Retirement Reality – Exit Strategies
There are different reasons for selling a practice, and different exit strategies.
Reasons for Selling Your Practice
Sometimes you don’t have a choice:
• Illness, injury, or death (people resent being examined by a dead guy:)
• You must move from the area (for example, if your spouse gets a new job).
• You’re too old and physically and/or mentally unable to continue.
Sometimes you do have a choice:
• You’re burned out (if you read Part 1 then you know that’s me!).
• You realize your practice has “peaked” and will not substantially grow in value in the future (that’s me too!). In a sense you’ve squeezed “out” all the equity you’ll ever get.
Optometry Exit Strategies
Depending on your situation, there are three strategies you can use:
Sell and Leave. You sell the practice and walk away – no strings attached, and no more working at that practice. Obviously this is the best strategy if you cannot or do not want to continue working there. It also applies if the practice only supports one doctor. It assumes that you have sufficient money to retire; otherwise you would need to find another source of revenue – in optometry or another field.
Sell and Stay. If your practice is large enough, it is often desirable for the new owner to hire you as an associate on either a full or part-time basis. There must be sufficient cash flow to pay both doctors, and it is important for the seller to realize he is now a “hired hand” and gets paid fair market wages. The windfall came when you sold the practice – it’s now the new owner’s turn to take the profits.
Partial Sale. This is a partnership – the buyer purchases a percentage of the business (in an S Corp they buy shares of stock). If the seller wants to maintain some ownership and continue working, this is a great strategy. The junior partner now has a vested interest in the business and wants to see it grow. The senior partner is grooming a successor that can buy him out completely in the future – a great exit strategy.
Stay tuned……over the next few weeks, we’ll examine the pros and cons of each of those strategies.