You might already be an associate at an optometry practice, or you have had a practice but want to move to a different location, you may be considering purchasing an optometry practice. Purchasing an existing practice can be a faster and easier approach than starting your own practice from the ground up.
There are some advantages to purchasing an already ongoing practice as they offer some advantages:
- Most importantly you should have an immediate cash flow.
- Rather then having to deal with all of the hiring and building a staff from scratch you might have a staff from the previous doctor. This is dependent on the terms of the purchase, but you might be able to begin your first day with a knowledgeable staff who is already trained.
- You will have a steady stream of patients from your first day in your new office. Just like a staff, you should already have loyal clients and maybe even some appointments set up.
- Another huge financial plus is that start-up costs are less than if you begin your own practice.
There is a downside to all of this and that is purchasing an optometry practice is not as easy as purchasing a home or office building. When purchasing a home or office you would make an offer, and then if it was accepted, you’d obtain a bank loan to pay for it. When it comes to purchasing a practice it requires taking the time to do the research, and exercise due diligence so that you have all the information you need before you make the purchase. Then, you will be satisfied with your decision and enjoy your life as a practicing optometrist in your desired location for years to come.
We will be covering these topics:
- Choosing a location.
- Making a complete purchase versus a partial one.
- How to value the practice.
If you have ever worked with a real estate agents then you are familiar with their three considerations when purchasing real property: “location, location, location.” Well the same thing is true for buying an optometry practice. Some initial considerations for you to consider are:
- Do you have an idea of where you want to live and have your practice? Do you want to live in a big city, the suburbs, or a rural area?
- After you have decided on a general area you will then need to check on the cost of real estate and the overall cost of living. Is this market over saturated with optometrists or is there a need for more? Are you looking at a growing community so you can expect to grow the practice?
- Next is to consider the demographics- What are the demographics in the area? Is it a growing or retiring community? Is it stable? Is the type of community that will support the services you hope to provide?
- Are there factories or retail stores in the area that are either opening or closing?
- Are there medical care facilities nearby? Are they growing, declining, or remaining stable?
- Discover other changes in the area that have recently occurred and any that are expected to occur in the future.
- Consider the ratio of optometrists to the population.
- Obtain information from the American Optometric Association (AOA), your state optometry associations, and any networking connections you may have.
When you finally decide on an area that appeals to you, you must continue your research to be sure purchasing the practice is in your best interest.
Complete Purchase Versus Partial Purchase
When it comes to purchasing an optometry practice there are several options. When you look at websites that give you a list of available optometry practices across the nation, you will see listings for the purchase of an entire practice or just a partial one. You might be confused on what this means and what the advantages and disadvantages to each are.
Partial Purchase: This is just what it sounds like, it is a partial purchase. This kind of purchase can make it is easier to obtain a loan because it does not cost as much money. You might also be able to negotiate with the current owner of the practice and purchase a percentage of the practice. Keep in mind that your costs and cash flow for the practice will be dependent on the percentage of the practice that you own.
It may be that your agreement includes incremental percentage purchases until eventually, you own the entire practice. The main advantage of this type of purchase is it is easier to get funding.
Complete Purchase: Again, this is pretty self-explanatory. An optometrist will list his or her entire practice for sale at a specific price. You will then make an offer. The two of you will then negotiate and come to a purchase agreement, and you find funding to pay for the practice.
So once the deal is complete and escrow closes, you will be the new proud owner of an optometry practice. The advantage to a complete purchase is that at the close of the sale, you are the boss. The disadvantage may be that, at the close of the sale, you are the boss.
In order to you can determine if the asking price for the optometry practice is reasonable, and what would be an appropriate counteroffer, you will need to figure out the value of the practice. There are three main approaches to valuation:
Asset: These are tangible and intangible. Tangible ones are the kind that you can see and touch, like all of the fixtures, ophthalmic equipment, frame and contact lens inventory, the land, the building, the fixtures, and lessee-owned leasehold improvements.
On the other hand intangible assets are the goodwill of the practice. Factors like any past and current advertisements, publicity and other promotions, the reputation of the seller and the likelihood patients will continue on with you as the new owner. You can’t physically see these assets but they still an asset to the practice.
Income: Another valuation is an income-based valuation and it focuses on an evaluation of the cash flow of the practice and the past earnings. This will make it possible to predict what the future income will likely be. Additionally, this must show enough profitability in the practice and that the monthly cash flow for you will support a reasonable salary after subtracting the cost of doing business (liabilities) and the payment on the loan you took out to purchase the practice.
Market Value: This valuation compares the transactions and characteristics of the practice you are considering purchasing with other similar practices. Unfortunately this approach is typically not the best one to use when it comes to valuing an optometry practice. This is because it is not likely that there will be be several sales of such practices you can use to compare. When there are practice sales in the area, the information about the sales transaction is generally proprietary, and just knowing there was a sale without knowing any of the details is not useful information.
The Appraiser: When hiring someone to appraise the optometry practice they should be someone who is experienced in health care appraising. If you decide to hire a general appraiser then they may not understand things specific to the practice, such as billing and collections from health insurance companies. An appraisal from a professional healthcare appraiser will also be more acceptable by the bank when you submit it to the bank to obtain your loan.
obviously buying a practice is a serious decision and you want to be sure you do not regret it later. It is in your best interest to consult with advisors like a CPA, an attorney, and a practice management consultant who can review the relevant documents to be sure the practice you are purchasing is in your best interest.
Learn More about Opening a Practice
Hiring important employees is just one step to opening a new optometry practice. Now that you have read some basic tips and things to consider you are ready to start a practice. After you have found a place that meets your needs you will still need to make on offer, secure financing, sign the practice sale agreement and lease, and complete the purchase. As you can see a lot of important factors go into this decision. Make sure you are being properly advised. Practice Advisors 360 is the nation’s leading dental advisory company. Contact us today at (844) 360-8360 or visit us online at practiceadvisors360.com