What every optometrist needs to know before purchasing a practice
Today’s optometrists face what can be a daunting financial challenge.
Many enter their profession saddled with debt — well into six figures, according to the American Optometric Association. And that’s not all. Those who want to purchase their own practice can expect to double, if not triple their debt load. Meanwhile, many have little or no extra cash to purchase equipment or other upgrades, much less fund the down payment on a loan.
The good news is your dream of owning your own practice is still within reach. Achieving that dream, however, takes a more strategic approach than it may have required in generations past. That strategy should include paying close attention to:
The practice’s cash flow. It is tempting for new optometrists to focus on the outward appearance of the practice they’d like to purchase — the condition of the equipment, furniture, computers and other assets that can be easily seen and evaluated. While those things are important, the parts of a practice that deserve the most scrutiny aren’t always visible, such as cash flow.
To understand that, you’ll have to examine the practice’s financial records, where you’ll learn valuable information: when and how customers pay and which procedures generate the greatest revenue, for example, income, expenses, overhead, collection rates and other data that show how money moves in and out of the practice are critical to understand as well. The reason is simple. Cash flow provides the funds needed to operate a practice and pay the debt associated with its purchase. The better you understand cash flow, the better you can plan for the peaks and valleys that virtually every practice experiences. If you don’t think of yourself as a financial person, make sure you have a trusted advisor who is.
The seller’s level of engagement. Not all optometrists have the foresight to retire when their practice is at its peak. Many only sell after they have begun to lose patients to younger, more marketing savvy practitioners. Some delay retirement because of financial missteps made earlier in their careers. While you may be able to negotiate a better price for these practices, you may also be purchasing somewhat “damaged” goods. That’s why it’s important to take the pulse of the practice’s overall health, both by talking to patients and staff and by reviewing financial records dating back five years or more so you can identify and assess trends.
The practice’s patient base. Information like client demographics can help you get a better handle on how a move to a different location or a marketing program to reach a different customer base might impact business and cash flow. It might also provide insights on tenant improvements to consider, as well as the number of patients you might reasonably gain or lose as you project into the future.
The practice’s procedures. Examine closely the procedures of the practice you are considering buying to make sure it is a good fit for you. As a buyer, you will want to know if you can at least match the revenue that the practice has recently generated. Requesting and reviewing The Procedure by Code Report should provide you a detailed understanding of the types of procedures performed.
Your financial advisor’s understanding of practice finances. Ordinarily, banks are reluctant to extend 100 percent plus financing to professionals who are short on business experience and long on financial needs. The good news is, banks that specialize in healthcare practice lending understand the obstacles younger optometrists face and offer invaluable solutions, such as lines of credit and flexible payment plans that provide the financial safety net many practices periodically need. That’s why you may want to think twice about working with lenders that assign you a toll-free phone number, rather than a knowledgeable, local banker, to handle your needs. Not only are local bankers able to tailor a financing program to fit your individual circumstances, they may offer ongoing financial advice, industry contacts and other benefits that save you time and money as well.
The bottom line. Buying a practice is like to putting together a giant jigsaw puzzle. It may seem overwhelming at first. But with persistence, planning and an understanding of what the big picture should look like, you can put your purchase in focus.