Your Exit Strategy: Selling an Optometry Practice
It’s never to early to plan your exit strategy.
2015 has been a phenomenal year for mergers and acquisitions, with statistics showing an unprecedented number of M&A transactions across a variety of industries. Our economy has long recovered from the 2009 recession as banks loosen up their lending restrictions, more buyers continue to enter the market looking to invest. First-time entrepreneurs have more resources to follow their dreams and businesses owners are taking advantage of this prosperous financial climate to expand their empires.
While using M&A as a growth strategy is not a new concept, it gives business owners in niche markets new opportunities. Certain industries that require extensive certification or are heavily regulated may be difficult to buy or sell and M&A provides creative solutions to certain roadblocks. One industry in particular that is faced with this challenge is optometry. Optometrists diagnose, correct and treat eye conditions, perform routine eye exams and sell lenses but in order to own a firm, you must hold various state licenses that can take years to obtain. As optometrists begin to reach retirement age, the time to begin planning an exit strategy is now.
Other than a limited pool of buyers, the optometry industry is very secure and profitable. Aging baby boomers have created an increased demand and fewer millennial optometrists entering the field have decreased supply. Larger franchises are failing and consumers are returning to Mom and pop’ eye care centers for their needs. Most practices see around 8.1% in profit margins and predict 5% growth every year until 2019. This $6 billion dollar industry is great to be in, just challenging to leave. The first step to planning your exit is finding out how much your optometry practice is worth. Only a professional business broker can tell you the true value of your practice, but these formulas can show you what factors really matter when calculating value.
- 50%-65% of annual revenues includes inventory
- 2x SDE includes inventory
- 2-2.5x EBIT, 2-3x EBITDA
- Lease transferability
Naturally, you will want to do everything you can to ensure your business secures the highest multiple and ultimately, the best sales price. If you are thinking of selling your optometry practice within the next 2-4 years, you will want to begin making these changes to ensure your business sells quickly and for its full value.
In most cases, we recommend business owners begin planning their exit strategy 6-12 months in advance but for optometrists, we suggest 2-4 years. Due to the limited buyer pool, you will want to give yourself more time to prepare and market rather than wait until you are burned out and ready to retire. Financials also play a significant role in selling a business and in the optometry industry, the previous 3 years really count. By planning at least 3 years ahead, you can ensure your financials are on point by giving yourself ample time to ramp up marketing or extend your hours. During the planning stages, we also recommend getting annual valuations to see if the value of your optometry practice is on track with where you need to be to live comfortably after the sale. Giving yourself a generous amount of time to plan, you are not only building value within your business but also laying the groundwork for a smoother transaction.
Reputation is huge in the optometry field. Most people won’t let just anyone near their eyes and oftentimes, people resort to trusted friends and family for eye care references. Reputation is part of goodwill, which is heavily weighted during the valuation process, more so in this industry than in others. The best way to build a good reputation is to create consistent brand awareness, retain your staff, provide excellent customer service and launch a robust marketing campaign. Optometry practices have much to gain through SEO, pay per click, and social media, but the real treasure lies in a robust website and advertising customer reviews. Consumers are using the web to source everything from landscapers to Chinese food, so make sure you have a presence and some good reviews online. Retaining your staff will also help build your reputation as satisfied clients will refer their friends to your optometrists. Building a reputation takes time, and by having good credit in your community will increase the value and appeal of your practice with potential buyers.
Current equipment is probably more important in medical-related fields than any other. Nobody wants someone working on their eyes with instruments from 1993 and buyers won’t want to swap out all the equipment immediately after buying the business. It is in the seller’s best interest to keep current, up-to-date equipment and use the most sophisticated tools for procedures. As you can see in the formulas above, your inventory cis included in the SDE, which buyers will be looking at very closely. Consistently replacing medical equipment is not cheap, but it will build your reputation, attract buyers, raise your sales price and come back to you after the sale of your business.
Electronic Record System
Having an electronic record system will not only add to your goodwill and give your business an edge with buyers, but it will also help you better manage your business prior to the sale. Electronic record systems allow you to run reports such as revenues and AR/AP and they can also help you keep track of your clients and stay on top of scheduling consistent visits. Optometrists often waste time and energy using antiquated systems for managing patient care; a newer, electronic system can free up your time to get more clients through your doors and organize your financials in a way that translates into buyers.
If you have been contemplating selling your optometry practice, the time to act is now. The optometry industry is forecasting a stable future with steady growth for the next few years, giving you time to prepare and plan for your future. As mentioned before, we recommend starting the sales planning process 2-4 years prior to when you actually want to exit and the first thing optometry practice owners should do is meet with a professional business intermediary. Intermediaries can help you plan a timeline and show you how much your business needs to sell for so that you can maintain the lifestyle you are used to. Even if you aren’t thinking of selling quite yet, every business owner should know the value of their business and we can tell you with a no-cost, no-obligation valuation. As a business owner, it’s important to always have a plan for the future of your business and succession planning is no different.