Finances

2011 a Boom Year in Practice Sales?

Scott Daniels
Alissa Wald, OD

Top Reasons to Buy
or Sell a Practice NOW

By Scott Daniels and Alissa Wald, OD

As we emerge from the recession, 2011 may become be a boom year for sales of eyecare practices. But is it a good year for youto buy or sell a practice? Reading the financial signs in your business can guide your decision.

Why Buy,
Why Sell–NOW?

Selling a practice that took years to nurture, or setting off on your own to buy a practice, is a crucial decision. Consider the following factors to decide whether this is the year to make your move.

Why Sell?
Higher interest rates in the nearfuture will push down values.

High potential of higher taxes in the future paid on the sale proceeds, which means sellers net less.

Inflation around the corner, which will push down values/prices.

Needed upgrade investments will not increase value short term.

Lack of large revenue growth in near term will decrease or keep values flat.

Getting tired / cutting hours. Sell at the peak to maximize sale price.

Why Buy?
Low interest rates

I need a job – still can’t find one.

More security as your own boss.

“If I work harder and make my company more profits, I know I will make more money too.”

Better quality of life and work-life balance.

“I’m tired of someone telling me how to practice medicine.”

“I want to vacation when I want”

Build equity over time/opportunity to buy real estate and get more equity/ investment for retirement.

Reason to Sell: Older Practice, Substantial Investment to Upgrade
Older practice owners who have been waiting to sell can wait no longer. A practice that has been in business for 20 or 30 years (or longer), and lacks technology such as computer systems, pretesting equipment, and also operates in a tired-looking office, is a good candidate for a sale this year. For a current owner, the question is whether this practice can make the investments needed to stay up-to-date. That could mean at least $50,000 on the equipment side, and up to $200,000 for remodeling. That owner needs to ask if they can recoup such an investment in a reasonable number of years–or ever for that matter. However, not making that investment means the value of the practice will decline.

Investment in new technology and updated office space should increase revenue and profit. You won’t recoup, let alone profit, from technology and office remodeling investments overnight. A $50,000 investment will unlikely increase your value by the same amount within the same year.If you don’t feel you have that many years left in you to continue your current practice, it may be worth considering a sale. Calculate first how much needed practice upgrades–technological and otherwise–will cost your practice, then project your expected increased revenue and profit over the next three tofive years. Conversely, figure out what your practice needs to be worth to recoup the extra investments.Chances are you will not recover any major investments in the short term ofthree to fiveyears. Outside influences such as higher interest rates, inflation and the slower growth economy will put downward pressure on practice values. These long-term upgrades and investments are critical to offsetting the downward pressures and staying competitive in the long run, but they won’t increase your value short-term.

ROB Bottom Line
Will my practice upgrades
pay off?

Remodeling or expensive equipment purchaseslike an OCT will take longer to see an ROI.For example, if you buy a new lane for $25,000, you may not be able to get $25,000 more for the sale of your practice.

Updated office space may increase patient satisfaction, leading more referrals to friends and family, and more patients in your chair, but it will be a gradual process. You won’t increasethe price of your office the same amount in the near term.The future value will be based on the increase in revenue and profit over years.If revenue and profits decline, then the value will decline, even if you invested in new technology or furnishing.

Reason toBuy: New OD Grad, Need of a Job, Flexible Lifestyle
The combination of low interest rates, specialty lenders still willing to finance practice loans and fewer job opportunities have created an atmosphere with a continued demand for practices to purchase. The recession has proven that employment positions once perceived to be secure were really not secure. Employed optometrists’ hours were reduced, jobs cut, salaries capped and hoursmade less desirable.With younger doctors performing more medical services and wanting to have a personal life, many are discovering that business ownership provides the best of all worlds: control, independence and a great personal life schedule.As a practice owner, you have the freedom to dictate your own work schedule, as well as how you practice medicine.

Practice ownership also has advantages for ODs with young families. Husband and wife optometrists often form partnerships in which one spouse is the OD and the other the business manager. This allows the two individuals to work less hours per week, leaving ample time to devote to vacation, family life and the children.Practice ownership also offers an opportunity to purchase the real estate as a long-term retirement investment.

Related ROB Articles:
Planning the Three Stages of Optometric Practice

Related Articles from Practice Concepts
Learn more about buying and selling optometric practices on Scott Daniels’ consultancy’s web site, www.practiceconcepts.com

 

Scott Daniels, executive senior broker, is a licensed broker with consultancyPractice Concepts, and heads a team of all the practice specialty divisions. He has completed and worked on hundreds of successful practice sales and transitions. He has more than 20 years of experience in business management, financing, marketing, negotiations and practice brokerage.

Alissa Wald, OD, executive advisory, ophthalmic division, is Practice Concepts’ lead advisory board member for the ophthalmic division. She is a successful practice owner, purchasing her first office almost 20 years ago, and along with her husband Scott Daniels, founded Practice Concepts.

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