How Early Do You Need to Plan Your Exit?

   11/16/2017

A practice owner pulled me aside at our most recent conference in Denver to start thinking of an exit plan.  I always ask two questions when these discussions come up:

“How long do you see yourself continuing to own your practice?”

“How is your retirement savings coming along?”

The OD in questions told me he was about ten years away from wanting to retire.  Which is… a little early to start planning in earnest.

On the other hand, at Vision Expo West this year I was on a panel with Dr. Gary Gerber who asks his cold start-up clients to think about their exit from ownership, so I guess it never is too early to plan.

Here are some key points I think every practice owner should have in mind when considering their exit.

How long does it take to sell?

Once a buyer is in place, it should really only take 6-12 months go arrange financing, go through due diligence, draw up papers and close on a practice sale.  But that is once a buyer is in place.

For most single-owner practices, the search for a buyer will need to start two to three years ahead of the owners intended retirement date.  At the moment, buyers are somewhat scarce on the ground, though that may change over the next several years.  For some owners though, just finding a buyer can take years.

What every owner should do now

Whatever your exit plan, and whenever you plan to exit, you should strive to make your practice as large, as efficient, as profitable, and as well-managed as you can.  Obviously, a practice that checks all these boxes will be worth more, but it will also be a practice you want to own for longer.

Even though practice values are going UP in some cases right now, in my view practices are still more valuable as annuities than as assets to be sold.

The second thing every owner needs to do is maximize the cash flow from their practices and build up wealth outside the practice.  The best situation to be in when you’re ready to retire is to be able to say “whatever I sell for is just a nice addition to my retirement fund”.

This does not mean you shouldn’t make prudent investments back into the practice.  But do make it a priority to take money out and build up your nest egg.

Closing Thoughts

You may have heard the phrase “every entrepreneurial business is built to sell”.  This is true up to a point.  But if you think of entrepreneurship, it’s all about building something no.  No offense to our more innovative practice owners, but a private optometric practice is better described as a professional services company than an entrepreneurial start-up.

Professional services companies tend to have bigger profit margins, but sell for lower multiples of earnings.  This is true of medical practices like optometry, dentistry and dermatology, but also for accounting firms, law firms and consultancies.  This is also why IDOC consultants recommend owners build practices that can provide passive income for the long haul.

Still, it’s never too soon to give some thought to your exit plan; every owner will eventually sell.  If you’re in a more rural area, you may need to offer equity to your associates early to ‘lock them in’ to your practice and obligate them to buy you out, even if you’re not ready to retire.  Practices with a larger pool of buyers may simply choose to maximize income for as long as possible.

Whatever your situation, know that I’m always available to give thoughts on the timing of your exit, a working value for your own retirement planning, or to think through ways to turn your practice into a cash cow that you want to own forever.  



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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.

    


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