Roadmap to Success: Starting Your Independent Practice

Editor’s Note:

 

This article is the first in a series to explore the process of buying an optometric practice. Along the way, we will introduce you to various subject matter experts, but we also want to hear from you, based on your own experiences. Whether you are in acquisition mode, exit mode or somewhere in between and have valuable advice to share with Jane and Steven, we’d like to hear form you.

Scroll down to the end of the article to view and add your comments.

Life is all about the milestones. Whether it involves physical or emotional growth, professional or personal endeavors, each of us are defined by the achievements, decisions and experiences that have led us to the present moment. Individual milestones will always vary, but for those of us in the eye care industry, there are a few standard benchmarks we can use to help us track our career progression and personal development throughout our lifetime as specialized health professionals.

Here’s a case study to help us visualize the career path a little better: Jane and Steven Buchan are a married couple and are both licensed optometrists. They graduated together with doctor of optometry (OD) degrees back in 2012, and have spent the last 4 years working as associates for a number of different practices, making a joint gross income of $190,000 per year. They also have a total outstanding debt of $120,000 from student loans which they hope to have paid off completely within the next 5 years.

Both of them have decided that they are ready to take the next step forward in their careers by purchasing an independent eye care practice which they can co-manage as partners. They have no children or other dependents, so it’s the perfect time to take a little professional risk – especially one like this with large potential pay-offs for career advancement and profitability. After several months of scouring through neighbourhoods, ads and websites across the province, Jane and Steven find what they believe is the door to their next chapter. What do they do next? Here are five important pre-purchase activities that they need to devote themselves to before taking the plunge:

Pick Your Experts

Jane and Steven have little to no experience evaluating, purchasing and establishing an eyecare practice from the ground up. It is important for them to find experienced and well-informed professionals who can help them through the process and make sure that all the nitty gritty details are accounted for and incorporated into their business plan and decisions along the way. They will need a lawyer and an accountant, preferably with direct experience in optometric practices. The accountant should be able to help them value the target practice, help forecast current and future expenses, and build a solid yet flexible financing plan that will also help pay for a little peace of mind. The lawyer can similarly help appraise the practice, and offer an additional take on the administrative and legal obligations that come into play when purchasing such an asset. Of course, the final Purchase Agreement, is a legal document that requires a full review. They may also come across a licensed business broker representing prospective sellers. As the Buchans progress further along their pre-purchase checklist, they will look to these allies to help answer some of their toughest questions and decisions moving forward.

Plan for the Business

Jane and Steven’s goal – like every other specialist who decides to establish an independent clinic – is to develop a stable, rewarding and profitable practice. That goal, however, needs to be translated into quantifiable metrics that they will be able to monitor and adjust over the course of the next few years as they improve their business acumen, adapt to suit their clients’ needs, and satisfy their own work-life balance and earning requirements. The business plan will also touch upon many aspects of the remaining four preparatory steps, and it is best used as a detailed game plan that re-calibrates and synchronizes itself with the future successes and failures of your new business.

Do the Math

The biggest chunk of the Buchan business plan should be dedicated to crunching the numbers and figuring out how much they can invest in their business, while still meeting other financial goals and maintaining a suitable quality of life. This is the step that gives them the a clearer yes/no picture on the purchase and it also lets them know how much wiggle room they have to make it better before it has even begun. Comprehensive and accurate financial forecasting will give them much of the direction they need for all the big decisions that are yet to come: What other fees need to be paid for before this transaction can be finalized? What should be paid off first? How much staff can they afford to hire? Should they upgrade the space or the equipment? It’s at this stage that they must ask themselves what price they are willing to pay to get what they want.

Raise the Funds

Once the Buchans have a solid idea of how much capital is needed to set the business up and how much extra they will need at regular intervals to keep it running, the next task will be to go out and find creative ways to raise that money. Many big banks offer special funding and financing options for professionals in the eye care industry, and other funding options can certainly be found through third-party lending agencies and even through the property seller. Additional funding options for equipment will also be explored, and we will tune in as they weigh the pros and cons of leasing versus buying equipment, keeping in mind that many pieces of technology can become significantly outdated and even obsolete in as little as three years.

Acquire the Talent

With many of the fixed business expenses accounted for in the previous stages, Jane and Steven would also need to find good people to assist them in the daily operation of the clinic and work with them as they continue to build this new practice. The biggest consideration for hiring, whether they are accepting applications for new staff, or taking on the existing manpower from the clinic’s previous owner, is the budget that they have set aside during the accounting phase for their human resources needs. This includes the obvious salary, benefits and possible employee discounts, but it should also make considerations for employment laws and tax obligations. In order to get the best possible picture of the legal and financial implications of their staffing needs, they should consult their legal counsel. Stay tuned for future articles as we accompany the Buchans on their insightful journey towards envisioning and building the practice of their dreams.

Here is information about the practice that have Jane and Steven excited. They made a few inquiries and attained a summary Income statement from a broker representing the seller (after signing a non-disclosure agreement). Click to view: Doctor EyeCare Optometry Income Statement
We’d like to hear from you:

 

 

  1. What advice do you have for the Buchans?
  2. What more information should they ask about?
  3. Is this a good practice for them to consider?
  4. What do you recommend they do next ?

Post your advice in the “Leave a Reply” box below.

LYANNE AUGUILAR

Lyanne Aguilar is a Toronto-based writer who specializes in finance and healthcare-related content, both in English and French


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16 thoughts on “Roadmap to Success: Starting Your Independent Practice

  1. They should find out what growth potential there is for them.

    How long in practice?
    Typical age of the patient?
    How many days the OD worked and how many patients per hour they saw?
    Price point of frame and lenses and price models? i.e. are the current patients used to a highend model or a budget 2for1 model

    I would take a look at the opticals and Optometry offices in the area…how will you compete?

  2. As someone who would eventually want to purchase their own clinic I do find it is a good idea for them to start looking to invest while they have less obligations (ie no children in the picture). The next step would be to find a mentor who can guide them (someone who has experience with purchasing eye care facilities). Then I would as mentioned above start looking into good accountants and lawyers for further advice. Important information about the property they are interested would be location, previous owners (how was the business runed), the type of clientele the clinic has …

  3. Great comments Michael. You brought a few things up that I didn’t think of – namely average sale price per pair of glasses.

  4. They should consider their buy-in/out options with focus on how/whether the prior owner will transition out of the practice.
    If the outgoing doctor is heavily involved in the community or has a strong/loyal patient base (both pluses for the value of the practice), it could be critical to the success of the practice to maintain access to the outgoing doctor for a period of transition to maintain the goodwill in the practice.

  5. Thanks Curtis – I agree if the previous doctor wants to work part time that might be a good idea. The purchasers are two OD’s and I am sure they both want to get in their as quickly as possible, but you are correct don’t discount the goodwill of the selling OD in the eyes of the patients.

  6. A few next steps would be:-
    1. Use the resources of your Provincial Association.
    2. Network locally with fellow optometrists, ophthalmologists, allied health professionals and community organisations from whom valuable new referrals will come.
    3.Contact the local small business bureau or enterprise centre to create your own website and become familiar with social media marketing or if finances allow, pay for these services from companies who have knowledge of Optometry.

  7. Hi Louise, thanks for reading it over and for your comments. As past president of OAO, I appreciate your shout out to provincial associations. They typically have lots of resources for optometrists young or old. At OAO we started a mentor program that has been HUGELY successful that links ODs in year 1 – 5 of practice with a “seasoned” OD. Both parties in this scenario have benefited tremendously. Couldn’t agree more with your comment on digital marketing. That is your new “storefront”.

  8. Two of the biggest factors influencing profitability of a practice is lease and staffing expenses.
    As far as a lease goes, they should evaluate the location and the lease options including what is happening in the neighbourhood. Do they want to stay in the neighbourhood, expand? What are the terms of the lease? Is the landlord easy to deal with? A move can be quite expensive.
    As far as staffing, they may want to write into a contract that all staff are let go and then have to re apply with a clear list of expectations. You don’t want to take on a retired professionals staff who are just putting in their time.

  9. They need to establish their mission statement for their business and decide whether the type of Optometry they want to practice suits the area they have chosen.
    Invest in some basic accounting and management courses.
    Finding the right people is fine but you need to understand how to manage your human resources. This is an skill that is often sadly lacking amongst medical professionals.

  10. Having gone through this myself I think the hardest part is getting an accurate view of the practice now, the cash flow. If you can get very clear numbers then it very easy for a good accountant/lawyer to figure out how much you can pay for it, and how much income to expect. They must insist on getting very precise numbers from the current owners about any debts for equipment or with vendors, about past years’ cash flow, and about any upcoming expenses. They also need to get detailed numbers on current staff costs. I would go so far as to call the top 3-4 vendors and inquire about current billing and any debt owed to any vendor, or any agreements that the current owner has with any vendor.

  11. All great and important things to consider and evaluate. I’m surprised (shouldn’t be because no one ever encouraged me to do this) that no one recommends the couple sit with their financial planner to crunch all the figures and review overall financial impact on the household. And don’t forget insurance (all kinds). As for personal insurance (income protection, life) it is nicer to have solid past earnings to set those up and justify figures. Also, avoid creditor insurance-personally owned/business owned is always a far method route.

  12. If the purchasers of the new practice assume the patients that they saw as an associate would follow them to the new location they should consider the reality that most will not. Also if their associate agreement has legal restrictions on this it should be considered especially if they take the data base information from their previous practices.
    Another safer option would be to purchase a practice in another city while they maintain associate positions at other offices ensuring a steady stream of income for all the unexpected expenses and paying for all those expensive professional advisors who can drag out negotiations and complicate transactions for their own benefit.
    Owning your own building in the best location would be my number one recommendation.

  13. Location, Location, Location!!!

    As Captain Bob says working as an associate builds up their reputation not your own. Even if in another town do not work for a chain. Owning your own office is a smart idea if and only if you can keep the two hats of landlord and tenant separate.

    The other thing is start your practice asap. I have seen ODs procrastinate for 10 years before starting.

    Finally accountants and lawyers are advisors. I have seen them mess up practices as badly as the optometrists working without them.

  14. Great article. I would share an insight about purpose and profit. The article reports their stated goal as; “Jane and Steven’s goal – like every other specialist who decides to establish an independent clinic – is to develop a stable, rewarding and profitable practice.” Profits are a result of achieving one’s purpose. Let me repeat that. Profits ARE NOT A GOAL. Don’t believe me? Here is what Simon Sinek has to say on this topic. “And by “why” I don’t mean “to make a profit.” That’s a result. It’s always a result. By “why,” I mean: What’s your purpose? What’s your cause? What’s your belief? Why does your organization exist? Why do you get out of bed in the morning? And why should anyone care?”
    The reality I’ve seen in over 37 years of practice and consulting is that Sinek is correct. Knowing why you want to own a practice is far more important than what you do as I have seen many paths to success. That being said, demographics matter, your passion matters, and your EQ matters much more than any formula or business plan. And most important, execution matters.

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