view from the top
When It's Time to Cut the Cord
An alternative strategy for buyers and sellers
of private practices.
Gary Gerber, O.D.
classic transition of an optometric practice from senior to junior doctor involves
the senior doctor staying on with the practice for a fixed period of time. In the
usual arrangement, the purchasing doctor, Dr. Junior, pays Dr. Senior a salary for
his time in the office. So far, so good or so it would seem.
In our experience, the above arrangement is not
only unnecessary but usually costly to both parties. Considering Dr. Senior garners
a significant salary, and Dr. Junior has just inherited a huge debt when the practice
was purchased, Dr. Junior is going to be strapped for cash. Not having to have to
pay Dr. Senior would certainly help Dr. Junior immensely.
BY ALAN KING
Helping the transition?
Let's examine the commonly held motivations for
having Dr. Senior stay on. Dr. Senior will generally contend, "I will help with
the transition and make sure patients are introduced to Dr. Junior. My endorsement
will help with patient retention." Dr. Junior is often insecure and welcomes having
Dr. Senior's help with the transition. While all of this is probably true, is it
really necessary? Again, our experience is that after a few weeks, Dr. Senior's
services are no longer required.
We have also found that Dr. Junior
has sufficient clinical acumen to work in Dr. Senior's practice. So, the transitional
help really applies more to the administrative end of running the practice. In many
offices, these tasks are delegated to the office manager. If that person remains
with the practice, the administrative transition will be very smooth and require
little input from Dr. Senior. If not, Dr. Junior can generally get up to speed in
about two weeks not two years.
Having Dr. Senior introduce every patient
isn't practical. And with a well-crafted marketing campaign that highlights the
positives of the transition, you can get the proper message to all patients.
How to make the break
So, how can buy-sell agreements be structured
so it's economically feasible for both doctors to accelerate the transition? As
in most financial matters, careful planning helps. In this case, Dr. Senior should
plan a short transition. This isn't meant to be callous, but once the practice is
sold, Dr. Senior isn't entitled to any additional benefits. It's no longer his practice.
While this may be emotionally difficult for Dr. Senior, the economic realities are
that Dr. Junior is now the practice owner and responsible for making sure the practice
When the exit isn't well planned in
advance, both parties can still find some common ground by using the concept of
the time-value of money. Let's say the original agreement included a practice sale
price of $300,000 and a stipulation that Dr. Senior is paid $600 per week for one
year, or $30,000.
An alternative strategy would be to
pay Dr. Senior a figure between $300,000 and $330,000 at the closing. That way Dr.
Senior gets more of his money up front and Dr. Junior ultimately pays less for the
practice. By getting a larger lump sum payout sooner, Dr. Senior can take advantage
of the time value of money and invest the money he would have otherwise taken in
a paycheck in weekly increments.
Senior doctors take heed. I am not
advocating putting you out to pasture without reasonable compensation. On the contrary,
by helping Dr. Junior afford your practice and structuring a buy-out plan that is
fair to both doctors, your retirement pasture can be greener.
DR. GERBER IS THE
PRESIDENT OF THE POWER PRACTICE, A COMPANY SPECIALIZING
IN MAKING OPTOMETRISTS MORE PROFITABLE. LEARN
MORE AT WWW.POWERPRACTICE.COM OR CALL DR. GERBER
AT (800) 867-9303.
Optometric Management, Issue: October 2005