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

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 do it.

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.

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 environment.

Here are some tips for success with employed associates:

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 upon retirement.

Best wishes for continued success,

Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management