Twenty years after graduating optometry school and 14 years after opening a private practice, there came a time to consider the next option at our practice. After moving from its original 1,400 sq ft office space, we built a 4,200 sq ft building, equipped with six exam lanes, two testing rooms, a 1,500 sq ft optical, three doctors and 11 staff members. With this space, we offer specialty services, including specialty contact lenses, myopia management, dry eye disease treatments, along with primary and tertiary care services. Our assessment was that there is certainly enough to keep a growing practice busy, so the question became whether we wanted to continue focusing on our single location and do our best to maximize the efficiency and profitability, or take a chance and open a second location — which is what we did!
With the proper planning, opening a second location may not be as stressful as one would think. A true understanding of the practice location and demographic, utilizing existing partnerships and developing a strong business transition plan can help to create the opportunity. Here, we share more about how these items looked in our experience of buying an established practice for our second location.
We needed to understand what a second location could offer, in terms of the demographic (an opportunity to provide specialty services to augment the primary care modality), whether our business model could be successful in the new location, the local competition, the opportunity to own additional real estate, the initial investment and the personal financial requirements of the current owner. Additionally, we needed to determine what the strategy would be for getting the new location off the ground.
When it came to the demographics of the second location, for example, a geo-spatial analysis showed a high percentage of empty nesters and retirees. Additionally, it revealed high median income, home values and lifestyle expenditures. Also, a review of the average monthly credit card balances for the area showed a population that had a healthy spending potential, the number of restaurants and high-end retail being robust in the area and a number of health care providers, health clinics and cosmetic surgeons who focus on improving quality of life. This data provided us with the belief that we could make an impact in the area simply by providing high-quality care in a modern office with upscale products and new equipment. Lastly, the second location is located in a city that has a number of public and private clubs offering golf, tennis, pickleball, soccer, baseball and other sports for youths and retirees. As a result, our goal is to recruit an optometrist who can provide quality personal care and has the skillset and desire to develop a clinic with an emphasis on sports vision.
In assessing the local competition, we noted that there is no private practice within a 3 mile to 5 mile radius: The most prominent private practice recently sold to a venture capital entity. Additionally, there are numerous independent ophthalmology practices. With this information in hand, we felt that a quality private optometric practice was in need.
A significant difference between starting a practice and opening or acquiring a second location is that you can leverage existing relationships, as opposed to starting from scratch. A few areas of examples for this include:
- Current employees. Having a strong group of motivated staff gave us the confidence that we could utilize our business model with a successful outcome. The benefit of this to our current employees is increased compensation and responsibility. (As a brief aside, people are motivated by the knowledge that there is room for personal and professional growth. In a single practice location, there is a limit to how much staff can grow, but a growing enterprise provides all staff an opportunity to grow, and ultimately, make a business a success.)
- Business ties. Our long-standing relationship with our banking institution, good credit and strong history of growth in our first location, allows us to secure funding at historically low rates with a favorable schedule for re-payment. The ability to work with our vendors to create strategic alliances enables us to have additional funding available that greatly reduces our out-of-pocket costs.
- Community relationships. Our family owned our first home just a mile from the new office, and our children went to school nearby. This helps with name recognition and allows us an intimate personal knowledge of the area. Further, Mark has been involved in our chamber of commerce, often attending local meetings and events, he was elected to our city council, and he recently became the mayor of the city in which we live, also aiding with marketing the new location.
BUSINESS TRANSITION PLAN
The decision to purchase an existing practice with a small but loyal patient base also provided us the confidence that the office could sustain itself while we invested time and money introducing ourselves to the community. Additionally, many new practice owners require some level of compensation to make personal ends meet. With a successful practice in place, we were able to forgo a salary, which allowed us to re-invest in the practice with the hope of growing our second practice quickly.
To facilitate a smooth transition, we required the selling doctor to see patients two days per week, while we encouraged new patients to see the new doctors. In addition, the existing staff members are required to train at our first office to learn the processes that make it a success. We find that staff buy-in is critical to encouraging existing staff to learn new methods, new products, a new EHR system and new protocols. Although not all staff will be a good fit with the new management style, those that choose to stay will become invaluable for patient retention.
Finally, the real estate aspect: Although the option to purchase the real estate was not immediately available, we were able to negotiate a first right of refusal in our contract with the practice owner and landlord. We were also able to negotiate a favorable rental agreement for a 10-year lease. All these factors allowed us to minimize our out-of-pocket expenses and our exposure to financial risk, thus, making the purchase more attractive.
EXPANDING YOUR POTENTIAL
Many optometrists graduate from optometry school with a dream of owning and operating a private practice. Those who have taken this path balance providing excellent patient care with challenges, such as maximizing returns on investment, purchasing new equipment, adding staff and managing third party payers. Buying another location is a risk, but diversification of one’s portfolio can enhance the economic potential and improve exit strategy options, while maximizing the ability to care for patients. OM