FIX THIS PRACTICE
Buying and Selling Basics
Save yourself the time, money and
hassle -- get a professional's advice.
Richard S. Kattouf, O.D.
Q I'm an
optometrist attempting to purchase a practice. The seller and I
don't know how to proceed. Can you help us?
---- Dr. C.K. Lake
A. Dr. Lake's
question is one of the most common reasons for doctors to seek
First, let me give you a
perspective on the market for buying and selling practices.
- According to the American
Optometric Association, approximately 5,000 O.D.s over
the age of 65 are still practicing. Their practices are
either actively for sale or the O.D. is thinking about
selling. This statistic is causing an imbalance in the
number of sellers compared to buyers.
- Only 30% of optometric
graduates are seeking private practice opportunities,
according to the Pennsylvania College of Optometry's
Irving Bennett Business and Practice Management Center.
This fact also adds to the imbalance of more sellers and
- Private practice is perceived
as being more difficult due to the onslaught of fixed-fee
vision programs. This notion has created an environment
in which most graduates seek employment opportunities,
again adding to the market imbalance.
Due to these facts, we're in a
buyers' market. This doesn't mean that practices aren't selling.
Rather, both parties require professional consultants to perform
a fair market appraisal, negotiate the terms and develop a buy-sell
agreement. The cardinal rule is: Don't attempt these tasks on
Why it's best to get help
In my 20 years of experience in
practice appraising, brokering and buy-sell agreements, I've
witnessed a full scope of problems when professional help wasn't
requested. Below are some examples.
- A buyer signed a contract
with the relative of a deceased doctor. The buyer agreed
to pay more than the last year's gross income. The buy-out
was for a period of 15 years, and cost more than $2
million with interest.
The buyer sought my advice years after signing the
document. In this case, the seller and the attorney took
advantage of a na�ve, young O.D.
- An anxious seller didn't seek
professional advice and never had his practice
professionally appraised. He sold it for $90,000 less
than the fair market value.
- Another buyer was an
associate doctor for 3 years prior to purchasing 50% of
the practice. Buyer and seller did their own appraisal
and negotiations. The terms were a mess, and the
appraisal was totally incorrect. Worst of all, these two
doctors had to be married professionally for 20 years
after their bitter financial battle.
With professional help, the
consultant would've been the impartial, third-party negotiator,
alleviating the adversarial posturing between the buyer and
The buy-sell process
The buy-sell process is comprised
of three steps.
- getting an appraisal
- the negotiation between the
buyer and seller
- the actual buy-sell agreement.
Have the hard-asset value,
accounts receivable and goodwill evaluated. Goodwill has the most
flexibility in the calculations. Don't make the mistake of having
an accountant or attorney perform the appraisal. They've seldom
performed an appraisal of an ophthalmic practice.
Points to consider
Consider the location of the
practice, its age, the seller's willingness to stay on as a
private contractor, the retention of staff, accepted insurance
plans, collection policies and specialties practiced. Other
intangible factors, such as the age of the buyer, also come into
Frequently, a buyer under age 30
will inherit a staff of 40- and 50-year-olds. Will the staff want
to "mother" the buyer? Will they respect him?
Another issue is staff control.
Does the existing staff have specific boundaries? How well
trained are they and what are the levels of delegation?
Do what makes sense
Eye exams must be performed by
vision care specialists. Practice appraisals, negotiations and
buy-sell agreements must also be handled by consultants who have
a track record in this confusing yet critical area.
This may be the biggest business
move of your life. Seek professional assistance to save yourself
time, money and a potential hassle.
Dr. Kattouf is in private
practice in Warren, Ohio, and he's president and founder of two
management and consulting companies. If you'd like Dr. Kattouf to
address an issue you have with your practice, call (800) 745-EYES
or e-mail email@example.com.
Optometric Management, Issue: February 2001