In the dynamic world of optometry, a significant number of practices are set to change hands this year. The trend is moving towards a growing number of doctor-to-doctor transitions, and so here is an insightful journey through the intricate process of purchasing an independent practice. This step-by-step guide will take you from initial valuation to successful negotiation, and finally, seamless implementation. All viewed through the lens of an OD-to-OD practice sale, this guide is designed to equip you with the knowledge needed to navigate this exciting venture.
Valuation
The first step on this path is understanding the true value of your potential investment. Every successful negotiation starts with a fair market appraisal. But how do you estimate this?
Try typing “How to value an optometry practice?” into any search engine or online community, and you’ll be bombarded with a confusing array of formulas — 60% of gross revenue, 2 x NET + inventory, 5 x EBITDA, and more. While these might give you an extremely broad range, they don’t quite hit the bull’s-eye.
To get a robust, comprehensive estimate of the real value of the practice, here’s what you need to consider:
- Industry, Business, and Regional Overview: Think of it as a snapshot of the investment opportunity that the practice presents, both quantitatively and qualitatively.
- Financial Statement Reconstruction and Forecast: Dive into the last three years and current year-to-date financial statements: profit-and-loss, balance sheet, and income statement. Let’s call it novel forecasting.
- Valuation Methodology: This is where the magic happens! Modern appraisal methods (with explanations and supporting analyses) include:
- Asset-based approaches: These focus on the tangible assets and goodwill of the practice.
- Income-based approaches: These evaluate the profitability of the practice.
- Market-based approaches: These compare practice performance to benchmarks.
- Conclusion of Business Value: Here, you’ll evaluate the business value as a sum of asset-, income-, and market-based values.
- Feasibility Analysis: This final step assesses total cash flow requirements, including debt service and forecast cash flows, projecting the financial viability for you, the new owner.
By considering all these components, you’ll gain a transparent valuation of the practice. This way, all stakeholders (seller, buyer, and financer) have a crystal-clear understanding of the inner workings and financial performance of the practice and the financial viability of the sale.
Negotiations
Once you’ve established the practice’s value, it’s time to agree on the price and terms of the sale. Often, in an OD-to-OD transition, there’s already a relationship between the seller and buyer. Perhaps you’re an associate in the seller’s practice, or you’re an established practitioner looking to expand through acquisition. Regardless of your situation, ironing out agreements and laying solid business foundations are critical steps in the transition process.
This phase ensures a fair, smooth transition of the practice. Its goal? To facilitate the bill of sale. But it’s not just about signing on the dotted line. It involves a thorough examination of a long list of items, including:
- Terms of the sale
- Inventories and equipment
- Employment contracts
- Occupancy
- Business services agreements
- Seller employment
- Covenants and non-competes
- And more!
Business Foundations
From the buyer’s perspective, these are the building blocks that bring your vision for the practice to life. Whether you’re a first-time owner or adding another location to your portfolio, establishing business foundations will guide the transition. Here’s what this involves:
- Due Diligence: Assess the financial, legal, and operational health of the practice through financial due diligence, legal due diligence, and practice management due diligence.
- Financial Forecast and Feasibility Analysis: Answer all your “practice finance” questions by quantifying financial requirements, projecting cash flows, and conducting a feasibility analysis.
- Strategic Business Plan: This is your blueprint for strategy, operations, and implementation. It turns your vision into a tangible reality. (Tip: Banks LOVE thorough, detailed business plans — especially for new practice owners.)
- Milestones: Set quantifiable goals for the practice to meet financial benchmarks. (Yes, these are the production goals established in the financial forecast and feasibility analysis.)
In essence, agreements and negotiations, coupled with solid business foundations and thorough due diligence, establish the sale price and terms, evaluate the health of the practice, ensure the financial feasibility of the deal, and position you, the buyer, to secure financing.
Implementation
Ready for the grand finale? This is where you, as the buyer, get to flex your creative muscles and lay the groundwork for a successful transition, modernization, and re-launch of your very own practice.
While valuation and negotiation phases are pretty standard across the board, implementation is your time to shine. It’s tailored to your vision and how much evolution or modernization the practice needs to align with that vision. If you’ve diligently addressed your business foundations, expect a smooth, efficient, and budget-friendly implementation post-sale. Excited yet?
Here are the key areas of the implementation phase:
- Office Modernization: Time for a makeover! Renovate (or relocate) the physical office based on demographic and competitive analyses, lease review (and negotiation), design optimization, and furnishings and equipment.
- Infrastructure and Innovation: Implement office-wide technology solutions, standard operating procedures, office processes and policies, licensing and insurances, and strategic inventory management. It’s all about the backbone of your practice.
- Talent Management: Here’s where you handle the human side of things. Establish comprehensive HR systems (think employee handbook, code of conduct, etc.), leadership and management functions, compensation and benefits, and associate provider arrangements.
- Re-Brand and Launch: Ready to make some noise? This involves omnichannel marketing, including an annual strategic marketing plan (with monthly benchmarks), service fee and pricing, digital presence (practice website and social media), and a media and referral kit.
The implementation phase is your opportunity to mold the practice to match your vision. So, are you ready to roll up your sleeves and get started? Let’s make your dream practice a reality!
The Wrap Up
With the world’s vision and medical eye care needs growing daily, and the rapid advancements across the spectrum of care and specialties in modern optometry, the opportunity is knocking at your door. Are you ready to answer?
Let’s break it down: The three pivotal phases of the purchase process — valuation, negotiation, and implementation — are your pathways to a successful practice transition. And the best part? They ensure a fair, timely, and mutually beneficial transition for both the buyer and seller.
So, are you ready to embark on this exciting journey? Remember, the first step towards owning your own optometry practice starts with understanding these three phases. Now is the time to get started and make your dream a reality!
Disclaimer: Every practice purchase is unique and may involve additional steps or considerations not discussed in this article. Always consult with a professional advisor for personalized advice.