By Diane Palombi, OD
Changing market conditions require flexibility–and early action–if you are to ensure a financially secure retirement. Here’s how one OD mapped out and then carried out the profitable sale of her practice.
As with many things in life, the best laid plans often don’t work out when planning for a practice exit and retirement. Doctors you plan to sell your practice to can find at the last minute that they lack the needed finances or your retirement timeline may even get bumped up unexpectedly due to health concerns or other necessities. To get a sense of what is needed to enable the sale of a practice and a financially secure retirement, here is my experience. Your timeline will differ, but one thing that will be the same for most ODs: the practice exit and retirement may be more complicated than you anticipated.
When the Original Plan Doesn’t Work Out
My original plan for retirement was for my daughter, who had worked for me since age 13, to attend optometry school. We would then work together while I gradually eased out of my practice eventually turning it over to her. That plan changed during her senior year of college. She had applied to optometry school as a junior and was almost accepted. I thought for certain that she would be accepted after getting her degree in chemistry. That year she decided that optometry was not for her. She said that after working for me for so long she was burnt out on optometry. I then resolved to work for many more years until I took on an associate or sold the practice.
Complicating Personal Matters
In 2010 I had a pulmonary embolism. That woke me up to the fact that even though I came from a family in which longevity was the norm, it was not a guarantee. It suddenly seemed like a good time to start thinking seriously about retiring. Another factor pushing me to sell the practice and retire: early in 2011 my husband decided that he wanted to sell his manufacturing company.
Other Reasons to Retire: Transition to EHR and Needed Continuing Education
Two more reasons that I did not mind retiring early were the needed transition to electronic health records and board certification for optometrists. I am now 55. The tens of thousands that I would have to spend on EHR would never be recouped based on my practice volume. I also did not want to go through the aggravation and expense of the board certification process. I felt that it was like being on the two-yard line from a touchdown in the fourth quarter with seconds remaining to win the game and they decided to change the rules of the game at that point. On the other hand, the board certification process may be a Godsend for young optometrists who want to buy us old guys out.
Beginning of Search for Practice Buyer
I had been contacted in the past by a local optometrist interested in buying my practice to expand into the city where I was located. I called him to see if he was still interested. We negotiated for a few months, but he thought my asking price was too high. I felt that he was looking for a fire sale. We ended up parting ways. My contact lens representative knew of a practice broker. I contacted him to sell my practice. He had a potential buyer relatively quickly. This buyer was a new graduate. This deal fell through because of financing. Over the summer the broker found another buyer who became the next owner of Palombi Vision Center.
Conducting Practice Valuation
I am glad that I used a broker. He did my practice valuation using three different methods to appraise it. He hired a lawyer to draw up all the documents. I have a huge binder of legal documents from the sale. There was no way I could have handled this on my own plus run my practice. I also had a wedding to plan for my daughter at the time. My plate was pretty full. I don’t think the fee that he charged was out of line for all the work that was done. The fee to the broker and lawyer were taken out of my sale’s check. I ended up spending around $6,500 in fees. I paid $1,500 for legal fees and $5,000 to the broker.
Deciding on the Kind of Sale it Will Be
The sale of my practice was an asset sale. I was paid for my equipment and goodwill. I found out after the fact that I should have asked more for goodwill and less for the equipment. It would have been better for me tax-wise. The way it played out was better for the buyer. My husband was going to do a stock sale for the sale of his company. His company was a C corporation, not an S corporation like my practice. If he did an asset sale, it would have involved double taxation. The government would have gotten more money than we would have. Note that you have to wait five years if you change your corporate designation to get the benefits of the change in a sale.
Stock sales also have potential pitfalls to consider. The buyer would have gotten all the money in my husband’s company’s bank accounts. We also had annuities and life insurance policies in the company’s name that had to be pulled out of the company or they would become the property of the potential buyer. Your business also has to have a clean record because the new owner takes on the company’s liabilities such as potential lawsuits. On a stock sale, you should adjust your sale price to reflect how much is in your bank accounts. For example, if you sell your practice for $200,000, and you have $200,000 in your account, you just gave away your practice.
Completing the Practice Sale: Sharing of Financial and Patient Records
The sales process of Palombi Vision Center actually went quickly. It was completed in four months. I photocopied tax returns, financials, monthly billing statements from my optical lab and contact lens venders, bank statements and whatever else the buyer requested. The buyer and his associate came in and looked at patient records for several days.
Buyer Requested a Confidential Sale
The buyer wanted me to keep the sale of my practice confidential. I was not to give my patients a heads-up about my departure. I suppose this was to avoid a last minute rush to see me before I left. Once I signed over the practice, I was done with Palombi Vision Center. The new doctor took over the following week. I felt bad about not giving my patients any notice. The new owner and I drafted a letter about my retirement which was sent to my patients after I had left. In the letter I stated that I had retired and recommended the new doctor to my patients.
Post-Sale: Emotional Aftermath, Possibility of Work as Substitute OD
I have seen some of my former patients while shopping. They say that they miss me. My old practice was very personable. My patients were like family; some of which I had seen as children and now they are parents. I had patients that I had seen for almost 25 years that had followed me from Lenscrafters, where I had a practice before opening Palombi Vision Center. They told me about their personal lives. I made notes in their records to help me remember those things. It was hard leaving them at first, but now I am fine about the situation. I hope to eventually offer my services as a substitute doctor.
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Diane Palombi, OD, is the former owner of Palombi Vision Center in Wentzville, Mo. To contact her: email@example.com