Your Corporate Practice Value
As baby boomers get ready to slow down and retire, I have been getting an increasing number of requests from OD’s who have practiced in retail settings to appraise their practices and help them with their exit strategy. What I have come to realize is that the retail optometry world is a whole different ballgame when it comes to retirement.
The Lease Is The Key
It’s all about the lease: Typically, the OD is leasing space next door to a retail optical. As long as the OD is producing eyeglass scripts, everyone is happy. Every lease is different, and should be reviewed carefully when planning your exit strategy.
- Is the lease transferable?
- If so, are the terms the same?
- Let’s say, for example, the seller has worked five days, but a new buyer wants to work three days a week. Will the landlord/retailer allow that? Is it even negotiable?
- Before you get too far, make sure you understand the terms of your lease; consult an attorney when in doubt.
- Who owns the equipment? Very often, management provides the basic lane. Many times, extra diagnostic instrumentation is purchased by the practicing optometrist. Clearly, this instrumentation has value, and can be sold to a buyer, or on the open market.
Ophthalmic equipment distributors are more than happy to provide a fair market value of equipment, and many times can even match you with a buyer for the equipment.
No Marketing, Lower Expenses, Good Bottom Line
The (un)importance of cash flow: As my previous blogs have hammered home – cash is king! But not so fast – things are different with commercial practices. The attraction of corporate optometry is that the retail optical directs patients to the OD for eye exams. Marketing is largely left up to the retailer, and the better the location, the busier the OD.
Along with an easy stream of patients, the overhead is low – significantly less than that of a private practice. Phone, computer access, staff expense, occupancy costs – all are lower, which results in great cash flow. While there is no published data, my experience has been that net profit for corporate offices can easily be 60% – 80%, compared to 30% for private practices.
The Intangible Asset: Goodwill
Where’s the goodwill? The purchase of professional practices include equipment, inventory, and goodwill. Goodwill is an intangible asset. The goodwill a buyer purchases assures him of continuation of future profits. When a buyer takes over a private practice, the goodwill is buying the current stream of patients, charts, and income. But what about a corporate office? I contend it is completely different. The goodwill is not the doctor’s office, but rather the optical. Like it or not, if the original doctor moves out and takes his charts, another doctor can easily step in and hardly miss a beat.
The Bottom Line On Goodwill
The bottom line: Despite great cash flow, corporate practices typically have very little goodwill value. In my experience, most owners are happy if they can get fair market value for the equipment, and basically give the charts to the buyer. The best strategy for corporate OD’s is to enjoy their profits while they can, and invest wisely to build a good retirement fund, realizing there will be very little on the “back end” when they are ready to retire.
If you want to discuss your situation, please schedule a call.