Article Date: 5/1/2006

business advisor
Three Mistakes of Selling A Practice
Avoid these common pitfalls and get top dollar for your practice.
JERRY HAYES, O.D.

For most optometrists, whole or partial ownership of a private practice is highly prized. Why? Equity gives you some level of control and most owners believe that some day they will be able to sell their share and reap a cash windfall.

Plan ahead

Yet, I know many doctors near retirement who put more energy into shopping for low prices on disposable lenses and lab work than planning for the sale of their practice. That's certainly not a savvy way to spend your time. Even a so-called average practice, with $400,000 to $600,000 in annual revenues, is an asset that can be worth several hundred thousand dollars in a sale. And there are things you can do to maximize that sale price, as long as you avoid some common mistakes.

Don't ...

1. Try to sell a practice in a short time frame. Whether it's due to death, old age, poor health or retirement, the reality is we are all going to leave practice eventually. Since exiting your practice is a "known event," doesn't it make sense to plan in advance so you can depart on your own terms? In my opinion, three to five years is a good planning cycle. Anything less than one year will not give you enough time to prepare your practice for sale at an optimum price.

2. Try to sell your practice for an unrealistic price. It generally pays to have your practice professionally appraised so you can establish a third-party opinion of the value before you put it up for sale. I know more than one O.D. who has had a practice on the market for over ten years. In most cases these practices haven't sold because the asking price was totally out of line with the economics of the practice. Yes, there are a few uninformed buyers out there. But if they borrow money, their lender will be very good at valuing the business. On the other hand, if you sell at an inflated price and finance the deal yourself, you run the risk that the buyer may not be able to make his payments. I've seen it happen.

3. Fail to consult a CPA or tax attorney before agreeing to the deal structure. This is important because a poorly structured deal can cost you thousands of dollars in unexpected taxes. That's because the buyer and seller have conflicting interests in terms of how the assets of the business are allocated in the contract. As a rule, the seller wants to allocate as much as possible to intangibles, such as good will and a non-compete agreement. The buyer, on the other hand, wants to pay as much as possible for hard assets he can readily deduct such as inventory, equipment and accounts receivable. The IRS has definite rules to guide you, but tax issues are complex and there are always gray areas a smart lawyer or CPA can help you negotiate.

Getting the most for your practice

When it's time for you to move on, I want you to sell your practice for as much as you possibly can. But that's only going to happen if you start planning years in advance so you can avoid the most common pitfalls.

THE FOUNDER OF KNOWYOURSTAFF.COM AND HAYES CONSULTING, DR. HAYES IS A REGULAR CONTRIBUTOR TO OPTOMETRIC MANAGEMENT MAGAZINE. REACH HIM AT JHAYES@HAYESCONSULTING.COM.



Optometric Management, Issue: May 2006