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The Great Escape

Melanie Kell | 29 May 2017
This might sound ridiculous. It might make you laugh… but if you’re in the process of buying into an optometry practice, now’s the time to think about how you’re going to get out.

It’s not uncommon. Optometrists invest in a practice, accelerate their efforts to build up their business, hit the straights and enjoy a number of years of relatively consistent profitability. Then they tire and ease off before finally deciding to sell… or they simply close their doors.

What has provided a sound income, put the kids through private school, paid off the mortgage and afforded a few great holidays, leaves them with little for the future.

Yet with forward planning (and a good burst of effort), it’s absolutely possible to sell your practice when its running hot, spend a few years easing back, then exit with a healthy nest-egg.

Simon Lewis, General Manager of Eyecare Plus says it’s important to put a succession plan in place earlier rather than later. “There’s a generation of practitioners out there in the 55-60 year age group and the problem is that many of them haven’t thought about their succession plan soon enough.

“They don’t necessarily want to give their businesses up but they do want to reduce the time they’re working in the practice. If they can work three or four days a week, they will happily transition to a younger owner. But there are risks that come with doing so – to take another optometrist into the practice may require an investment in new equipment and there’s an extra salary to pay so it will be necessary to find more patients to cover costs. Then they have to think about transitioning existing patients to the new optometrist, and although that’s easy to do if you selectively choose your patients, it can feel overwhelming. 

“So in the meantime, while they’re thinking all of this through, perhaps they’re losing interest and energy, they let the quality of their stock slide and they don’t necessarily monitor new patient KPIs to ensure patients who’ve moved on or passed away are been replaced. All of a sudden the value of the practice has declined and the outlook for selling is not so positive.” 

Maximise Your Options

Steven Johnston, Chief Executive Officer of ProVision, says planning early will maximise your options. “Planning for success goes hand in glove with planning for retirement,” said Mr. Johnston. “The best outcomes usually emanate from planning that starts years ahead and we believe that there is some truth in the theory that you should start to plan for your retirement the day that you purchase your business or open your doors for the first time… What you don’t want is to be suddenly nudging retirement without plans and find it is too late to consider some of the options available. If you have not thought about it already, then start today,” he said.

Preparing for the unexpected is also important, says Paul Sheehan from Headware P/L. “Things may happen that are out of your control and they can add pressure to the sales process. You may find that for all your best intentions, you have to sell or transition out faster than you thought because of family, health, competitive or financial reasons. If you’re not at the top of your game, if you’re not able to keep your retail space up to date or invest in new equipment, you may lose money in the sales process.”

Mark Overton, principal of Ideology Consulting has helped many optometrists who are planning their exit strategy to structure their practice for sale, find a buyer and negotiate the entire process.

“It doesn’t matter whether you’re an independent, a franchisee or you’re part of a buying group, you need a succession plan, which generally is a long process. You will need to ensure that when it comes time to move on, your practice is going to be attractive to someone, and that may require time. Pay attention to the quality of your practice management systems, financial trends and key performance indicators. Stock levels, financial records and the remaining lease on the premises will also be considered by a prospective purchaser.

“Your practice has to be a profitable investment for the buyer or it needs to have plenty of obvious potential to make it better (and preferably both). Sometimes, and in particular in regional areas, it’s not just about practice quality. Not everyone wants to work in the country or in a particular part of the country, and finding the optometrist who does might take quite a while.”

While it may sound counter intuitive, Mr. Overton said one way to increase your options is to purchase an additional practice or join forces with other practices. “Teaming up with other optometrists to create a small group of practices may enable you to put on an experienced optometrist or a new grad who can be shared among practices without undue financial pressure. This will give you opportunities to reduce the number of days you work and may also be the potential buyer you’re looking for. It could also create other operational benefits for managing leave, staffing, purchasing and even marketing.”

Models for Succession

Pete Haydon, Chief Executive Officer of Optometry Victoria says there are a lot of options for succession planning – from partnerships to trade sales; from buy outs to a range of transitional continued ownership structures.

“It’s important to be aware of all the options and to realise that one size does not fit all, so we provide our members with a lot of advice. We talk to highly experienced optometrists about what the best models for succession planning might be for them and we talk to members in their first ten years of practice to get them thinking about what they might do. We recently ran a ‘Be Your Own Boss’ seminar, which was driven by our early career group in Victoria. Sixty younger optometrists turned up, which is a solid indication of their interest in buying into practices. Our next companion seminar, on 15 June will focus on retirement and succession planning and we’ll also provide an opportunity for those who are considering their retirement to meet up with younger practitioners who are interested in spreading their wings.”

At Eyecare Plus Mr. Lewis has recently appointed a Human Resources Manager who will assist optometrists to initiate discussions about succession planning. “It’s natural that younger optometrists will move around – they may want to try working with a corporate, to study more, to travel and to have a family. We want them to feel comfortable about initiating the conversation at the appropriate time with their practice manager. “We also want to equip older optometrists to ask their younger members of staff, ‘where do you see your future… and if you are planning on travelling or experiencing other aspects of optometry, would you consider coming back here?’

“Everybody needs to be thinking and talking about where they want to be in the next ten years.”

Faced with the emergence of George and Matilda, which provides independent optometrists with a new avenue for succession planning, Mr. Lewis said Eyecare Plus had stepped up its efforts to remind its members to talk through their plans with his organisation before considering other options. “We always have members within Eyecare Plus who are looking to acquire another practice, as well as external potential buyers approaching us, but if we don’t know a member is considering their options for succession planning, we can’t help them.”

He added that many of those potential buyers were experienced optometrists whose employers were rostering them for fewer hours of work in favour of younger, less expensive optometrists. “As universities increase their output of optometry graduates, we will see this more often and I expect to find a growing number of experienced optometrists looking to buy into practices being sold by senior optometrists,” he said.

George and Matilda has attracted some of Australia’s most established optometrists, including Tony Hanks, Peter Hewett, Eyelines and theeyecarecompany. Chris Beer, CEO of George and Matilda said his new organisation “provides more opportunity, protection and security” for independents. “George and Matilda Eyecare partners with practice owners to create as much shared value as possible. This is done by bringing our unique brand to drive sales, leverage the power of our supply chain and reduce costs. We have a very open and consistent model that offers the  same key pillars for all our partners, allowing them to plan for a smooth and profitable transition into the future.”

The Optical Company is another alternative for practice owners considering selling up. The group currently comprises 25 practices (with more to be added this year), on-line ecommerce sites and an Eye S afety division. It is vertically integrated with its own supply chain, in addition to carrying international brands. Chief Executive Officer Colin Kangisser says The Optical Company offers different acquisition models according to whether a practice owner wants to remain in the business or move straight out.

“When assessing a prospective acquisition our most important consideration is to ensure a good cultural fit. We are a high volume business, together with an emphasis on professional eye care – we sell frames that are high fashion and value for money, so boutique practices with unique, niche, low volume, and high end designer frames are not of major interest to us as these practices require a rare expertise. Staff culture is critically important, as is the way a prospective practice does business. We have very disciplined processes and procedures and so any practice we take on must have a strong business focus or be willing to learn and adapt. After many years’ experience in the business in both private and public ventures and having purchased many individual and group practices in the past, we are able to assess the potential for a practice to join our group and the expectations of the vendor very quickly before we move into due diligence.”

Transitioning Out

ProVision is actively involved in helping optometrists to facilitate their succession plan.

“A succession plan will largely depend on what stage of the career cycle the optometrist is at together with the business structure and strategy that has been deployed. A younger optometrist might choose to sell their business early as part of their retirement strategy which will permit them to work flat out to maximise the business performance to generate the highest possible sell price. After the sale is completed, the optometrist might be contracted to work full time or part time in the business by the new owner and thereafter, might choose to work, for example, as a locum in the wind down to retirement. On the other hand, and as an example, the partial sale of the business under a partnership arrangement can provide the gradual exit strategy.

“In ProVision’s experience, it is unusual for optometrists to go straight into retirement ‘cold turkey’ and in most cases our retiring optometrists have preferred to wind down gradually. This is one reason why ProVision has recently established our “Alumni Program” for those members who have sold their business but are still undertaking part time work. They can be fantastic mentors for younger optometrists and pass on some of that valuable experience gained over many years in business.”   

Specsavers is also proactively involved in assisting existing store partners to plan and implement their exit strategies. It also has a structured Pathway to Partnership program to upskill potential store partners.
“When a current Specsavers franchise partner decides it’s time to retire we sit down with the individual concerned and work through a process of timing, practice value and finding a buyer for their shares,” said Charles Hornor, Director of Communications at Specsavers. “We have a range of methods for finding the ‘right’ buyer and that includes working with our database of interested parties who have passed a series of tests that show they are ready for ownership. It also includes identifying the correct internal candidates who have successfully completed our Pathway to Partnership program which instils the skills they’ll need to become a successful business owner. In addition, as necessary, we will advertise in a number of places such as mivision and spectrum-anz.com.

Communication is Essential

Regardless of your situation, transparent communication is essential, every step of the way. “Your life partner, your business partner, your accountant and financial planner – they all need to be clear on what you’re planning and in agreeance. Don’t go into a negotiation unless this is the case – you have to know you’re going to be working through the negotiation together and right to the end,” said Paul Sheehan.

“To maximise the value of your practice share information with your staff about your plans and progress. This will ensure they are working in tandem with you and that your practice is positioned in the best light,” said Mr. Sheehan.

“When you’re in the process of selling, it’s also important to proactively share detailed information with potential purchasers about the culture of your workplace, the financials and any expectations for your continued involvement in the practice. Leaving purchasers to make assumptions will lead to failure, which will be damaging for you, your staff and the prospective buyer. If you are concerned about providing financial information to a prospective purchaser, you can protect your confidentiality by insisting on a non-disclosure agreement.” 

Establishing the Value

What should be a positive experience, where an older optometrist is freed from the daily challenges of running a practice and a younger optometrist embraces new opportunities, can easily become an unhappy experience if the vendor is rushed or unrealistic, says Mr. Haydon.

“Valuing a business is difficult, especially if, having dedicated many years of your life to building it up, you are emotionally invested in it. It’s important to take your time, to do your research and due diligence, to seek an expert appraisal and to carefully prepare your sales documents.”

Mark Overton agrees that stepping back from the emotion of the practice is critical – whether you’re buying or selling. “Putting a value on your practice takes into account the available profit of the business, as well as aspects such as the stock value, quality of fittings, equipment, location and potential for future growth. I have had a few optometrists whose perception of their practice value differs from my estimate of the market price, and my advice is always that realism will prevail – in most cases a buyer will only pay what the practice is worth.

“You also have to factor in your long-term professional and personal objectives with plenty of time to plan. Do you want to get out now for a lower multiple of the store’s annual net profits, or do you have time to wait to get a higher multiple… are you prepared to commit yourself to running the practice through a five-year transition phase, with profit targets attached, in order to earn the highest multiple you can get?

At Specsavers Mr. Hornor said a good deal of time is spent agreeing the right figure with all parties. “The value itself is a multiple of the net profit achieved by the store concerned. Specsavers stores are enjoying very strong profits on top of the market rate salary and super package each partner receives – on average more than $250,000 last year, which means for existing store partners there is a very valuable nest-egg for retirement.”

Financing for Buyers

The good news for both sellers and buyers is that despite the competitive pressure corporates have had on independents, Dr. Brett Robinson, Chief Executive Officer at BOQ Queensland says it remains possible for a young optometrist to borrow up to 100 per cent of the purchase price of an established practice without necessarily needing to take their home or other assets as security.

“We have seen that a number of private practices that are willing to differentiate themselves in terms of service, technology and product continue to thrive,” he said.

“For lenders who understand this segment of the market, it remains a reasonably simple decision (subject to credit criteria) for a financier to make a decision to lend money to an optometrist who is looking to buy or buy into the right practice at the right price.

Dr. Robinson said there are several ways for an optometrist to raise the funds needed to buy into an established practice. “Some of these may include standalone goodwill loan facilities, additional equity, progressive purchase payments and vendor finance to name a few. It is important to discuss all options with a finance specialist or accountant who can assist in navigating through this often complex process. Coming up with the right option may be the difference between practice ownership or not.”
 
He cautioned that optometrists should consider their personal circumstances and always get proper financial advice. “For example, it may be best to acquire a share in an existing practice with a view to acquiring the balance at a later stage.  If purchasing the entire practice day one it’s important to understand why the vendor is selling and whether that makes sense. There should be upside in terms of profitability after the debt servicing – otherwise you are just buying a job with additional risks attached. Partnering with the right professionals is also essential to help them navigate through the process. As previously mentioned, it could mean the difference between owning and not owning a practice.”

Pulling it All Together

Seeking external, expert advice, is imperative when entering or exiting a practice. The investment you make in lawyers, accountants and consultants will undoubtedly cost you time and money but it could save you all of that and more should things go wrong.

As Pete Haydon from Optometry Victoria says, “Take time, hurry slowly… when entering or exiting a practice, comprehensive due diligence is essential, you need to understand the legal and financial requirements of the agreement, and be aware of what should be included or excluded from the contract. Any contracts you sign must be protective of both parties – so take time to understand the details, talk to the association and always talk to your accountant and your lawyer.

TRANSITIONING THROUGH BUSINESS MODELS

Elke Hutchins graduated in optometry from Melbourne University and began working in 2002. She and her husband Ian moved to Albury-Wodonga in early 2003 and she accepted a job in private practice. Just six months later, she identified a private practice for sale and she and Ian jumped at the opportunity. Elke spoke to mivision about the experience.

Ian had always been keen to have his own business, but was working in the finance sector. We had our accountant make some enquiries and learned that a local optometrist (Stephen), who had been running a business in Lavington (north of Albury) for about 25 years, was ready to sell and move away. Ian and I met with Stephen, our accountant and a ProVision representative, and it all happened fairly quickly from there.
It takes time to build a successful practice and we felt purchasing an existing practice represented good value, and allowed us to have an income from the start. Lavington only had one other optometrist in the suburb and the practice was in a good visible location, so we sensed there was room for growth.

I think Stephen was fairly surprised the business had sold so quickly. In a country town there are not that many optometry practices, so when one became available we felt it was a good opportunity and moved quickly.

Our biggest issue as a young married couple in our early 20s was obtaining finance, but with that finally sorted we embarked on the new challenge of running our own independent optometry practice. We really had no business knowledge and very little experience, but we were keen to learn and excited by the possibilities.

I did not work in the practice before purchase. Stephen finished consulting one day, and I began the next. There were a number of urgent priorities once we took over. The initial changes were cosmetic, including new carpet and flooring, changing the colour scheme, new frame display areas, etc. to modernise the look. The practice did not have a computer, so within a few months we had invested in computerised practice management software and a patternless edger.

We opened another two stores over the next three years, one in Lavington, and one in central Albury. We just saw opportunities everywhere and were prepared to take calculated risks and work hard for success.

In 2009, we were running three busy stores, and decided to join with Specsavers and consolidate into two franchise stores. Again, we saw the opportunity and felt it was the right move for us, and it certainly has been. I have enjoyed running our business as part of a larger group, and it gives me time to focus on what I enjoy most, seeing patients.

Now in our mid-thirties, we are not thinking actively about succession planning, but do feel being part of Specsavers will allow us to sell more easily when the time arises. A potential purchaser can then buy into a well-established brand like Specsavers with less risk, as the business is not then built so much on the principal optometrist.

Lessons Learnt
Taking on your own practice is a huge personal challenge, especially as a 23-year-old with less than two years’ experience out of Uni. Looking back, we have learnt a lot along the way, and there are always things you would do differently if you had your time again. This is true both in business and in life in general.

My advice to others would be to be prepared to take a calculated risk. Optometry is a wonderful profession and running your own business can be very rewarding, both personally and financially. It can also be difficult at times. An employee optometrist who recently resigned to take on her own business said to me 'Elke, how do you always stay so calm?' I explained I am often like a duck, calm on the surface, but underneath there is always a lot going on!  

EXITING AFTER 40 YEARS: PETER CUNNINGHAM’SEXPERIENCE

Optometrist Peter Cunningham was in practice in Victoria for over 40 years and at one stage had three practices with another optometrist as his business partner. A member of ProVision, when his partner retired, he gradually scaled back to one practice, which had been operating for 18 years, before finally selling out. Mr. Cunningham told mivision his story:

I started to think about succession planning when I turned 60. It was probably a combination of that magic figure and the knowledge that I was in a financial position where I could start to scale back that got me thinking about it. I had many discussions with ProVision (particularly Graeme Schneider who handles the sale of practices), my accountant and my financial advisor regarding my options for transitioning. In the end they boiled down to three:

  1. Take on another partner who would gradually buy their way into the practice and allow me to scale back. Having already been in a partnership I was not really keen on this option. There are a limited number of prospective partners out there and finding one that shares the same enthusiasm, work ethic and ideals did not seem to be an easy option.

  2. Continue as I was, perhaps using employee optometrists to reduce my work load a little, then sell the practice outright and walk away when I was ready to retire. I could not see this option giving me any relief from the administrative responsibilities. Additionally, there was the risk that if I cut back my consulting hours using employee optometrists who, perhaps don't have the same incentive to build the practice, it would suffer and ultimately reduce in value.

  3. . Sell the practice now but offer to continue consulting in the practice, gradually scaling back until I was ready to retire. This seemed the most attractive option and the one I took. I could immediately relinquish all administration of the business, cut back my working days and continue in the environment I was accustomed to. The only problem was the transition from business owner to employee. Having been used to calling the shots, the new owner had entirely different ideas which I had to adapt to. It proved to be a difficult experience.

The Agreement
ProVision handled the sale of the practice. Graeme Schneider gave me a valuation and so did my accountant, so I was able to come up with a figure I was comfortable with. ProVision prepared a prospectus, arranged the advertising, interviewed interested parties and handled negotiations. They also prepared a 'Heads of Agreement' when a deal was reached with the purchaser. This happened very quickly and the practice was sold within a few weeks, although the final settlement was more drawn out due to delays with lawyers.

I was very fortunate to have several loyal staff members who had been with me since the practice started so I was keen to do the right thing by them. I told them of my plans before the practice went on the market. I expected a purchaser would want to keep the existing staff as they had a loyal following of customers as well. This did not turn out to be the case and only one full time staff member was offered an ongoing position. This was probably the most upsetting part of the whole process.

Lessons Learnt
My advice to other optometrists considering a succession plan: start early, consider all the options thoroughly, watch the market, and continue to work hard in your practice because your last three years turnover/profit will determine its value.

  • Peter Cunningham
  • Elke Hutchins

' So in the meantime, while they’re thinking all of this through, perhaps they’re losing interest and energy '