In 2019, 16.2% of optometrists were self-employed. As the owner of an optometry practice, the question of whether or not to sell your practice is one of the most difficult decisions you’re likely to face. If you decide to sell, you’ll need to carefully consider when and how to go about the sale process. Having a clear exit strategy will make this difficult transition period much smoother and easier on you, your finances, your employees, and your customers.
What are Valuation Formulas?
One of the first things to look at when thinking about selling your optometry practice is the current value of your practice and whether your business is growing or decreasing – because if and when you do sell, you want to make sure you receive the maximum value possible. Optometry practice valuations are absolutely crucial in order to understand your practice’s overall worth.
To begin, you can estimate the minimum value of your practice by adding up all your assets and subtracting your liabilities to come up with your equity. You’ll know your practice is growing if your equity is increasing every year.
Although you can certainly do some calculations and estimations on your own to inform your decision, it’s best practice to hire a professional valuation service to conduct a comprehensive valuation or appraisal of your practice.
What to Consider Before Selling an Optometry Practice
Of course, there are many factors to consider beyond just the value of your practice. First, you need to assess your personal goals. Do you want to continue working for the new owner of your practice or are you looking to retire completely? If you own the building, do you want to sell that as well? How much do you need to make from the sale in order to achieve your goals?
Second, consider the timing and timeline of the sale and how much preparation is needed. It’s recommended to start your exit strategy as early as possible, even up to five years in advance, to make sure you make the most of the sale and handle the transition for your employees and customers with utmost care. You will also want to think about whether now is the best time for you to sell. You may want to consider that the employment of optometrists is projected to grow 18 percent from 2016 to 2026, much faster than the average for all occupations.
Steps to Take in Selling Your Optometry Practice
If you come to the conclusion that now is the right time for you to sell your optometry practice, here are a few tips to make the process easier and more successful:
- Plan out the sale of your practice in advance. Smaller practices may only need to prepare for 1 or 2 years, while large practices with multiple partners involved may require 5 to 10 years.
- Maintain an up-to-date, itemized asset list.
- Properly label expenses for add-backs (discretionary expenses not fundamental to the continued operations of the practice) for the last three years.
- Pay for a professional practice appraisal about two months before you plan to put your practice on the market. This can make buyers more confident, as they tend to be skeptical about the valuations not conducted by a professional.
- Make capital investments to increase, or at the very least maintain, the value of your practice leading up to the sale, such as purchasing up-to-date equipment, making necessary repairs, and updating the office to make it look as good as possible.
- Consider hiring a practice broker to help you with the sale process, especially if you’re going to continue seeing patients while selling your practice or if you want to keep your plans confidential.
These are just a few of the many steps you will need to take to ensure a smooth and successful sale of your practice. That’s why we highly recommend working with an experienced consultant with specialized knowledge of the optometric field.
Special Considerations for Selling an Ophthalmology Practice
Most of the considerations and tips above apply to ophthalmologists as well as optometrists, but there are a few additional things to think about when it comes to selling an ophthalmology practice.
One key difference is that an ophthalmologist may own additional assets, such as an Ambulatory Surgical Center (ASC), whether in full or in part. One thing to consider is whether you want to sell these other assets at the same time as your practice. Generally, if you are the sole owner of an ASC, it is a good idea to sell it alongside your practice, as it will make the full package more attractive to the buyer. However, if you only own part of the ASC, you will have to deal with some complications and restrictions. You will need to reference your buy-sell agreement, talk to your partners, and explore your options.
Another thing to keep in mind is that ophthalmic practices tend to accumulate substantial “hard assets,” or tangible assets, compared to other types of practices. Many ophthalmic practices spend hundreds of thousands of dollars on equipment over the years. Although many practices take immediate Section 179 deductions for tax purposes, when selling an ophthalmic practice, it’s recommended that you follow modifications to book value and restate depreciation over an average lifespan of 8-12 years.
PECAA Resources for Selling an Optometry Practice
If you’re thinking of selling your optometric or ophthalmic practice and not yet a member of PECAA, consider joining to help ease the burden. PECAA offers members consulting to assist with the valuation and sale of their practice, as well as plenty of resources to guide you through each step of the sale process.
“Our practice has two locations. After working with our CFO, Tyler was able to do a full analysis of each location and let us know the value of each. In addition to completing our valuation, Tyler was able to provide valuable guidance related to various pivotal business decisions we have made over the years.“ – Cameran Drake, OD & Jenni Drake, OD | 3D Vision Eye Care
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