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Preparation is Key When ‘Passing the Baton’
PRACTICE STRATEGIES
Prelarationsi Key When 'Passing the Baton' Gary Gerber, O.D. reparing ahead of time, as with most things, makes a difference when selling a practice. Under the best of circumstances, anyfit strategy should be considered as early as when an optometrist fist buys or considers opening a practice. This allows the right processes and methodologies to be established from the very be-
Defining an exit strategy is bes done years ahead of time,
ginning. Unfortunately, in the real world, very few small business owners-not just medical professionalsthink about selling their business before they actually open it. However, beginning to plan five years before a practice is put on the market can make a huge difference in the eventual selling price and ease of the transition. Too many practitioners get emotionally involved in the sale of their practice and do not stop to think that it is not the sweat and passion that went into the practice that ultimately pays dividends when it is sold, but how smoothly the practice runs and how easily it can be transitioned-in addition, of course, to how profitable it is. When thinking ahead about selling a practice, begin by examining the operation from an impartial perspective. Ask the following questions: 43 Does the operation run smoothly when the practitioner is on vacation or out sick? Do administrative things like the mailing of patient follow-ups, the re-ordering of forms, the answering of phones, etc. occur automatically?
f.
(Gary Gerber, O.D., is the president and founder o f The PowerPracticeB, a practice management consulting company. He can be reached at [email protected] or 1800) 8679303. Opinions expressed are those of the author and not necessarily those of AOA.) VOLUME 76lNUMBER 611UNE 2005
9 Is the staff well trained and dependable, and are all the tasks they are expected to perform documented? +*: Have all processes been recorded for easy reference, from inventory management to patient scheduling and everything else in between? All these questions must be answered affirmatively if the practitioner expects to receive at least fair market value for the practice. Practitioners who plan to sell their practices at some point in the future but cannot answer affirmatively to these questions should begin now to consider improvements in practice operations, knowing such improvements can greatly impact the future sale value of a practice. With some planning, the future value of a practice practices Can be greatly enhanced. grossing $400,000 a year, and netting a third of that, have increased revenues 50% to 75% once the practices began to operate more efficiently, while maintaining the same percentage, or higher, of profits. Preparation is obviously the key in selling a practice. But what are some of the other factors that OPTOMETRY
PRACTICE STRATEGIES
come into play once a practice is ready to be sold? Here is a list of important things to consider: *3 One cannot put a genuine, tangible, numerical value on a practice's future potential earnings. Sometimes practices are marketed by part-time optometrists, who reason that since they only work three days a week, revenues will double for buyers prepared to work six days a week (and so ask accordingly). Chances are that the size of the practice only merits three days a week. This is because the practice has been built to suit patients who are most readily seeking care on the days the practice happens to be open. *: Do not assume that the buyer will pay the selling optometrist to stick around. Many sellers assume that buyers will ask them to help in the transition over the course of six months to a year. Most buyers are smarter than this. The optometric skills of the buyer often exceed those of the seller, so the only necessary learning curve is for administrative tasks. This curve generally is not too steep. With most practices, the transition can be accomplished within several weeks. *: Announce the change to the staff in a social setting. It is recommended that the buyer and the seller invite the staff to an off-premise event to make the announcement. Since, in most optometry practice transitions, the staff stays largely intact, this is a less-threatening way to make the introduction and get the staff to buy into the change in ownership. Q Get professionals involved in the purchase or sale. Some terms and conditions of practice purchases have become common. The seller or a financial institution might finance the practice sale. In the case of seller-financed sales, sellers might be paid over five to seven years with interest rates generally around prime plus 1%. However, there are also a number of nuances that need to be included in the legal documents. As a result, it is strongly recommended that attorneys experienced in the purchase or sale of practices represent both seller and buyer. This may include information on terms of the payout, notifica-
tion of patients, restrictive covenants, transferring of leased equipment, office lease, etc. An experienced professional is well worth the investment. f Have the practice appraised and use someone experienced with optometry practices. While an experienced and capable attorney can take care of the purchase or sale, it is best to retain an individual who is knowledgeable about optometric practices to appraise the business. There can be various nuances that affect fair market value and ultimate sale price, and the seller should have someone who knows the ins and outs of the industry. However, one should be cautious of so-called "appraisers" who do not discuss the formulas and methodologies used to determine the value of the practice. There is more science than art to appraisal, and experienced appraisers will take the time to explain that science to either buyers or sellers. 9 Get the word out to patients. Since the success of the practice (and, in the case of a sellerfinanced practice sale, the seller's ability to receive payment over time) is greatly contingent on patient retention, it is incumbent on the seller to effectively notify patients about the sale. This entails informing them of the sale in a well-crafted memo (or phone call),the tone of which indicates not that it is hoped they will stay with the practice, but that it is expected and assumed they will continue to receive eye care through the practice. The notification should include a strong endorsement from the seller of the buyer. f Market the practice aggressively. Put the word out to brokers. Place an advertisement in the optometry trade journals (note: the AOA News has a finderlseeker section, as does the AOA Web site). As with selling a house or a car, the more people who know about it the better (and the greater the likelihood there will be multiple prospects). Passing the baton to a new owner can be an anxiety-provoking exercise. Yet, doing it right-preparing ahead of time and not cutting corners-can make a huge difference in the final outcome.
406 OPTOMETRY
VOLUME 76lNUMBER 6IJUNE 2005
Prelarationsi Key When 'Passing the Baton' Gary Gerber, O.D. reparing ahead of time, as with most things, makes a difference when selling a practice. Under the best of circumstances, anyfit strategy should be considered as early as when an optometrist fist buys or considers opening a practice. This allows the right processes and methodologies to be established from the very be-
Defining an exit strategy is bes done years ahead of time,
ginning. Unfortunately, in the real world, very few small business owners-not just medical professionalsthink about selling their business before they actually open it. However, beginning to plan five years before a practice is put on the market can make a huge difference in the eventual selling price and ease of the transition. Too many practitioners get emotionally involved in the sale of their practice and do not stop to think that it is not the sweat and passion that went into the practice that ultimately pays dividends when it is sold, but how smoothly the practice runs and how easily it can be transitioned-in addition, of course, to how profitable it is. When thinking ahead about selling a practice, begin by examining the operation from an impartial perspective. Ask the following questions: 43 Does the operation run smoothly when the practitioner is on vacation or out sick? Do administrative things like the mailing of patient follow-ups, the re-ordering of forms, the answering of phones, etc. occur automatically?
f.
(Gary Gerber, O.D., is the president and founder o f The PowerPracticeB, a practice management consulting company. He can be reached at [email protected] or 1800) 8679303. Opinions expressed are those of the author and not necessarily those of AOA.) VOLUME 76lNUMBER 611UNE 2005
9 Is the staff well trained and dependable, and are all the tasks they are expected to perform documented? +*: Have all processes been recorded for easy reference, from inventory management to patient scheduling and everything else in between? All these questions must be answered affirmatively if the practitioner expects to receive at least fair market value for the practice. Practitioners who plan to sell their practices at some point in the future but cannot answer affirmatively to these questions should begin now to consider improvements in practice operations, knowing such improvements can greatly impact the future sale value of a practice. With some planning, the future value of a practice practices Can be greatly enhanced. grossing $400,000 a year, and netting a third of that, have increased revenues 50% to 75% once the practices began to operate more efficiently, while maintaining the same percentage, or higher, of profits. Preparation is obviously the key in selling a practice. But what are some of the other factors that OPTOMETRY
PRACTICE STRATEGIES
come into play once a practice is ready to be sold? Here is a list of important things to consider: *3 One cannot put a genuine, tangible, numerical value on a practice's future potential earnings. Sometimes practices are marketed by part-time optometrists, who reason that since they only work three days a week, revenues will double for buyers prepared to work six days a week (and so ask accordingly). Chances are that the size of the practice only merits three days a week. This is because the practice has been built to suit patients who are most readily seeking care on the days the practice happens to be open. *: Do not assume that the buyer will pay the selling optometrist to stick around. Many sellers assume that buyers will ask them to help in the transition over the course of six months to a year. Most buyers are smarter than this. The optometric skills of the buyer often exceed those of the seller, so the only necessary learning curve is for administrative tasks. This curve generally is not too steep. With most practices, the transition can be accomplished within several weeks. *: Announce the change to the staff in a social setting. It is recommended that the buyer and the seller invite the staff to an off-premise event to make the announcement. Since, in most optometry practice transitions, the staff stays largely intact, this is a less-threatening way to make the introduction and get the staff to buy into the change in ownership. Q Get professionals involved in the purchase or sale. Some terms and conditions of practice purchases have become common. The seller or a financial institution might finance the practice sale. In the case of seller-financed sales, sellers might be paid over five to seven years with interest rates generally around prime plus 1%. However, there are also a number of nuances that need to be included in the legal documents. As a result, it is strongly recommended that attorneys experienced in the purchase or sale of practices represent both seller and buyer. This may include information on terms of the payout, notifica-
tion of patients, restrictive covenants, transferring of leased equipment, office lease, etc. An experienced professional is well worth the investment. f Have the practice appraised and use someone experienced with optometry practices. While an experienced and capable attorney can take care of the purchase or sale, it is best to retain an individual who is knowledgeable about optometric practices to appraise the business. There can be various nuances that affect fair market value and ultimate sale price, and the seller should have someone who knows the ins and outs of the industry. However, one should be cautious of so-called "appraisers" who do not discuss the formulas and methodologies used to determine the value of the practice. There is more science than art to appraisal, and experienced appraisers will take the time to explain that science to either buyers or sellers. 9 Get the word out to patients. Since the success of the practice (and, in the case of a sellerfinanced practice sale, the seller's ability to receive payment over time) is greatly contingent on patient retention, it is incumbent on the seller to effectively notify patients about the sale. This entails informing them of the sale in a well-crafted memo (or phone call),the tone of which indicates not that it is hoped they will stay with the practice, but that it is expected and assumed they will continue to receive eye care through the practice. The notification should include a strong endorsement from the seller of the buyer. f Market the practice aggressively. Put the word out to brokers. Place an advertisement in the optometry trade journals (note: the AOA News has a finderlseeker section, as does the AOA Web site). As with selling a house or a car, the more people who know about it the better (and the greater the likelihood there will be multiple prospects). Passing the baton to a new owner can be an anxiety-provoking exercise. Yet, doing it right-preparing ahead of time and not cutting corners-can make a huge difference in the final outcome.
406 OPTOMETRY
VOLUME 76lNUMBER 6IJUNE 2005