Article Date: 3/1/2005

fix this practice
Selling Savvy
Proof that a third party is beneficial in the sale of a practice.
Richard S. Kattouf, O.D., D.O.S.

Q Two potential buyers are interested in buying my optometric practice. Both have approved financing. Do you have any tips on choosing a buyer?

Dr. M. S. Karpinsky, via e-mail

A: An initial reaction is to choose the buyer who came forward first, but the logical approach is to go with the first buyer to put up a significant down payment (normally, 20%). If the buyer wants the practice removed from the market, then he can offer the down payment as a nonrefundable deposit. (This means all advertising ceases and you announced that you've sold practice. It also means that the buyer loses the deposit if he doesn't complete the deal.)

Another option is to put the deposit in an escrow account and hold it until you close the contract. In this case, you'd return the money to the buyer if the deal didn't go to completion. Typically, you deal with all of these matters during negotiations of the buy-sell agreement. Below are important points to keep in mind:

 Hire a professional consultant who has vast experience in appraising, merging and acquiring ophthalmic practices.

 At the end of the process and after completing negotiations, get an attorney to put the agreed issues into a legal document.

 Buy-sell agreements are based on facts (assets, inventory, accounts receivable, location of practice, net profit, etc.) -- don't get caught up in emotions.

 Don't rush into any sale or purchase. Many checks and balances (e.g., financial statements, tax returns, profit and loss statements) must be in place.

 Only the hard facts, as stated above, play into professional negotiations. Many sellers want to convince the consultant and the buyer of the great potential of the practice for sale. It may be true, but the buyer only pays for the reality of what has been accomplished.

Moving on

Dr. Green asked me to broker his southern practice. I appraised it and after four months, two prospects stepped forward, both of whom acquired financing from different lenders.

When Dr. Green purchased the practice, he and his wife were newly married. After five years of successful practice, their family had doubled and their parents were putting pressure on them to move closer to home. Mrs. Green moved back home with the children, assuming the deal would go through with one of the buyers.

Buyer one had no ability to give a down payment, but his lender had a policy of paying in full on closing. Buyer two could put 20% of the sale price down and agreed to make it nonrefundable. I advised Dr. Green to accept buyer two's offer because it was safer.

But Dr. Green allowed his emotions to cloud his decision making. He thought buyer one was a great guy and he wanted to give him the first opportunity. Dr. Green also went against my advice and purchased a practice back home before he sold this practice. As I negotiated with buyer one over a two-week period, the ophthalmologist who employed him raised his salary and he pulled out of the deal. When I contacted buyer two, he had gone in another professional direction and was no longer interested.

Learning a hard lesson

So let's review: Both potential buyers agreed to a price and now both prospects are gone. With great pain, Dr. Green closed the practice and gave the previous owner the hard assets and records in return for relieving him of his obligation of leasing for three more years.

I had to totally restructure the purchase of the practice in Dr. Green's hometown because he was shy $240,000. Dr. Green wound up paying much more (including higher interest) as opposed to the anticipated cash deal.

Get a middle man

Emotion is part of life that we can't ignore. That's why it's beneficial to hire professional consultants (to ensure a profitable and beneficial agreement for all parties).

Dr. Kattouf is president and founder of two management and consulting companies.  For information, call (800) 745-EYES or e-mail him at advancedeycare@hotmail.com. The information in this column is based on actual consulting files.

 



Optometric Management, Issue: March 2005