As optometry practices get back to business following the COVID-19 pandemic, it’s understandable that some practice owners may decide they need to sell. However market forces are not as strong as they were even a few months ago.
Phillip Fent, CEO at Optometrist Business Brokers, said COVID-19 has changed the market for optometry practices.
“Financial markets have been badly hit and this has resulted in some credit sources diminishing. That means there are now fewer group buyers actively seeking to purchase, which has resulted in less competition between them.”
Setting the price is one of the most complex decisions in the sales process and typically a seller’s idea of a fair price will differ greatly from that of the buyer
Mr Fent said several optometrists had expressed disappointment having held back from selling their practices earlier, when market conditions were stronger.
“It’s more of a buyer’s market now but that’s not to say sellers should panic and take the first offer that is made,” he said. “We recommend that planning and preparing your practice for sale to suit the market is the best way to maximise its market value.”
Setting the price is one of the most complex decisions in the sales process and typically a seller’s idea of a fair price will differ greatly from that of the buyer.
When determining a fair price to pay for a practice, Mr Fent said potential buyers will be focussed on projected profits.
One ray of hope for sellers is that, due to uncertainty in employment opportunities for optometrists, there will be new buyers looking to buy themselves a job
“Prospective purchasers want to get their money back in a certain timeframe, and then get a reasonable return on investment after that. To project profit they may use one of several different models – it may be based on discounted cash flow; internal rate of return; earnings before interest and tax; earnings before interest, tax, depreciation and amortisation; or some other model,” he said.
“Because some practices have been closed, they are reporting less sales and less profit – this will affect the goodwill component of sale prices. While potential buyers will expect some adjustment to the expected sale price because of this, it’s best to concentrate their attention on the long-term future income and profits of the practice.”
When preparing to put a practice on the market he recommends shifting old stock as most purchasers will only be willing to pay for a percentage of anything more recent.
Equipment adds another complexity as it will not always form a separate component of the sale price.
“Some purchasers will view equipment as part of the overall operating health of the practice. That makes outdated equipment a liability which may reduce the value of your practice as the cost of equipment replacement is factored into the equation. But that doesn’t mean you should invest in expensive equipment – you won’t get back what you paid,” said Mr Fent.
While there are several ways to improve projected profitability, he said one is to stay on for a pre-determined number of years rather than selling on a walk-in walk-out basis. “Staying on will maximise the value of goodwill – so this is something you should carefully consider before you put your practice on the market. It all comes back to having a plan,” he said.
“One ray of hope for sellers is that, due to uncertainty in employment opportunities for optometrists, there will be new buyers looking to buy themselves a job, and so we hope to see an increase in these individual potential purchasers for some practices.”