Tag: Selling your practice

Webinar: Should I Stay or Should i Go? Exit Strategy Considerations for ODs

Webinar

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On Monday June 4th 2018 Canadian Eye Care Business Review hosted a panel discussion entitled: Should I Stay or Should I Go? Exit Strategy Considerations.

Drs. Jeff and Tina Goodhew, independent practitioners from Oakville, Ontario, guide the discussion an expert panel of Canadian Optometric opinion leaders actively involved in optometric practice transactions.  Panelists included:

  • Dr. Daryan Angle  – VP Business Development IRIS (Part of the NewLook Vision Group)
  • Dr. Paul Gray – Director and President of the Member Relations Committee, Optometric Services Inc.
  • Jackie Joachim, Chief Operating Officer, ROI Corporation
  • Grant Larsen, CEO, Eye Recommend
  • Dr. Al Ulsifer, CEO & President, FYi doctors

The webinar provide a comprehensive discussion of factors that indpendent optometric practice owners ought to consider as they approach the important decisions around exiting their practice.  Topics covered include planning, use of a business broker, importance of assembling a trusted team of advisors, various valuation methods and the roller-coaster psychological aspects of a sale transaction.

 

The countries two leading practice aggregators,IRIS and FYi doctors, provided the benefit of their perspectives as did the two leading independent  OD networks, Optometric Services Inc. and EyeRecommend.

The webinar is packed with solid practical tips and information: essential for any practice owner that has selling their practice even remotely on the horizon.

You may watch the video slide show and audio above, or listen to the audio only from the links below.

 

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3 Must-Do’s to Increase Your Practice Sale Price

Buying-Selling A Practice, Practice

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As a financial advisor, a phrase I often use is: “If you fail to plan, plan to fail.” That saying is especially apt when discussing preparing for the sale of a practice.

OD practice owners often leave substantial money on the table by not taking the proactive, pre-sale steps necessary to gain maximum valuation for their practice at their retirement.

Here are three essential aspects of your business to have in order before you put your practice on the market.

Balance Sheet
A balance sheet is one of the most important financial documents that a business can own. It is, by most counts, a good scorecard and fitness indicator of the health of a practice. Sometimes also called the statement of financial condition, there is a lot of information that a potential buyer will learn about your practice just by looking at the different components of your balance sheet.

Having an unhealthy balance sheet is a good way to start off on the low end of the sale price spectrum, and rightfully so. Why would you expect anyone to pay a premium for a financially unhealthy business?

A balance sheet is broken up into two main parts: assets and liabilities. Subtracting liabilities from your assets gives you the amount of equity that you have in your business. That’s why you’ll often hear balance sheets described as “assets = liabilities + shareholder’s equity.”

You can look at the assets side of the balance sheet in three broad, sub-categories: cash, inventory and accounts receivable (A/R).

Buyers love a business that has cash. As the phrase goes, “cash is king.” Cash-on-hand is usually a good indicator that the business has a short A/R collections period, strong sales and few debt obligations. It also speaks to “ammunition” that could be used by the new buyer to make changes, or invest in the practice. Because of this, future cost of capital is lower than if the buyer would have to finance future purchases and take on additional debt.

Having an A/R that is in check demonstrates prompt collections from your office. No buyer wants to see a high number in the A/R column, especially high numbers in the 60 and 90 days past due category. Ensuing prompt payment (and communicating that to your patients upon their visit) can help keep that low.

On the liabilities side of the sheet, the “captain obvious” statement is that having as little debt as possible is the best case scenario. If a practice does have debt, having a “quick ratio” that is above 1 demonstrates that the practice can satisfy their debt obligation from cash flow. The larger the quick ratio, the healthier the cash flow as it relates to debt. The quick ratio is calculated as follows: current assets – inventory divided by liabilities. “Current assets” are described as cash and cash equivalents, marketable securities and accounts receivable.

If you do have debt on the practice, ensure that the terms of your debt are most favorable given the current interest rate environment, needs of your practice and cash flow. Look at establishing lines of credit with a bank instead of using a credit card for monthly purchases. Do what you can to eliminate, or reduce, your debt as much as possible—it is directly related to the valuation you’ll receive on your practice.

Sales
When looking at the potential opportunity of buying into a practice, one of the factors that can send a buyer running to the next deal is looking at a practice that has declining sales and collected revenue. Declining sales usually indicates an unmotivated doctor and staff, stagnant marketing, unsatisfied patients (low repeat/reoccurring patient visits) and low patient referrals. Fixing these challenges and deficiencies requires an additional combined investment of time, energy and/or money—all above and beyond the required investment of these three qualities when buying a business.

In the best case scenario of the buyer proceeding with the purchase of your practice, expect them to use these attributes as powerful negotiating points and justification when most likely making you an offer that is below what you were anticipating, needing, or wanting, for your practice.

To combat this possibility, ensure that you are keeping your “foot on the gas” in the years leading up to selling your practice. Having steady or increasing sales and collected revenue is appealing to a buyer—it indicates that there’s a sound marketing plan in place and a repeatable, sustainable and scalable business to be acquired.

In addition to having steady, or growing, sales, demonstrating that you have strong reoccurring revenue from a core patient base demonstrates that you deliver a patient experience that keeps them coming back to your office for their eyecare needs. In an ever-increasing competitive world, in which the value of eyecare continues to be perceived as devalued and undercut in price, showing a strong recall system and high show rates proves that you and your team provide a great patient experience.

Strong Inventory
A strong inventory (specifically your frame inventory) also is appealing to a buyer, but make sure that your inventory is the right kind of inventory.

This means having an up-to-date optical that has frames that are reflective of your patient base, multiple price points and current fashions and styles.

Having an outdated, small selection of frames increases the chance of having a bad first impression on patients when they walk into your optical, which can increase the chance of patients walking out the door with their Rx and right to the online marketplace—lost potential revenue for a future buyer of your practice. Not only will those weaknesses cost your practice money; they also will leap out at potential buyers, lowering your sale price.

ADAM CMEJLA, CFP®, CMFC®

is a Certified Financial Planner and president of Integrated Planning & Wealth Management, LLC, a financial planning and Registered Investment Advisory firm that works with optometrists nationwide. For more information: Contact Adam at  or adam@integratedpwm.com or 317-706-4748.

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Four Steps to Prepare to Sell Your Practice

Buying-Selling A Practice, Practice

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When selling your practice, you can make more money if you prepare your practice for sale well in advance–and utilize the expertise of a broker.

Of the roughly 40,000 ODs in the US, only a minute portion fit the demographic who would be interested in buying a practice, at the exact time you decide to sell it, in your exact location. In other words, the buyer market is small; so small that you must take the proper steps to ensure your practice not only sells, but brings you the value you deserve.

SELLERS ARE POORLY PREPARED

As a practice broker, I have encountered countless OD practice sellers who contact me a few months before they are ready to sell with little-to-no preparation, having never spoken to a practice broker/appraiser/transition consultant. Or they had an associate who was supposed to buy the practice, but decided not to. Whatever the case, I cringe knowing that had the owner just contacted me at least a few years prior, their practice would sell better, faster and for more. It brings to mind the saying:“Proper prior planning and preparation prevents poor performance.” In this case, “performance” can be replaced with “practice purchase price.”

To end the injustice of practices selling for less than they should, or not selling at all, here are five key preparations practice owners should take as they ready their practices for sale:

Maintain the Proper Asset List: Practice appraisers calculate the fair market value of your assets based on useful life, whereas your accountant typically depreciates assets rapidly for tax benefits. Your accountant often won’t keep an itemized list of your assets, especially after they are depreciated. So, if you’d like to avoid searching for equipment receipts from 10+ years ago, I highly advise keeping itemized records of your assets in a simple, organized worksheet including the asset type, manufacturer/model number, date of purchase and cost basis. I’m happy to provide a blank Excel worksheet, partially depicted below, upon request:

Medical equipment tends to have a useful life of 15-18 years! So, start this asset list as early as possible, and rest assured all your assets will be added to the appraised value of your practice.

 

Properly Label Expenses for Add-Backs: Your accountant’s job is to reduce your income as much as possible to minimize taxes. Your practice appraiser’s job is the opposite – to show the true earning potential of your practice. One way we do this is by adjusting your net income on tax statements for “add-backs,” which are generally discretionary expenses not fundamental to the continued operations of the practice,( e. g., owner cell phone, family health insurance, auto lease, etc.).Your bookkeeper should start carefully labeling and itemizing such add-backs at least three years prior to the appraisal of your practice. Otherwise the add-backs may not qualify or can be overlooked. Your appraiser/broker can review your tax statements and explain how best to adjust your bookkeeping to properly label add-back expenses.

Order a Practice Appraisal: A practice appraisal is one of the most important components used in the sale of your practice. A practice appraisal should cost about $2,500 – $4,000 for a single OD/single-location practice. It should be completed by the same company that will be brokering your practice for sale, otherwise the appraiser may put an unrealistic value on the practice if they are not responsible for selling it. The appraisal should include a comprehensive financial analysis using industry standard methodologies, as well as qualitative data and descriptive content to serve as the prospective buyer’s “bible” and main point of reference to make an informed purchase decision. Buyers will submit the appraisal to commercial lenders when they apply for practice purchase financing. Order the appraisal about one to two months before you expect to list the practice for sale. Each practice is different, and there exist too many variables to offer an average length of time a practice remains on the market. Gun to my head, I would say 9-11 months, but I’ve seen practices sell in two months and others on the market for years. To plan accordingly, ask your broker when you should appraise and list the practice, which will depend on your unique goals, the practice itself and other relative market conditions at the time.

Exit at Full Speed. Buyers like to see consistency, and love to see growth. Too many practice owners slowly retire, weaning hours, and allowing financials and production to decline. Sun-setting like this will only hurt the value and marketability of your practice. At the very least, operate your practice as you would normally. Don’t skimp on usual and customary expenses as your transition date approaches. If you have broken equipment, replace it. If you’re wondering whether to replace old but functional equipment, ask your broker. Among many factors, it depends on the type of equipment, timing and condition of your existing equipment inventory. Should you convert to EHR now? At this point, the answer is almost always yes, convert. Aside from the looming penalties, having an EHR in place can be one of the most marketable attributes of a practice for sale.

Above are just several preparations one should take when approaching a practice sale. Many more come into play, such as negotiating property lease renewals; managing retail inventory before and during the sale; tracking patient demographics and production; and much more. These are all matters that should be carefully planned in advance with the support of a qualified optometric practice broker to enhance the marketability and value of your practice. Remember, “Proper prior planning and preparation prevents poor practice purchase prices!”

 

RELATED ARTICLES FROM REVIEW OF OPTOMETRIC BUSINESS

Purchase an Established Practice–and Grow It
Retirement Planning Options: Staff Retention Tool
Setting Goals for Your Future: Achieve Your Optometric Visions

ERIK FERJENTSIK, MBA

Erik Ferjentsik, MBA, is president and principal consultant of Visionary Practice Group, LLC, an optometric consulting and brokerage firm consisting of attorneys, MBAs, CPAs and OD practice owners and management experts “specializing in providing practice appraisals, brokerage, and consulting services for optometrists to bring ODs the most successful results in practice sales, purchases, partnerships, and transitions.” CONTACT: erikf@visionarypracticegroup.com.

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