represent two sides when clear, potential conflicts of interest arise? That would be like a lawyer prosecuting and defending a client in the same case. Additionally, sellers are misled to believe they will pay less in fees, since the buyer is responsible for 3% of the commission at closing. However, lenders cap the loan to collections ratio, inclusive of working capital. Therefore, if the practice is appraised correctly, a buyer adding 3% to the loan request to cover the brokerage fee may be declined unless the purchase price is lowered accordingly. In the end, it is the seller who ultimately pays the buyer's fee by accepting less for the practice. Additionally, if a buyer is looking at multiple practices, yet yours will cost them 3% to purchase, that may be the difference in which practice they choose to buy.

SOURCE Choice Transitions


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