"My goal is to have five locations that I can sell for $1 million each."
Many OD practice owners seem to equate business success with the number of locations in their practice. While this is certainly one measure of success, it wouldn’t be the first thing I look to in goal setting. (I should also add that the above quote is real, and I applaud this doctor for actually having goals; many people just 'show up every day' and take what they get).
How should we define success? First off, let’s remember that your success as an eye care professional is tied to patient outcomes. But as a business owner, revenues, profits (more importantly, cash flow), and the asset value of your practice are all key measures of your success.
How do multiple locations factor into success? Let’s consider the pros and cons of having a multi-location practice. But before we do that, remember that the goal in the short term is revenues and profits.
After all, a single-location, $900,000 practice is almost certainly going to be more profitable than a three-location practice with the same revenues. There are exceptions, of course. But having more locations isn’t automatically better.
Advantages of a multi-location practice
A multi-site practice has several advantages:
It can reach a larger number of patients because of its broader geographical reach.
It can better service different types of patients. One office might have a high-end optical, one might be much more medically-oriented for an older patient base and another might be set up to only serve low income or social-assistance patients. It’s hard to serve all three (or even two) of those groups in one office.
When it’s time to sell, it is true that the whole is greater than the sum of its parts. This is because there’s less risk to the overall business. If one office suffers, the other two can sustain a meaningful revenue and profit stream. It that office was on its own, its value might drop precipitously.
Disadvantages of a multi-location practice
Having said that, there are drawbacks:
It’s just a harder operation to run. An owner can only be in one place at a time, and unless there’s great management overseeing the additional locations, it can get really stressful. I don’t often hear people say something to the effect of “Sure, I’m making $500,000 a year, but I’m miserable.” But when I do, it’s usually someone overwhelmed by having to manage a large, multi-site practice.
It’s less efficient. You’ll have multiple rents to pay – a fixed expense you pay regardless of patient volume. You’ll carry more staff. After all, each additional location has to have someone working in reception, an optician, a doctor. Someone has to be there whether or not the office has 10 patients a week or 125.
Opening a new office can hurt your existing office(s). Each additional office is going to require time and energy. There’s an opportunity cost you have to weigh: how much could you have grown your existing business if you weren’t opening or acquiring another office?
When does it make sense?
An optometrist who owned a regional chain with dozens of offices once remarked to me that: "I don’t understand why young owners are in such a rush to have multiple offices. It’s a real pain! I always tell them: don’t get a second office until your first is absolutely as big as you can make it."
I think this is right. For many suburban practices, there’s no reason they can’t grow to $3 million or $4 million in just one location. Why not keep things simple and then decide what to do once you’ve truly done all you can in one geography?
Interestingly, the two areas where I see more of a need to be multi-site are polar extremes:
Rural practices, because there isn’t much population density. Demographics put a ceiling on any single location’s revenue potential, so multiple locations make sense if an owner wants to continue to grow.
Downtown urban locations, because larger spaces are prohibitively expensive. Urban practices often find there are only 1,000 square foot parcels available at a price they can afford, and therefore will have multiple small-footprint offices in lieu of one large office.
What’s right for you?
In the end, it comes down to goals. Bear in mind that most practices are worth hundreds of thousands of dollars when they sell, but they are far more valuable for the cash flow they provide year in and year out.
Therefore, an owner’s goals for the business will start with the owner’s personal income. But owners also need to think about their preferences for flexibility of time (few want to work 70 hours a week year in and year out) and how much stress they can tolerate as an owner.
For some owners, personal income takes priority and they are willing to absorb the stress and put the time into building a small empire for themselves. If that’s you, I say go for it! Others prioritize their time and quality of life. Once they’ve hit a comfortable income, they’re not interested in aggressively pushing for growth. Both choices are the owner’s prerogative, and neither is a bad option.
Wherever you fall on that spectrum, you have my best wishes for continued success.
Nathan Hayes is the Practice Finance Consultant for IDOC. He is a 10-year veteran of the eyecare industry, working at HMI Buying Group and Red Tray, Prima Eye Group from its inception and now IDOC. In his current role, Nathan helps OD practice owners manage their overhead, grow practice revenues and profits, and maximize their personal income, free time, and professional satisfaction. For questions or comments about this article, please contact firstname.lastname@example.org.