Exit, and Reap Your “Golden Ring”
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Exit, and Reap Your “Golden Ring”
Ensure your life's work pays off when it comes time to sell your practice.
Richard S. Kattouf, OD, DOS
Q When should I start planning my exit strategy? Should I keep a controlling interest in my practice? If so, for how many years? Can you make this issue more clear?
Dr. L.T. Brodell via e-mail
A: Your exit strategy can be from a few months to 20 years or more. Let us evaluate two scenarios:
► A large practice grossing more than $1 million annually. Normally, finding a singular buyer is difficult. Even if you're in your 40s, it would be wise to sell from 25% to 33% of the controlling interest to an initial buyer. Give this doctor the first right of refusal to purchase the next sellable portion. Specify that all stock payments are non-refundable. The practice should continue to grow.
When the next percentage sale is made, you, the seller, are getting a higher value than you received from the first transaction. This method reaps the greatest profit to you. If you choose to maintain control, you could sell a smaller percentage of the practice.
► A senior O.D. whose practice has plateaued at $350,000. A total of 5,000 O.D.s older than age 65 are still practicing. This is part of the equation that puts optometry in a deep buyer's market. This owner is on a dangerous course, as the profit made on selling any practice is based on the goodwill of the practice. In case of the owner's death or disability, this practice's equity could go to zero. A life's work and no profit. Unfortunately, this happens much too often and is a pure and simple case of procrastination on the part of the owner, who does a tremendous disservice to his loved ones.
Practices like the one above are affordable and have tremendous potential for a new owner. The buyer can pay in full, or the owner may act as the banker after receiving a 20% non-refundable deposit. All subsequent stock purchases are non-refundable.
Most CPAs would advise the seller to take the money if the buyer can acquire the loan. If the senior is the banker, he will also earn an interest — usually higher than a lending agency. Obviously, these interest payments make the profit higher for the seller. Include a clause in the buy-sell agreement that in case of the death, the buyer must continue to pay the estate according to the agreed-payment schedule.
The fact that optometry is in a sustained buyer's market makes it very important for practice owners to commence their exit strategy well in advance. In brokering practices, it is not unusual to spend one or two years to find a viable buyer.
An exit strategy can actually grow your practice and increase its value when the contract calls for the buyer/associate to add services, such as low vision or corneal refractive therapy, that lead to new profit centers. These types of services are private pay, and they command large fees.
Make your hard work pay off
One of the reasons you chose private practice vs. corporate is to reap the financial “golden ring” after decades of hard work. As a result, you cannot be casual about your exit strategy. Explore this topic once your practice reaches a gross income level of $500,000. This does not mean that the exit strategy needs to be implemented, but it should be considered annually, as you evaluate your profit and loss statements. OM
DR. KATTOUF IS PRESIDENT AND FOUNDER OF TWO MANAGEMENT AND CONSULTING COMPANIES. FOR INFORMATION, CALL (800) 745-EYES, OR E-MAIL HIM AT ADVANCEDEYECARE@HOTMAIL.COM. THE INFORMATION IN THIS COLUMN IS BASED ON ACTUAL CONSULTING FILES.
Optometric Management, Issue: January 2011