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Three Questions to Ask BEFORE You Sell Your Practice

02/26/2020

“I’m thinking of selling my practice.”

“Should I sell my practice now while prices are at all-time highs? How long does the private equity phenomenon last?”

Practice owners often focus on market trends in the pricing of practices when deciding when and whether to sell. Let me suggest three questions that can frame a more holistic approach to deciding when and whether to sell.

Question 1: Is my practice ready to sell?

The value of any business is driven by two factors: the cash flow the practice generates today and the probability that a third party can expect those cash flows to be sustained or grown in the future. The more transferrable your practice is, the more valuable it is. The risk around transferability is what drives the multiple applied to a practice’s earnings.

If your practice can’t easily be transferred – if it completely depends on you for everything, if it’s patients aren’t loyal, if it isn’t currently providing sufficient cash flow to pay back a purchase loan and still pay a new owner a reasonable wage – it’s possible there won’t be any market for your practice, that you won’t find a buyer.

But remember this, the less your practice depends on you, the more valuable it will be. As it happens, the less your practice depends on you, the more profitable and enjoyable it will be for you to own, as well. What’s good for your practice at the time of sale is good for your practice today. This is why there’s a burden to continually grow and improve your practice.

Question 2: Am I financially ready?

A question very few owners investigate ahead of selling is: what do I actually need to have saved in order to retire? Do you know what your household spending is today? What will your budget be going into retirement? You owe it to yourself and your family to work with a financial planner to KNOW your needs for retirement.

Once you know your retirement spending, your financial advisor can help you set a savings target. For most practice owners, your practice is a major part of your retirement. Knowing your savings target helps you assess whether to sell and how you need to change your practice in order to hit your target.

When it comes to big offers from private equity, this can be one factor in deciding to ‘take the money and run’, but it may also mean you decide to hold onto your income-producing asset (the practice) longer so that you can continue to build your savings.

Question 3: Am I personally ready?

This is a question that most owners think they can answer, but I wonder how many have really thought it through. Most owners who are close to selling their practices have had OPTOMETRIST and OWNER as a core part of their identity for decades. How are you going to fill your days if you’re no longer seeing patients? If you work for your seller, how is it going to feel to see them change the practice?

If you’re thinking of selling young, make sure you have a clear plan of what comes next. As a friend of my once said when he was 68-years-young: “Look, I can only play so much golf. My wife only likes me so much. What else am I going to do but own this practice and continue to see patients two days per week.”

Selling your practice is a momentous decision. Use these three questions, which are the core framework of IDOC Navigation Services, to give process to your decision making. And do call and let us help you think through this and other key decisions you face as owners.

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AUTHOR

IDOC Optometry - Color Bar
Nathan Hayes

Nathan Hayes

Nathan serves as IDOC’s Practice Finance Consultant and developed the unique 3-Year Growth Plan, as a benchmarking, planning and decision-making tool for ODs. He also writes and lectures on various practice management topics. Nathan graduated from Vanderbilt University in three years, with a degree in Spanish and a minor in mathematics. After graduating, he spent a year working abroad. During that time, he worked for two firms in San Jose, Costa Rica. He interned with Grupo Juridico de San Jose, working in environmental policy to protect a threatened parcel of land, then he worked as a project manager for a US-owned precision machining shop, Olympic Precision Machining. Nathan then spent 6 months working with street children and orphans in Mexico. Before getting into the healthcare industry, he was an Assistant Store Manager and completed the Corporate Training Program with Haverty's Furniture Company in Atlanta, GA. Nathan serves on the advisory board for the Hayes Center for Practice Excellence at the Southern College of Optometry.