Decided to retire, sell your practice – now what?

August 14, 2024 Neil Human

Approaching retirement, got an eye on a bach or those projects you said you’d do once you had the time? The question now is, ‘How do I go about selling my practice?’ Here are some considerations.

 

Any house painter will tell you preparation of the surface is the most important step. Likewise in optometry, before you even start thinking about selling your practice, preparation should have begun. Sooner or later, you will be exiting your practice and considering passing the baton to the next owner. A well-prepared practice makes that process much simpler and easier. With potential purchasers seeking a clear and concise understanding of the practice, this makes the due diligence process much more productive and answers questions before they are even asked.

 

A lack of preparation also leads to uncertainty, which hinders both the process and the value. Sound preparation reduces this risk and therefore facilitates the sale and increases the likelihood of a favourable outcome.

 

Good preparation includes:

• A patient database with up-to-date information, especially telephone numbers, which is now the preferred method of communication. Your patient base generates practice revenue and a clean database allows for accurate analysis of who your patients are, which can then be easily conveyed to the prospective buyer, enabling them to understand the strength of the business
• Product coding goes a long way to helping prospective buyers understand the products and services sold and where weaknesses and opportunities might exist. Group and category coding allow for effective analysis of the nature of the lenses, frames and contact lenses you sell
• Outlines of systems and processes for all aspects of the practice – this includes the patient’s journey from appointment to payment and service review, plus lens and frame strategy (stocking and replenishment), invoicing and payments and processes for insurance claims. Recalls are a vital activity to keep the book as full as possible. Done correctly, they can deliver recall rates in excess of 70%
• Business units – are you able to identify the different revenue streams outside of standard eye exams and products (dry eye, myopia, contact lenses, ortho-k, etc)?
• Detailed financial data are absolutely essential. These will form the basis of the valuation and any doubt regarding the veracity of the information casts a cloud of risk and negatively impacts the value of the practice to the purchaser

 

Practice valuation

 

There are several models and resources which can be used for practice valuation within the market. It is, however, important to bear in mind that the ultimate decision will be determined by what someone is prepared to pay and what you are prepared to accept – a figure on which both sides will likely need to compromise.

 

Potential buyers

 

There will be a variety of potential buyers, ranging from an existing member of staff to an outside party or a group looking to acquire another practice. Historically, there was a very strong drive to own a practice, whereas now there seems to be less appetite for this from the younger generation. 

 

Corporate interest will be determined to a large extent by scale (turnover) and location, these being important drivers of their ability to leverage scale and provide the human resources needed to sustain the business. Individuals will be more influenced by ability to mitigate risk, personal interest in being the master of their own destiny and seeking a lifestyle, as opposed to a pure financial return.

 

Understanding the motivations of the different purchasers will facilitate the process and increase the likelihood of success.

 

Process summary

• Be prepared – always
• Once you have decided to sell, set a timeline, with dates, as accurately as possible
• Identify potential buyers
• Compile a comprehensive set of documents as an offer pack
• Determine a valuation and detail the method used to calculate it
• Market and negotiate a mutually agreed amount

 

In many respects, operating a practice on the basis of being ready to sell at any time is a philosophy which will ensure your practice functions as profitably and productively as it can, until such time as you do exit, maximising your returns along the way.

 

The IO Group facilitates and supports its shareholders through this process, where required. In recent years, we have seen nearly 50% of our practices transferred to the next generation of owners resulting in a sharp decline in the average age of our shareholders! This has been a wonderful outcome, not only for the exiting and new owners, but also bodes well for the independent sector in New Zealand as a whole, which we are endeavouring to keep as vibrant as possible. To this end, the IO Group has sponsored a final-year student to participate in our SunVision 2024 Conference in Australia in July 2024, to spend time with independent owners and, it’s hoped, light the fire to one day buy their own practice.

 

 

Neil Human is CEO of the Independent Optometry (IO) Group. To find out more about how IO Group can help make your practice thrive, please get in touch: neil.human@iogroup.co.nz