Dental and Medical Counsel Blog

Things to Consider When Purchasing an Optometry Practice, Part I

October 7, 2020
Purchasing an Optometry Practice - Optometry Law

If you are an associate at an optometry practice, or if you have been in practice but want to move to a different location, you may be considering purchasing an optometry practice. Purchasing a practice can be a faster and easier approach than starting your own practice from the ground up.

Purchasing an already ongoing practice offers some of the following advantages.

  • You will have a steady stream of patients from your first day in your new office.
  • Start-up costs are less than if you begin your own practice.
  • Depending on the terms of the purchase, you should begin your first day with knowledgeable staff who are already trained.
  • You should have an immediate cash flow.

The downside is that purchasing an optometry practice is not as easy as purchasing a home or office building where you just make an offer, it is accepted, and you obtain a bank loan to pay for it. You must take the time, 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.

Some specific topics relevant to purchasing an optometry practice will be discussed in a two-part blog.

Part one will cover:

  • Choosing a location.
  • Making a complete purchase versus a partial one.
  • How to value the practice.

Part two will focus on:

  • Why seek the assistance of an advisory team.
  • The transition process.

Location

Real estate agents are known for saying that the most important three considerations when purchasing real property are “location, location, location.” The same adage is true for buying an optometry practice. Some initial considerations for you to consider are:

  • Where do you want to live and practice? Do you want to live in a big city, the suburbs, or a rural area?
  • After you decide on a general area, check on the cost of real estate and the overall cost of living? Is the market saturated with optometrists or is there a need for more? Is it a growing community so you can expect to grow the practice?
  • What are the demographics? Is it a growing or retiring community? Is it stable? Is it 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

There are options for purchasing an optometry practice. When you pursue websites that list optometry practices across the nation, you will see listings for the purchase of an entire practice or just a partial one. There are advantages and disadvantages to each.

Complete Purchase. This is just what it sounds like. An optometrist lists his or her entire practice for sale at a specific price. You make an offer. The two of you negotiate and come to a purchase agreement, and you find funding to pay for the practice.

When the deal is complete and escrow closes, you are the proud new 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.

Partial Purchase. Again, this is almost self-explanatory. It is easier to get a loan for this type of purchase because it does not cost as much money. You negotiate with the current owner of the practice and purchase a percentage of the practice. Your costs and cash flow for the practice will depend on the percentage of it 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.

Practice Valuation

Before you can determine if the asking price for the optometry practice is reasonable, and what would be an appropriate counteroffer, you must determine the value of the practice. There are three main approaches to valuation:

Income. An income-based valuation focuses on an evaluation of the cash flow of the practice and the past earnings. This makes it possible to predict what the future income will 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.

Asset. Assets are tangible and intangible. Tangible ones are you can see and touch, like all fixtures, ophthalmic equipment, frame and contact lens inventory, the land, the building, the fixtures, and lessee-owned leasehold improvements.

Intangible assets are the goodwill of the practice; 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.

Market Value. This compares the transactions and characteristics of the practice you are considering purchasing with other similar practices. This approach is generally not the best one to use for valuing an optometry practice since there likely will not be many 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. The appraiser of the optometry practice should be one who is experienced in health care appraising. General appraisers 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.

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 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.

To continue reading about how to purchase an optometry practice, read: Things to Consider When Purchasing an Optometry Practice, Part II.

Meanwhile, at Dental & Medical Counsel, we offer a complimentary consultation. We have helped optometrists, dentists, veterinarians, and other healthcare practitioners across the country with their practice purchases. 

Need Help with Your Practice Purchase? Contact Us Today for a Complimentary  Consultation!

Img

Subscribe to Our Blog

Stay updated with industry news!