How to Sell Your Optometry Practice (Don’t Miss Tip #3)
Selling Optometry Practice: A Complete Guide to Optometry Practice Sale
We’re seeing a flurry of activity in the Optometry market right now. But if you’re an optometrist thinking about selling your optometry practice, it’s important to know what you’re getting into.
Today we’re going to show you how to sell an optometry practice in 2023 so you can:
- Have an actionable blueprint (this would help you save time and money)
- How find the best optometry practice brokers
- Attract the best buyers (huge!)
- Possibly get 2x the listing price you have in mind (We’re sure you’d like that)
- And avoid sabotaging mistakes (You want to pay attention)
Let’s get right to it!
Don’t miss out on this opportunity to have your practice valued by the experts. This can be a helpful exercise to understand where your optometry practice stands and how to grow it to ensure it can yield great returns in the near future.
Before we proceed, a make-or-break heads-up:
There’s a lot of confusion out there. And there’s a lot of misinformation on the web too.
- What do you do with all these boxes of files?
- What’s a good price to ask?
- Would I still get to work after selling?
- Why am I getting such low offers?
And more questions…
Is there a way to be certain the prices they’re offering make sense?
The answer, my friend, is yes.
The key to getting the most money (High ROI) when selling your optometry practice depends on sound valuation and a well-thought-out sales strategy. It’s how we’ve helped one practice owner make 2.3x their initial listing price within 90-days. And that’s how we’ve guaranteed sellers good profit margins every time.
The truth is, chances are you’ll be leaving a good bit of cash on the table simply because you’re not skilled and experienced in this cut-throat business of buying and selling medical practices. Don’t be the one left with anything but regret for not having consulted a real professional about what to do.
Learn how Transitions elite was able to create competition for Dr. Graeff’s practice that ensured he received more for the sale of his practice than he could have ever imagined.
We’ve been there and done that and we want to help you. Let’s think outside the box and figure out how to get 2x the money for your practice – schedule a no-obligation appointment here.
Important Note: Limited slots available – due to the extensive nature of work required – and the attention to detail we provide, we only work with a few sellers at a time. So, ensure you grab your spot before we’re completely booked.
We believe you’ve done the needful (and scheduled your FREE practice consultation), so as a recap…
Why Now May Be A Good Time To Sell Your Optometrist Practice
You may be sitting on a goldmine, but it’s not always easy to see the value in what you have. And let’s face it: sometimes our own eyes can be deceiving us.
So how do you know when it’s right to sell your practice?
There are several reasons why now may be a good time to sell your optometry practice. Let’s look at four key factors that help make up the decision for most optometrists:
Cash Out Your Optometry Practice And Go On To Bigger And Better Things
Hedge funds, private equity, and industry experts agree – the signs point to a vibrant market for optometrists to sell their practice. The market is hot, and it’s not just your old classmate back in med school trying to flip their practice. The whole industry is booming.
Dr. Joe Terzoz explains in a Review of Optometric Business article:
“We are currently in the hottest market in the history of the industry. Speculation around a potential adverse change in capital gains tax rates is likely to push prospective sellers to make the ownership transition in the short-to-medium term.”
Put simply: There’s a lot of money on the sidelines ready to go into optometry practices.
And many are seizing this opportunity to create generational wealth.
Here’s the thing:
The disbursement of your share of the sale of your practice can be a source of investment and financial security for you and your family. It presents an enticing opportunity to create a dynasty that will last for generations.
Focus On Effective Patient Care
Let’s be honest – the amount of administrative paperwork and office management in running a practice is incredibly tedious. That sort of daily grind has left many practice owners sad and frustrated because we believe, like you, they’d rather love helping people feel better!
For this reason, a rising number of optometrists partner with an established private equity buyer that can take over administrative tasks while they focus on patient care.
Oh, don’t you like the sound of that! And we are sure your patients will too.
Once you reach retirement age, it is common to consider selling your business. If you have been an owner-operator for many years, it may be time to step away from the daily grind and enjoy life while still providing income for your family or other purposes.
The Desire To Create An Impacting Legacy
It is not uncommon to find many ODs whose primary reason to sell is to make a quick (big) buck.
Don’t get us wrong:
There is nothing wrong with profiting from the sale of your practice. But in the case of this category of ODs, they would sell to buyers they can partner with to push for the greater good of the industry.
When it comes to choosing a buyer, these ODs are often looking for something that goes beyond just the numbers. They want partner ODs that are deeply committed to providing top-of-the-line patient care – when they collaborate with a larger group, they then get a much more influential pedestal to execute their vision and mission.
As these disparate reasons for selling an optometry practice make clear, different owners have different reasons for wanting to sell their practice clinic.
It gets even better:
Irrespective of your reason, If you’re thinking about selling your practice, we can help you get top dollar for it!
We’ve been helping optometry practice sellers for many years now, and we know what it takes to make sure your sale goes smoothly. We’ll walk you through everything from preparing your practice for sale to finding the right buyer, negotiating terms, and finally closing the deal. Click here to get started.
Avoiding Common Pitfalls
You know the drill heading in:
- Take a deep breath;
- Sign the paperwork, take the money.
But that’s not always how it goes down.
Selling a practice is a journey. It takes time, effort, and patience. And it’s something that you won’t be able to do overnight.
If you want to sell your practice, here are some tips to help you avoid common pitfalls and get the highest price possible:
Don’t rush into anything. You might be eager to sell your practice, but don’t let that impatience cloud your judgment or push you into accepting an offer that isn’t right for your business or you personally.
Not doing your homework. Before meeting with any potential buyers, do your research and learn about their business model, reputation, and experience. It’s important to know who you’re dealing with so that you can ensure that they’re right for your practice.
Know the worth of your practice. Before meeting with potential buyers, figure out the market value of the practice (We’ll show you how shortly – read on). This knowledge can help give perspective on whether or not the price offered is fair or not.
Sell to the right buyer. Make sure you sell your practice to an experienced buyer who has a track record of success in buying and running other practices. You want someone who understands the industry and what it takes to succeed as an optometrist.
Get professional help. Lastly, selling a business is not easy, so get help from someone who knows what they’re doing-especially if this is your first time selling a practice. As experienced advisors, we can guide you through the process and provide valuable advice along the way. Additionally, we cut right through the noise and can help you sell your practice within 90-days.
6 Steps to Selling Your Optometry Practice
Made it this far? Great! This is where the rubber meets the road. Following are seven steps to help you take action and sell your practice.
Step 1: Prepare For The Sale
“Luck Is What Happens When Preparation Meets Opportunity.”
From the boardroom, and examinations, to the kitchen, and sports, adequate preparations help drive success in any venture. The same applies when selling an optometry practice.
Here are some tips on what you need to do before listing your practice for sale:
Plan Your Exit Strategy
It’s important to consider how you want to exit the practice — whether it’s through an outright sale or a transition plan. If you want to transition gradually, make sure you have a plan in place and communicate this to the buyer. You may also want to consider hiring an advisor adept in the selling and buying of optometry practices to advise you on how best to approach this critical aspect of the sale process.
Define Your Goals
Before beginning your search for prospective buyers, it’s important to define exactly what it is you’re looking for in terms of price, terms and conditions, and other criteria by which prospective buyers will be judged.
Are you willing to sell the practice as an ongoing business? Or would you prefer to sell the assets of your practice?
What are your goals for the sale? This can include things like how much money you want to make. Do you want a quick sale or are you willing to wait longer if you receive a higher offer? How much debt must be paid off by the buyer?
Clean Up Your Financial Records
One of the first things most buyers will do is request a copy of your financials and tax returns so they can see how much money you’re making and how much money you have in the bank.
You can hire a CPA or an accounting firm to assist you with this process. They will also be able to assist you with any tax planning that may be necessary before the sale of your practice.
Important financial documents to prepare include:
- At least 3 years of tax returns;
- Audited balance sheets and income statements (preferably for the past 5 years).
Get Your Paperwork In Order
Create an organized folder or binder with all pertinent information such as patient records, contracts with doctors, vendors, and suppliers, a copy of your current lease, and any other documents regarding your office space.
This will help buyers know exactly what they’re getting into before they purchase the practice.
Create An Executive Summary
An executive summary is a short document that summarizes your business and its value proposition. It should be written clearly and concisely and highlight your strengths, weaknesses, and opportunities. This document will be used throughout the sales process, so it must be well-written and easy to understand. It should contain information about your practice’s history, location(s), number of employees (including yourself), annual revenue, profit margin, and other key metrics. You can use this document as a template for any other documents which will be included in your marketing materials or when interviewing potential buyers.
Know Your Assets
Your practice has assets and liabilities, and each one needs to be accounted for. You’ll want to know the value of your assets, such as equipment and inventory, but you also need to know what your liabilities are.
Types of Assets:
Broadly, two types of assets: tangible and intangible.
- Tangible assets are things that have a physical presence and can be seen, touched, or moved. Examples include equipment and furniture, vehicles, and real estate including buildings and land.
- Intangible assets are those that have no physical presence but still have value. Examples include patents and trademarks, copyrights, goodwill, and intellectual property such as customer lists.
Goodwill: Goodwill represents the value of customer loyalty built up over time through high-quality service and expertise in eye care. It is often difficult to assign a specific dollar value to goodwill because it depends on many factors including location and market conditions.
You also want to keep an equipment list that includes serial numbers and locations so you can ensure everything is accounted for when it comes time to turn over the keys.
Prepare for showings
To attract buyers, your practice has to look its best at all times. This means making sure that all the equipment works properly and is in good condition. This includes both the office equipment and the instruments used in your practice, such as autorefractors and keratometers.
Address All Outstanding Issues
Next, you’ll want to assess whether any issues could impact the sale of your business. If so, fix them before entering into negotiations with buyers.
For example, legal issues that need to be resolved before the sale can proceed such as pending lawsuits, employee disputes, or tax liens. You may also want to resolve any outstanding bank loans and other financial obligations before selling.
Step 2: Determine Your Optometry Practice Value And Set Your Price
You work hard and you’ve made a lot of progress, but the question is… do you know how much your practice is worth?
You might be wondering:
Why is determining the value of your practice a big deal?
The answer to this question would help you determine how much money you should be listing your practice for – ensuring you don’t get shortchanged.
How To Value An Optometry Practice?
First, let’s talk about what determines the value of your optometry practice. Many factors go into the value of your practice, such as:
- Financial performance of the practice – The financial performance of an optometry practice is the key determinant of its value and the most important factor in determining whether a practice is worth buying or selling. A well-run and profitable practice will usually be worth more than a poorly-run one.
- Location – Where is the practice located? Is it in a high-traffic area? If so, you should be able to get a higher price for it. However, if the location is not ideal then you may need to consider lowering your expectations.
- Reputation – If you are doing a good job taking care of your patients, then they will tell others about you. People will also be more likely to refer their family members to you. This can lead to a higher patient count and more revenue.
- Competition – If there are other ODs in your area who can provide the same services as you do, then your practice may not be worth as much as it would be if there weren’t any other clinics nearby.
- Specialty – The specialty of your practice will also affect its value.
- Size – The size of your practice is also important. If you have several doctors working together, then it will be worth more than if just one doctor was working alone.
- Practice sophistication – How sophisticated is your practice? Is it a one-person setup or a multi-doctor office? What kind of equipment and technology does your practice have? All of these factors will affect the price you can get for your practice.
In addition, there are other factors that will affect a practice’s value:
- State of the economy (general market conditions).
- Availability (and degree of execution) of an Electronic Health Record.
- The extent of HIPAA compliance.
- Need for renovation and/or additional equipment
- Transferability of lease terms.
- The profile of patients.
- Demography of the community where the practice is located.
- Employee turnover.
- Transportation access and parking space.
- Level of implementation of Medicare Quality Payment Program (QPP) – MIPS (The Merit-based Incentive Payment System and MACRA (Medicare Access and CHIP Reauthorization Act of 2015).
This is by no means all there is to it – nonetheless, it should give you an idea of what could add value or not.
Now that you know that there is a lot that goes into determining the value of your practice, the next step is how?
The simple solution:
You can avoid the hassle of selling a practice and rightly determine the value of your optometry practice by asking an experienced professional.
However, it is equally important you have an idea of how the process works:
Strategies For Calculating The Value Of An Optometry Practice
There are no hard and fast rules for calculating the value of an optometry practice. There are, however, some strategies that can help you come up with a reasonable estimate.
Here are some methods used:
Asset valuation method
This method involves analyzing all assets, including tangible assets and goodwill. Here are a few things to note:
- When pricing each tangible asset don’t be too greedy. Prices should mimic that of a garage sale and won’t be a true reflection of what you think their worth is.
- There is a considerable impact on one’s tax liability associated with the itemization of assets, so it is important to seek professional help with the process.
- Goodwill is significant in value determination (and oftentimes a bulk of the worth of a practice is tied to it). However, when goodwill is overvalued, it can sabotage the sale of your practice. And that brings us to the next point.
What is the goodwill of an optometry practice and how is it calculated?
In the context of the sale of an optometry goodwill is the value of an intangible asset that has been developed over time. The goodwill of an optometry practice includes things like reputation, brand name, client relationships, location, reputation within the community, patents, proprietary technology, and location. Additionally, digital assets such as the practice’s website (and parked domains), phone number, and copyrights all form part of the goodwill of a practice.
Determining the value of goodwill is easier said than done. But don’t despair, here’s how:
How is goodwill calculated:
Goodwill = Purchase price of the target practice – (fair market value of assets – fair market value of liabilities).
As a summary, using the asset approach, the worth of an optometry practice is the summation of all the estimated value of its assets.
The Income Approach
One of the most common methods used to value an optometry practice is the income approach. This method takes into account a variety of factors, including:
- Income the practice produces;
- Total expense;
- Value of the underlying asset.
The formula is simple:
Value of asset + (income – expenses).
If a practice is generating $1 million in annual revenue, with an estimated asset value of $2.5 million, but it’s spending $550,000 on expenses, the income approach would calculate its value at $2,950,000
The market Comparison approach
One way to determine the value of your practice is to compare it to similar practices in the area. This approach can be helpful if you are selling your practice and want to know what the going rate is for optometry practices in your area. However, it can be difficult to find comparable practices that are selling.
Multiples of EBITDA
If you are considering selling your practice and want a ballpark estimate of its value, you should use EBITDA as a multiple. That’s a fancy way of saying “earnings before interest, taxes, depreciation and amortization.” You don’t have to understand what all those words mean, but it’s important to know that EBITDA is an accounting term that measures your business’ profit.
Typically medical practices, in general, are valued at 3-7x (can be 1.5x or even up to 15x) multiple of EBITDA.
That is to say if:
The total collections of a practice is $2 million with EBITDA at $300k. Assuming $130k is used to pay the OD as salary, we’re left with $170k as earnings. Therefore the estimated worth of the practice is 3 – 7x $170, 000 which is $510,000 and $1,190,000 respectively.
Percentage of one-year gross collections
This method calculates the percentage of one-year gross collections, or total annual revenue, that your business generated. In our experience, the range can vary between 35% to 125%.
Before we proceed to the next step. we’ll like to reiterate:
- These methods are not set in stone;
- Secondly, seek professional help to ensure your practice is properly appraised – so you can set a fair listing price.
- Lastly, avoid the temptation of overpricing your practice. Why? We’ll explain shortly below:
3 Things To Keep At The Back Of Your Mind When Setting A Price For Your Practice:
- Overpricing your practice – It may seem counterintuitive, but overpricing your practice will discourage buyers from purchasing it. And eventually, it becomes shopworn.
If it remains on the market for too long, buyers will think that there must be something wrong with your practice and even if they do consider purchasing it, there’s every likelihood they make a very low offer because they’d presume you’d be desperate for a sale having waited too long.
- Timing of the sale – if you want to sell your practice too quickly then you may have to lower the price. If you are patient and open to waiting longer, chances are you’d be able to get a higher price.
- Sometimes you may have to offer a discount – It is not uncommon for sellers to agree to a discount if the buyer offers a lump-sum payment at closing or if the payment period is shortened – for example, instead of a 5-year installment payment, the buyer chooses to complete payment in a year.
Step 3: Qualifying Potential Buyers
This is where you get to know your potential buyer better and see if they’re qualified to buy.
Here’s what to do:
Protect Your Practice With A Non-Disclosure Agreement
Once you’ve identified potential buyers, it’s important to protect your practice with a non-disclosure agreement (NDA). This document ensures that any information shared between parties is confidential and will not be used for any purpose other than the sale of your practice. An NDA should include provisions for both parties to sign and date, as well as include a confidentiality clause that protects all information disclosed during the negotiation process from being shared with third parties.
Interview Prospective Buyers
In this step, you’ll be asking deeper questions about their motivation for buying a practice and their experience in the industry.
The reason you want to know these things is that it will give you an idea of whether or not they’re serious about buying a practice in general, and if they fit into your business model.
Do Some Background Checks
Nothing out of the ordinary here. Basically, it is strongly recommended that you check their credit score among other general information you can easily come across. If there is anything that raises a red flag, it is best to walk away from the deal. This will save you both time and money in the long run.
The main purpose of this is that you want to make sure they have enough cash on hand to buy your practice.
Invite Them To Your Practice
After “successful interviews” over the phone, invite the potential buyer to visit your practice. The visit should be a full day or some hours with time for a tour of your practice facilities. Ideally, this will be the first time you meet face-to-face, allowing you to observe their interaction with your staff and patients. It’s important to note that during this visit, it is critical that you focus on providing valuable information about your practice rather than pitching the sale of your practice.
Make Them Aware Time Is Of The Essence
It’s important to let potential buyers know that time is valuable. In this day and age, most people are bombarded with information and there are plenty of options out there for them to choose from. If you don’t get them to understand that if they don’t move quickly, another buyer may come along and purchase your practice before they get a chance at it. This is vital because you don’t want your time wasted with nothing to show for it.
A Serious Prospect Will Confirm Their Interest With A Letter Of Intent
Finally, after all of the above, before moving forward to negotiations, a serious prospect will confirm their interest with a letter of intent (LOI). This document is usually non-binding and simply outlines some key terms and conditions of the proposed deal.
Step 4: Negotiations
Once you’ve identified a potential buyer and confirmed their interest in purchasing your practice, negotiate a price and terms of sale agreement with them.
Key Areas Discussed During Negotiations Include:
Sale price. The seller and buyer will negotiate the selling price of the practice. This is one of the most important aspects of the deal, so it’s wise to have a professional appraiser come in to determine an accurate value for the practice.
The price should reflect fair market value for an established optometry practice based on its earnings history, current cash flow, and physical assets (including equipment). This will help ensure that both parties enter into the transaction with realistic expectations regarding what it’s worth today and what it will be worth in the future.
Term of payment– How would you be paid? Lump-sum, installments, and would there be interest? All of these should be discussed and agreed upon. You may want to negotiate a longer-term if you want to allow the buyer to get their feet wet in the business. However, the shorter the term the better for you.
Practice assets. Both parties should be clear on what they are buying and selling. For example, if you’re selling your lease, do you plan to give up your right to renew it, or are you willing to buy out your partner’s interest? If your practice includes equipment, make sure that you get all the necessary parts and training manuals transferred with the sale.
The fate of employees and employee retention. The buyer may want to retain a certain percentage of staff to help with the transition, but they may also have plans for staffing the practice. That said, most would-be owners like stability and if you can assure them of employee retention, you can use it to negotiate a better deal. It is important to discuss this issue early on in your discussions.
Non-Compete. The non-compete clause may be one of the most important parts of your contract. A non-compete clause is an agreement between you and the buyer that states that you will not work in the same industry or geographic area for a specified period after the sale of your practice.
Contingencies. If you have any contingencies in place such as lease agreements or selling the building in the case where you own it, make sure that they are discussed. This will ensure that everything goes according to plan and there are no surprises when it comes time to close the deal. If you own the building, we advise you to keep it and collect rent. As for the lease, discuss with your landlord to make the lease transferable to the new owner – the outcome of this will also affect how you’re able to negotiate the price.
Warranties and guarantees. Warranties are promises made by sellers about their products or services. Guarantees go beyond warranties because they offer protection against loss if something goes wrong. Both types of promises carry legal weight in most states.
Staying after the sale of your practice. Will you stay in the practice for a while? If so, how long? How much of a bonus will you receive if you do stay? Most buyers would want you to stay – so, keep this at the back of your mind.
Plans for future growth of the business– This could include plans for expanding into new markets, adding new products or services, and more.
One more thing…
“How should I sell my Optometry practice? “
Types Of Practice Sales
You have two options:
- Asset Sale;
- And Entity Sale
Selling An Optometry Practice – What Is The Difference Between An Entity Sale And An Asset Sale?
If you’re a sole proprietor, then you can only sell your optometry practice using an asset sale. On the other hand, entity sale applies to LLC or S-Corp. However, in some situations, an LLC or S-Corp can sell their assets in an asset sale.
That’s not all:
Liabilities: In an asset sale, liability is non-transferable. In an entity sale, the new owner assumes responsibility for all liabilities of the practice – so, if you have many liabilities, it might be your best option.
Tax implications: Taxation of some assets in an asset sale is based on ordinary income tax rates which are higher – 10% to 37%. Long-term capital gains rates which are typically lower than the former (0%, 15%, and 20%) are used for taxation for entity sales.
Step 5: Closing The Deal And Make It Official
Now that you’ve negotiated a fair price and the buyer has agreed to it, you need to finalize the transaction.
And for this, you’ll need two things. They are:
A Closing Checklist.
Here are some of the things that you need to do before closing on your practice:
- Prepare an invoice for all the equipment in your practice and have it ready for closing.
- Complete any pending renewals or subscriptions for software or other services that you use in your practice.
- Set up an escrow account.
- Review all documents related to the sale of your practice such as contracts, promissory notes, and purchase agreements. Make sure that everything is signed and ready.
- Request for the bank statements of the buyers as proof they can finance the deal and stay afloat.
- It is best if the buyer has money and assets to back them up. But what if they do not? Well, get the buyers to find a third party that is financially capable of taking on the responsibility to sign as a guarantor for them.
An Asset Purchase Agreement
An asset purchase agreement is a legal document between the seller (you) and the buyer (or the buyer’s representative). It includes all of the terms of the transaction and both parties must agree to it before moving forward with closing.
The following are some of the most important points in an asset purchase agreement:
- You’ll write up a list of all of your equipment, inventory, furniture, and fixtures, along with their values.
- You’ll also write up a list of all other assets that aren’t assigned — like cash or receivables — and will receive payment for those at closing as well.
- You’ll sign over your bank accounts and credit cards to the buyer at closing so they can take over payments on them right away.
- Include a clause that specifies that until the price of the practice is paid in full, they do not yet own the business. And should they default a clause to repossess the practice can be included.
Additionally, to ensure we protect our clients, we also recommend the following in the sales contract:
- An acceleration clause to spur the buyer not to default with their payments.
- A clause that would “put the fees on the other party.” What this means is that should they default they’ll be liable for the fees you incur (attorneys, collection agents fees, and the like) in the pursuit of retrieving payments from them.
- Interest charges on unpaid payments.
- A short payment period- of less than 3 years is best, not exceeding 5 years.
- Do not include a prepayment penalty. A pre-payment charges the buyer a fee if they make payments early.
This stage would end by having both parties (seller and buyer) append their signatures on all relevant documents
Step 6: After Sale And Transitioning
Congratulations, you have now sold your practice! But there’s still more work to be done:
You will need to transition the practice so that it is ready for your replacement.
This will include everything from making sure the staff knows who their new boss is, transitioning patients, to getting your patients’ records transferred over.
This can be a stressful time for all involved, but here are some tips to help make the outcome a success:
- Make sure all patient records are up-to-date with any changes or updates that may have happened since you last saw them (e.g., new medications).
- After the sale, it’s critical that you help the new owner set realistic expectations following the purchase of the practice.
- Make sure everyone knows who their new boss is. This includes the staff, patients, referral sources, vendors, suppliers, shareholders, and other relevant stakeholders. Everyone must know who they should be contacting if they have questions or concerns after the sale has been finalized.
- Suggest possible ways the practice can be improved (become better) such as additional marketing, staff training, or an updated website. You can also suggest ways to lower overhead costs like negotiating with vendors or lowering rent.
- Make sure all of your employees are aware of their new role in the practice (if this is the case).
- You can give the new owners time to get acclimated and generate some revenue (a runway) say 2-3 months before receiving the first payments.
- The use of an electronic software system to track progress can be helpful.
In Conclusion: How You Can Easily Sell Your Optometry Practice
We help you prepare and close the sale of your profitable optometry practice. As you’re making one of the biggest business decisions in your life, we make sure that you get a fast, fair offer. It’s our job to look after you throughout the process – so let’s do it together.