Dental and Medical Counsel Blog

10 Ways to Increase the Pre-Sale Value of Your Optometry Practice

July 2, 2022
optometrist

Selling your optometry practice takes more than just looking for buyers once you have made the decision to sell. To get top dollar for your practice, you need to plan for the sale, have an expert place a value on it, and make suggested improvements.

At Dental & Medical Counsel, we have years of experience assisting optometrists with selling their optometry practice. We suggest that the question you should be asking is, “What can I do so a potential buyer will not see the purchase of the practice as a high risk.”

Hopefully, you can plan for 1-2 years before placing your practice on the market if you are a sole practitioner. A longer planning time is often required for practices involving multiple partners.

When you have decided that you are for sure selling your optometry practice, the first step to take is to have your practice valued. You can get a rough idea of the value by adding up your assets and subtracting your liabilities. This gives you the minimum value of your business and tells you pretty much what your equity in the practice is. This does not consider your goodwill and your client base.

Having a neutral third-party professional do an optometry practice valuation or appraisal will give you a clearer picture of what a potential buyer, who will likely have their own professional value of `the practice, will see.

If the value is greater than what you expected, you are in good shape. Put the practice on the market.

If the value is lower than what you expected, you can either lower your expectations or take action to improve the value before you put it on the market. Remain realistic about the value of the practice. We have some tips for actions you can take during this time that may help.

10 Tips for Increasing the Presale Value of Your Optometry Practice 

1) Grow your revenue. Often, optometrists have their optometry practice for sale because they want to retire. They have already cut back on their practice time as they wind down. So, by the time they are ready to actually sell, the revenue is not so good.

Buyers will ask for two to three years of tax returns. When they evaluate them, they will see that instead of growing, the practice is declining. This can look like a red flag to the optometrist who is buying the practice, and like it comes with an increased risk.

Take some time to rebuild your patient base and spend more time in the practice. It will pay off when the revenue increases and in turn, the value of your practice increases.

2) Reduce your accounts receivable. A high number of accounts receivable is a red flag to a buyer. You must have a consistent billing and collection system. Follow-up with patients for payment. You may even consider outsourcing your billing which generally increases collections.

If you have not already done so, consider instituting a policy that glasses or contact lenses will be dispensed only when the patient’s account is paid in full.

3) Identify and clarify your add-backs. Your practice is valued according to a formula referred to as EBIDTA which means:

  • Earnings before interest (EBI)
  • Depreciation (D)
  • Taxes (T)
  • Amortization (A)

Your optometry practice will have a multiple that applies to your practice earnings before EBIDTA. If you have ongoing expenses that won’t be included in your cash flow after the transaction, the expenses are called add-backs. You can identify those expenses and add them back to the pre-EBIDTA tally. This process is used primarily to show the correct value of the business, it will result in an increased value of the practice over what it will be valued at without the add-backs.

Some common add-backs include:

  • Discretionary expenses such as compensation for club dues, continuing education, business travel, business meals, etc.
  • Non-recurring expenses, which means what it sounds like it means. They are expenses that were incurred one time and are unlikely to reoccur, such as legal fees, technology upgrades, and relocation expenses.
  • Market value adjustments. You may have been paying yourself a salary over and above what is the market value for an optometrist. You may have been paying too much for rent. Adjustments to bring these expenses back to market value are add-backs.
  • Inventory adjustments. In one year, you may have substantially increased inventory to a degree that will not be repeated. The excessive inventory expense may be an add back.

4) Maintain an up-to-date itemized asset list. This essentially speaks for itself. Your practice assets are one item that affects the value of your business. If you keep your list updated, you will not have to scrounge through documents trying to create a list when it comes time for the valuation.

5) Make capital investments designed to increase the value. This may be as simple as replacing outdated equipment with up-to-date items. If there are needed repairs, make them. When real estate agents want to quickly sell a home, they often “stage” it to make it look inviting and comfortable. Consider staging your practice. Update your office, including your waiting area. Make everything look as good as possible.

6) Hire a practice broker. Having the help of an experienced broker who can find potential buyers for an optometry practice for sale, can assist you in many ways. The broker can help you determine the changes you need to make to increase the value of the practice. The broker can also help you sell the practice while you continue to see patients.

7) Negotiate better prices for your inventory. You may just need to review the prices of other vendors of glasses frames and contact lenses than the ones you commonly use. Compare prices and service reliability. Don't be afraid to negotiate with your current vendor.

8) Cut down overhead. If you have been wanting to retire for some time or have just been too busy to pay attention, there may be some ways to cut back on your overhead while still maintaining a thriving practice. You may want to hire a professional to look at your accounting books to see where you can make changes.

9) Reduce debt. The higher the debt of the practice, the lower its value. See if you can pay off credit cards. Perhaps you can get a line of credit at the bank instead of using charge cards. If so, negotiate for the best deal possible for interest rates.

10) Maintain a strong inventory. A first impression is important. Patients like to see a good selection of frames even before they have your services. The inventory should appeal to your patient base and reflect current fashions and styles. If your selection is outdated or unappealing, patients will leave.

The weakness of your inventory, which may cause patients to leave your practice and go somewhere else for their glass or contact lenses also reduces the overall value of your optometry practice.

Contact Dental & Medical Counsel

For assistance with the sale of your optometry practice, especially if you are just beginning to think about selling, contact us at Dental & Medical Counsel. We offer a complimentary consultation where we discuss with you your plans and let you know how we can help.

At Dental and Medical Counsel, we are proud to be one of the most trusted law firms that optometrists use when they are buying an optometry practice. When you are ready to learn more, the optometry attorney team at Dental and Medical Counsel is available to help. Contact us to set up a complimentary consultation with, award-winning attorney, Ali Oromchian.

Get in touch with us for a complimentary Consultation

At Dental & Medical Counsel, PC, we understand optometrists have trouble navigating the legal process. We believe every optometrist deserves the best advice and service so doctors can do what they do best, treat their patients. We make optometrists' lives easier by providing expert guidance, so they can focus on their personal and professional aspirations.

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