Article Date: 3/1/2001

FIX THIS PRACTICE
Planning for Peace of Mind
Find out how an exit strategy can be your best friend.
By Richard S. Kattouf, O.D.

Q I've heard you mention the term "exit strategy" in your articles and lectures. Just exactly what does this mean?

    --- Dr. C.K. Hilman, via e-mail

A Exit strategy refers to the process of selling all or part of your practice to best benefit your retirement. Your timing in the beginning to plan an exit strategy is crucial. Many doctors wait too long, leaving the door of opportunity open for disastrous scenarios. The following is an example.

Story with a moral

Three years ago, I worked with a 67-year-old senior O.D. and his 40-year-old junior partner. They were 50/50 partners with a 14-year-old original contract that contained no exit strategy. I counseled both clients about the importance of allowing me to develop an exit strategy for the senior doctor.

The senior doctor was adamant about not discussing this process. He insisted on continuing practice at his current, full-time, pace. The junior doctor was very much in favor of participating in a scheduled purchase of the senior's share of the practice, but to no avail.

I warned the senior O.D. about the dangers of holding out, but my advice fell on deaf ears. Just a few months after my on-site consultation, he had a severe stroke and was unable to return to the practice.

Because the doctors' contract lacked an exit strategy, the goodwill value of the senior's 50% (worth $250,000) was now reduced to $100,000. This unfortunate situation put the junior doctor in the driver's seat for the purchase amount of the practice. (Keep in mind that to an outside buyer, the goodwill value would've been of even less value.)

When to develop an exit strategy

Start planning your exit strategy at least 5 to 10 years in advance of your desired departure or decreased work time. This may seem premature, but keep in mind that death and disability have no age barriers.

Recently, I helped settle affairs for the practice of a 48-year-old optometrist who passed away in a fatal car crash. Unfortunately, he didn't have an exit strategy in place. As a result, the estate only got a fraction of the fair market value and the goodwill of the practice was gone.

When thinking about developing an exit strategy, concentrate on your loved ones' security -- not on your own desires.

The right path to retirement

The following steps are necessary to develop a proper exit strategy.

Preventative measure

I could fill this entire journal with horror stories caused by individuals' lack of planning. For example, spouses have been left with only the hard asset value of a practice after 20 or 30 years of practice. What a shame to leave your family in such a vulnerable situation.

Take the preventative approach. Start early, hire competent professionals and plan your exit strategy to ensure that you and your estate reap the financial rewards of your labors and risks. 

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 advancedeyecare@hotmail.com.


Optometric Management, Issue: March 2001