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 By Neil B. Gailmard, OD, MBA, FAAO, Editor April 18, 2007 - Tip #274 
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Exit Strategy and Associate ODs

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This week I'll tackle the fifth of my top ten misconceptions in practice management. I must admit I'm 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. That's 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, I'll 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 tired...

  • 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 couldn't use the cash?) and have a buyer in place for the rest of the practice in the future. Pretty neat! My advice: don't 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 let's 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 shouldn't 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 can't reduce his patient schedule without reducing his income, which causes him to continue on the road to burnout. He still can't 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 he's 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 don't want to own a practice or worry about the business aspects. One doesn't 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:

  • 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, it's not fair to offer that low compensation and you won't 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 isn't, you aren't busy enough to hire an associate or your fees are too low.
  • 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 associate's 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!
  • Don't 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. That's 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 associate's responsibility.
  • Give the associate professional freedom. It's 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 it's 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 one's 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,

Read Past Tips Neil B. Gailmard, OD, MBA, FAAO
Editor, Optometric Management Tip of the Week

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Send questions and comments to neil@gailmard.com.

Dr. Gailmard offers consulting services to eye care professionals through Prima Eye Group; information is available at www.primaeyegroup.com.

Please Note: The views expressed in Management Tip of the Week do not necessarily reflect those of the sponsor.

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