Can I buy your business?

Kevin Cumbus.
Kevin Cumbus.

Picture it with me: You are enjoying a Saturday morning at home with the family. As you sit on the front patio reading the paper, you notice that the grass needs to be cut, that dead limb over the garage did not cut itself while you were practicing dentistry all week, and although the leaves have been down for months, you still have not removed them from the flower beds.

There is certainly some work to do outside. Not wanting to tackle those chores today, you wander inside.

Kevin Cumbus.Kevin Cumbus.

As you walk past the fridge, you glance at the long list of “honey dos” that were stuck there weeks ago that continue to grow. As you pour another cup of coffee and think about how to get through this mountain or work around the house, the doorbell rings.

You head to the front door, and through the glass, you see a nice-looking man examining the broken shutters, unkept grass, and leaf-filled beds. You open the door.

The man introduces himself and quickly tells you how wonderful it is to meet you and that he believes your home would be a perfect addition to his portfolio. He loves the location and the square footage -- he sees your vision for the lawn and the renovation -- and best of all, he wants to buy it from you!

Is this an angel from heaven? Nope, I’m afraid not. He’s simply an investor who wants to buy your house at the lowest possible price so he can make the most money when he sells it. While there is nothing wrong with him or his business, you need to understand his motives.

The above scenario is strikingly similar to when you receive an unsolicited offer. Your business is always in motion, and there are things that all of us as business owners have been meaning to do that we have not gotten around to yet to increase revenue and profitability.

When you are approached by a dental service organization (DSO) or an invisible DSO (IDSO) with an unsolicited offer, they know that your business is not prepped to sell. They know that you are sitting on a proverbial “honey do” list that you can certainly accomplish. And when you complete those upgrades, they will add revenue; earnings before interest taxes, depreciation, and amortization; and value to your business. And they would prefer that you not make those improvements before they buy it.

You see, the DSO and the IDSO want to make the improvements and enjoy the upside that comes along with them. Inviting someone to review your numbers when you are not prepared to sell is akin to giving them a tour of the house that has a leaky faucet, broken rain gutters and shutters. Yes, the bones of the house are solid and there is value there, but think about how much more it could sell for if the house was prepped for sale?

In Charlotte, NC, we are still seeing an unceasing appetite for homes (yes, even given the rising rate environment). And sellers know, given this voracious buy side, the way to maximize value in the sale is to hire a broker, prep the house for sale, and run an auction. Brokers more than pay for themselves and ensure that there will be multiple bids. The same is the case in the dental world.

We are lucky enough to work with dentists and specialists from all over the U.S. to help them prepare their dental practice for sale. The preparation for the sale of your business involves a deep analysis of your financials, your production reports, employment agreements, and leases.

We help our clients understand where the issues are in their business and how to address them when we go to market. We have worked with clients who had unsolicited offers from a DSO. When they engaged us to help prepare their practice for sale and take them through a process, we were able to return them a five to seven times return on our fee over the offer they had in hand.

Kevin Cumbus is the founder and president of Tusk Partners, an M&A advisory firm focused exclusively on large and group practices that want to partner with a DSO or private equity group.

The comments and observations expressed herein do not necessarily reflect the opinions of, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.

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