Optometric Management Tip # 274 - Wednesday, April 18, 2007
Exit Strategy and Associate ODs
This week Iíll tackle the fifth of my top ten misconceptions in practice
management. I must admit Iím pleased to be faring pretty well in reader support
based on email, especially considering that the topics are very popular beliefs
among most eye care practitioners. Thatís why I chose them and called them
misconceptions. Deciding on the correct management strategy is difficult in any
business and ideas that seem good on the surface often have an unexpected down
side. I acknowledge that any of my top ten misconceptions can work in certain
practice settings and with the right leadership, but I also want to point out
that taking the opposite approach can also work well; often better in my
experience. I like to challenge the popular wisdom and make us all think about
the strategies we adopt.
Based on the number of requests I received for further explanation, Iíll cover
what I listed as the number one misconception: It is smart to bring in an
associate to buy into my practice earlier in my career so I have a secure exit
strategy. I think this one is important because there is a lot of money and
professional happiness at stake.
A popular scenario
Understandably, there is quite a bit of concern over exit strategy among eye
care practitioners who are nearing the midpoint of their careers or beyond. Here
is a typical scenario: a solo OD realizes that his successful practice is an
asset that has considerable value. While he or she is not quite ready to retire
yet, the equity that has accumulated in the practice is somewhat intoxicating.
Many practices sell for around 50% of annual gross revenues, which looks pretty
good! Around this time, the practitioner is also getting tiredÖ
- Tired of seeing so many patients
- Tired of staff management hassles
- Tired of taking a vacation and realizing that it is doubly expensive
because practice income basically stops during the absence
- Tired of working evenings and Saturdays
- Tired of everything in the practice depending on the owner
The thought occurs that if you brought in a junior partner, you could sell a
portion of the practice now (who couldnít use the cash?) and have a buyer in
place for the rest of the practice in the future. Pretty neat! My advice: donít
Here is the flaw: by cashing out a portion of the practice, you also lose a
large part of the income stream. After all, your new partner just put up big
bucks to buy in and he or she has a right to a prorated share of the profits.
One must question which is more valuable, the one time sale of part of the
practice, or the future years of maximum cash flow. One more negative factor in
the popular scenario of selling part of the practice well before retirement: you
end up with a partner who will not always want to run the practice the way you
do. All business decisions from now on must be agreed upon.
Dividing income among partners
There are all kinds of reasons that partners become unhappy, but letís look into
one of the big reasons for dispute: money. Partnership net income is typically
divided based on a formula that attempts to be fair to all. When we think about
being fair, it seems logical to say that some of the income should be divided
based on productivity. If one doctor works more hours or is simply more gifted
in generating revenue, he or she should be rewarded. Good business in theory,
but it also creates some potential problems.
- The doctors end up in an unspoken competition for patients, which are
probably in short supply since a one-doctor practice became a two-doctor
practice. Competition between partners is a recipe for disaster.
- The senior doc usually has a large and loyal patient base, but he finds
himself reluctant to facilitate the transfer of some of them to the new
doctor. To do so would jeopardize some of his personal income. And the
reasoning follows that the senior doc had to build his following, why
shouldnít the junior doc do the same? Some resentment about the new
generation of ODs not being what it used to be follows.
- The office staff has more loyalty to the senior doctor and they soon get
the message that the senior doc should be kept busy with appointments. The
junior doctor can feel alienated by the staff.
- The senior doctor canít reduce his patient schedule without reducing his
income, which causes him to continue on the road to burnout. He still canít
take a long vacation or reduce his number of days in the clinic.
- The junior doc is not seeing enough patients and is not making enough
personal income and heís unhappy with his role in the practice.
An alternate plan
In my opinion, a better route for the senior doc is to hire an associate
optometrist on an employment basis. Contrary to old school opinion, there are
many excellent doctors out there who donít want to own a practice or worry about
the business aspects. One doesnít have to offer ownership to attract a good
doctor to the practice. There are many clinicians who just want to take care of
patients and they would like to do so in a professional private practice
Here are some tips for success with employed associates:
- Pay the doctor well. Associates brought in on a partnership track are
often paid fairly low salaries at first because they will soon be gaining
ownership. But if the plan is for the new doc to be an employee, itís not
fair to offer that low compensation and you wonít be able to retain a good
doctor if you do. There should be plenty of new revenue to pay the associate
well and still allow the owner to make a nice profit from that work. If
there isnít, you arenít busy enough to hire an associate or your fees are
- Offer excellent employment benefits. High level employees, like doctors,
expect it and deserve it.
- Make the new doctor busy. There is no competition felt with a doctor who
is paid a salary. It behooves the practice owner to keep the associateís
schedule full and to foster efficiency through staff delegation. One of the
best ways to achieve this is for the senior doctor to take himself out of
the clinic schedule one or two days per week. The increased backlog of
appointments for the senior doc encourages more patients to move to the new
one. Some will move. These days off can then be devoted to practice
management, which results in more practice growth!
- Donít expect practice building efforts from the associate. Unlike the
days of old where the associate had to build his or her own following, the
practice should bear most of that responsibility. Thatís one of the perks of
being an employee. Of course, just providing good patient care will result
in some practice growth, and that is the associateís responsibility.
- Give the associate professional freedom. Itís OK to expect continuity of
services, fees and office policies, but allow associate doctors to exercise
their own clinical judgment with patients, listen to their input and be
responsive to their needs.
Selling the practice
The best time to sell most optometric practices is when the owner is truly ready
to retire completely. Ironically, that might be at an older age if employed
doctors are brought in to see patients. The owner avoids clinical burnout and
may be happy pursuing the management responsibilities of the practice longer
than anticipated. We may not know who will eventually buy a practice, but if
itís profitable and well-managed, it will have value and some entity will want
it. In the meantime, selling a portion of a practice early in oneís career is
like killing the goose that laid the golden eggs. The years of the greater
income stream are often more valuable and the practice equity is still there
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management