More Than Catching Worms
Be an early bird when planning your exit. Here's why you shouldn't wait.
By Richard S. Kattouf, O.D.
When should a practitioner start to plan an exit strategy?
Dr. T. L. Lewis, via the Internet
A Doctors do a great job of protecting themselves with all sorts of insurance, but one of the largest single assets a doctor owns is left totally uninsured and unprotected. That asset is the practice itself.
Protecting your practice
The best assurance for a stress-free and financially rewarding return on your practice is a proper exit strategy. And the earlier you begin, the better. If you're the one selling, develop a buy-sell agreement that protects you by including a clause making it legally binding that the buyer purchase the remainder of your practice in the event of your death, disability or retirement.
All exit strategies should contain at least the following specifics, though you may include other contractual issues:
- The percentage of the practice that's being sold in the initial phase.
- The terms of payment. Is the seller acting as the banker? What's the percent of interest?
- A restrictive covenant clause (non-competition agreement).
ILLUSTRATION BY KRISTEN MELLON
Consider value when planning
Age isn't the only gauge you should use in commencing an exit strategy. In reality, a 35-year-old doctor has greater debt service and family responsibilities than does a 60-year-old practitioner.
The major value of most practices is goodwill. The calculation of this value includes many parameters. The major portion of this asset is you, the doctor. If you're disabled or deceased, there's no goodwill value unless it's been pre-calculated into an exit strategy agreement.
Let's take a look at the following two case examples.
Never too early
When Dr. Shuttle was 32, he purchased a practice in full from a senior O.D. who eventually passed away. Dr. Shuttle was a hard worker and grew the practice from $250,000 gross per year to $400,000 in 6 years.
After Dr. Shuttle died in a car accident, his widow called me to appraise and sell the practice. Had Dr. Shuttle been alive and well, the fair market value for his practice would've been about $320,000. Unfortunately, once a community learns of such a disaster, they start looking for another eyecare professional. I sold Dr. Shuttle's practice 3 months later for only $105,000, which was the hard asset valuation. Because Dr. Shuttle didn't have an exit strategy, he left the estate $215,000 short of goodwill value.
Out of time
Dr. Wallace took over his father's practice in 1960 and practiced for 40 years without an exit strategy. The practice provided 80 years of quality optometric services and had a fine reputation. At age 70, Dr. Wallace called me to help him begin his exit strategy. Days after my interview with him, he had a massive stroke and passed away.
The value of the practice had he been alive and well would've been $410,000. Again, no goodwill value remained, so the estate received only the hard asset value of $150,000.
Don't put it off
Preventive management, like preventive health care, is the key to reaping the rewards of years of labor and risk. Have a professional assessment of your strategy needs. Procrastination can be a killer.
DR. KATTOUF IS IN PRIVATE PRACTICE IN WARREN, OHIO, AND HE'S PRESIDENT AND FOUNDER OF TWO MANAGEMENT AND CONSULTING COMPANIES. FOR INFORMATION, CALL (800) 745-EYES OR E-MAIL HIM AT
THE INFORMATION IN THIS COLUMN IS BASED ON ACTUAL CONSULTING CASE FILES.
Optometric Management, Issue: March 2002