Plants growing on piles of quarters

I received a revealing financial statement the other day. From a doctor who practiced as a phenomenally successful associate for many years. As with most Associates, the ownership motive was a large part of her career plan.

The adventure into practice ownership began about three years ago.

She was fortunate enough to be able to locate a property for sale which eliminated the landlord threat. There are too many providers in the immediate area, yet the practice is generating about $750,000 annually. That is about 20 to 30% more income than the average new startup at this early stage.

Data reveals that annual gross income for a three-year-old cold start is under $500,000. There will always be outliers and exceptions.

Let’s look at her financial journey:

  • The last year’s net income (as an Associate) was ~$301,000.
  • First year as an owner net income was ~$5,000.
  • Second year net income was ~$160,000.
  • Third year net income will be ~$225,000

And this is a success story for a three-year-old start up!

Let’s do the math:

  1. During the first three years of ownership her total net income will be ~$400,000.
  1. Had she remained a successful associate, her net income for the last three years would be over $900,000. More likely over $1 million!

What? That’s 60% MORE net income working as an associate versus an owner!

 Now let’s talk about the time invested to start and operate this new practice. I spoke about this in previous articles titled “Ownership Hours” and it is easy to invest 1,000 ‘sweat equity’ hours in the early years.

For this client, I estimate that she invested almost 2,000 hours of unpaid ownership hours. What could she have done with that time had she remained an associate?

Yes, if she were to sell the practice today there is some goodwill to be sold and that will be the return on investment in exchange for the ownership hours invested.

Pride of ownership has no price, and it cannot be appraised.

 Cash flow can be measured.

The law of diminishing returns suggests that goodwill will peak at some point and then because she is not cashing in and realizing the capital gain of the goodwill, each year she does not sell, the time-adjusted present value of her hours goes down.

Ask your accountant about this. If they do not understand, please ask me.

While she is above average and doing very well in my view, she is frustrated, and the economics of ownership are not working out for her.

The staff burden is enormous and that is why she called me the other day.

“Give it another two or three years” is what I suggested, but I do not think she will wait that long.

She is likely to sell the practice and keep the building to collect the rent and go back to being an associate.

They call it freedom from ownership.

No hassles, no staff problems, no landlords, no stress.

Ask yourself; is it better to be an owner or to be an associate?

Jackie Joachim, COO ROI Corp

JACKIE JOACHIM

Jackie has 30 years of experience in the industry as a former banker and now the Chief Operating Officer of ROI Corporation. Please contact her at Jackie.joachim@roicorp.com or 1-844-764-2020.


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“You have brains in your head. You have feet in your shoes. You can steer yourself any direction you choose. You’re on your own. And you know what you know. And YOU are the one who’ll decide where to go…” – Dr. Seuss, Oh, The Places You’ll Go!

Graduating is definitely the goal. So, with a fresh license in hand what is next?

Depending on your personal confidence, financial condition, family situation and other factors unique to you, there are a few options available. Will you work for a while for someone else? Buy an existing office? Or dare to open one from scratch?

As you embark on this exciting chapter of your life, I would like to assure you that ROI Corporation is here as a resource that you can count on. We have been working with healthcare providers since 1974 and we service clients across Canada. ROI  Corporation appraises and sells optical practices. We are happy to provide suggestions and answer to any questions you might have. As such, we would like to offer a little advice.

Don’t rush into anything:
If you decide working for someone else is the best option, it is important that you take a bit of time to
explore where you want to work geographically. If ownership is in your cards, you do not want to limit
yourself in the future because of the non-compete you sign today. Any owner of a practice will expect
you to sign a contract, which is reasonable, so make sure you do not impact your future decisions.

Consider opportunities outside urban areas:
Some of the best practices to buy are located outside of major cities. Most people buying always want
store-front, major cities and within an hour of where they presently live. Smaller towns boast
opportunities for practitioners as they enjoy a higher net profit, less competition and lower cost of living.

Be prepared:
If you are not experienced at owning a business, use the next 12-18 months to learn as much as you can
about entrepreneurship. Attend business seminars, focus on your communication skills and speak to
many accountants, bankers, brokers and lawyers to establish your key group of advisors.

All buyers are encouraged to register on our NLS (New Listing Service). By going to our website – www.roicorp.com,
and registering, you will be advised whenever there are new opportunities. Even if you are not ready to purchase, this will help you get familiar with key industry stats.

If you have any questions, feel free to personally contact me at jackie.joachim@roicorp.com. Always happy to help.
Good luck!!

 

Jackie Joachim, COO ROI Corp

JACKIE JOACHIM

Jackie has 30 years of experience in the industry as a former banker and now the Chief Operating Officer of ROI Corporation. Please contact her at Jackie.joachim@roicorp.com or 1-844-764-2020.


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