Tips for Buying a Professional Practice Business
Every month receive a few requests from Financial Planners, Money Managers, CPAs a few Insurance companies interested in buying a Professional Practice Business
… otherwise known as a “Book of Business.”
Unfortunately it’s a very difficult task because there are a lot more people interested in buying a professional practice business than there are sellers. Furthermore, just an off-the-record mention of a person thinking of selling their book of business brings buyers out of the woodwork.
So what’s the point in writing this article?
The point is, there is MILLIONS to be made by people who build up a practice business, sell the book and do it again.
As the GURU’s say in the House Flipping business – “Rinse and Repeat”
That being said, if you have the opportunity to buy one, here are 5 things you need to watch out for so the purchase happens in a positive way instead of a nightmare:
1. Make sure there is a retention clause in the agreement.
A retention clause in a purchase agreement allows the buyer to withhold a portion of the purchase price until it is determined that the project, goods, or contracts meet the specifications of what is being sold.
In another words, the seller can’t collect all the money and leave on the next plane out of the country and vanish. >> Dictionary Explanation of Retention Clause <<<
2. Transition of the practice to the new owner, (you) is critical and must be done in a way that the clients don’t disappear into the night. The best way to accomplish this is to make the sale look like a merger. Again, if the seller is going to jump on a plane the day after closing and fly off someplace, i’d be suer cautious and make sure there is a LARGE holdback of funds retained for release sometime on the future.
3. Thorough review of all paperwork is essential! You must have absolute clarity on what you’re buying! Leave no stone unturned, and let no question go unanswered!
4. Complete a background check on the seller.
Google the owner and the business name and see what pops up. Check to make sure any business license or credentials are in good standing and no ethic violations have occurred against the owner or any partners. With the internet now-a-days, there are no secrets. If you don’t want to do the background check, hire someone to do it for you.
DON’T skip this step – regardless how well you know the person, or what you’ve heard about them. Their social profile will tell you a lot about their character. Do Your Homework on the Seller.
My Grandfather used to say , “You can whitewash the stripes of a Zebra, put a saddle on it’s back and call it a horse, but all you really have is a zebra with a saddle on its back and the stripes will come back after a good rain.”
5. Make sure all employees are under a non-compete and non-disclosure. The last thing you want to have happen is you invest a bunch of money into a company only to have the top employees walk out behind the seller, taking their clients with them and going into business of themselves.
There you have it …. 5 Tips for Buying a “Practice Business.”
I wrote a book on the 5 Fundamental Elements of Every Successful and Sellable Business.
It is loaded with very good information, and if you build your business around the 5 Fundamental Elements, you can easily scale your business up quickly.
To get you copy, go to Amazon.com and type in my name Paul Forsberg.
Get the book – you’ll be glad you did.