The decision to own your own optometric practice is likely one of the biggest decisions you have made in your lifetime. Deciding where to practice, establishing how to care for your patients, and obtaining financing for the practice purchase are all life-changing decisions. And the decisions you will make regarding your exit strategy will most likely be just as challenging and possibly even more difficult.
An exit strategy
Optometrists often struggle with how to go about slowing down in their careers as they mature. As I’m sure you know, it is not uncommon in our field for optometrists to practice until they can no longer physically see patients any longer. I know some of these optometrists truly love their profession, and that is why they continue to practice well into their 70s, 80s, and sometimes even into their 90s. However, could it be that they don’t know the best way to form an exit strategy? Or could it be that they choose to continue practicing because they cannot afford to retire? Whatever the reason, there should be careful planning with the help of your attorney, CPA, and possibly an optometric consultant.
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Most optometrists who own their practices are solo practitioners, so their options for slowing down as they get older are very limited. They can hire an associate and cut back their hours. Or they can sell the practice outright and either continue working part-time in the practice or retire completely. Unfortunately, many solo practitioners decide to cut back their clinic hours without bringing in an associate optometrist, and their annual revenue declines as a result. This situation makes it very difficult to find a prospective buyer and even more difficult to get the desired purchase price for the practice seller. To help you with these tough decisions, I’ve compiled the top five things you should know about the preparation of selling your practice.
1. Know your goals.
When developing your exit strategy you’ll need to decide among the following:
• Do you want to work full-time hours for the new owner, work part-time and slowly phase out from working in your practice, or do you want to break ties immediately and “ride off into the sunset?”
• If you own your own building, do you want to sell it at the time of the practice sale or maintain ownership for the rental income?
• How much do you want to get from the sale of your practice vs. how much do you need to get for your practice so you can afford to retire? Remember that the proceeds from the sale of your practice are taxed. You should consult with your CPA to determine what rate you can expect to pay when you sell your practice.
Unfortunately, optometry practice owners often think their practices are worth more than what the market can bring. However, with enough advanced planning, you can take steps to increase the value of your practice and reach all of your goals.
2. Know your timeline.
Many practice sales take several months—and even up to a year—to complete. It takes a considerable amount of time to compile all of the information to prepare the listing for an optometry practice. Depending on your location, it can take several months for buyers to make an offer for a practice. Rural practices typically take longer to sell than urban practices. Smaller grossing practices (<$500,000 annual sales) take longer to sell than larger practices.
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It is important to start your exit strategy well in advance to have ample time to do all that is necessary to increase the likelihood of selling your practice and realizing your goals. Ideally, a practice owner starts preparing her practice to be sold two to three years before she wants to close on the sale of her practice. A practice owner could hire a consultant to help her increase sales and improve systems to make the practice more marketable and valuable.
3. The last three years are all that matter.
When a practice appraisal is performed, we look only at the last three years of financial statements and tax returns. Is the practice growing, declining, or maintaining at the same levels? Of course practice buyers like to see gross receipts trending higher each year. This scenario can lead to a higher multiple being used to value your practice. Declining revenues are often a red flag to prospective buyers and can make for a difficult sale. We do not recommend cutting back on marketing or office hours during the three years leading up to a sale—in fact, it could be very helpful to increase both.
If you have more than one location, each office should have separate income statements. Get organized and use the help of your CPA if you have to and be sure to deposit all receipts into the bank so there is proof of 100 percent of income being reported.
4. Take a look at your office from the patient’s perspective.
Just as with staging a home for sale, you want your practice to show well to prospective buyers. Do you have stains in the carpet or ceiling tiles? Are the reception area chairs torn or soiled? Do you have many contact lens trial sets stacked in ancillary testing rooms? If so, take the necessary steps to update the office to make it look as good as possible and update any decor or furniture that needs to be cleaned or replaced.
Most selling optometrists want the sale of their practices to be confidential. If confidentiality is important to you, then you’ll have to be coy when updating your office because staff is very attuned to what is going on in the office, and staffers may figure out that you’re up to something. Make the updates very slowly over a longer period of time, or take these steps well in advance of when you want to sell your practice.
5. Decide if you should hire a practice broker to assist you with the sale.
Do you have enough spare time to handle the sale process on your own? If you’re still seeing patients in your practice, it can be very challenging to return phone calls and e-mails to prospective buyers, CPAs, bankers, etc., if you’re handling the sale transaction on your own.
Practice brokers can be a huge help with selling your practice. Some of their services include:
• Generating a detailed prospectus of your practice
• Assist with determining asking price
• Screen potential buyers
• Assist buyer with obtaining financing
• Work with the attorney to draft legal documents
• Confidentially market the practice so that patients and staff find out after closing
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Most optometrists do not want their staffs or patient bases to know that they are selling their practices. Utilizing a practice broker is the best way to keep the sale of your practice confidential because the broker will handle incoming phone calls and e-mails from potential buyers. Using a practice broker results in much less stress for the selling optometrist, typically leads to a better sale price, and during the entire process (which can take nine to 12 months) freeing you up to continue seeing patients. Practice brokers can charge as little as five percent of the sale price if the owner has already found a buyer or up to 10 percent of the sale price for full broker services.
Start planning now
Preparing for the sale of your practice is a very big decision which requires careful planning. Ideally, you should start planning five years before you want to sell your practice. It is recommended to hire a consultant four to five years in advance of listing your practice so he can assist you with increasing annual revenue and positioning the practice to be sold. You may also consider hiring a practice broker approximately one year prior to when you want to sell the practice. Formulating an exit strategy should be taken very seriously as we grow older. Just as it is important to have life and disability insurance, it is crucial to devise your succession plan sooner than you probably realize. This will ensure that you maximize the equity that you’ve created in your practice over the years, and it is also helpful for estate planning purposes.