Independents still make up the largest proportion of the Australian optometry market. The future is bright, and for the right practitioner, it is rewarding on multiple levels whether it’s being in control of your career and decision making, through to commercial advantages such as tax benefits, uncapped earning potential and the reward of one day selling your business.
Nevertheless, navigating the transaction of independent optometry practices can be daunting, especially for buyers. Recently, we have seen a growing number of younger aspirational optometrists seeking independent ownership. There’s also been considerable interest in greenfield practices, and while admirable, we encourage buyers to acquire an existing practice with an established patient base, goodwill, and often a fit out and equipment. Financiers will also view this more favourably.
After facilitating many transactions over the years, we have identified some key metrics and models that ensure the best result for both parties.
Example: for a practice turning over $820,000 from retail sales and consulting income, $220,000 could be spent on cost of goods, leaving a potential $600,000 gross profit. From there, we minus some average expenses such as marketing ($20,000), financial costs ($25,000), wages ($360,000), rent and outgoings ($80,000), utilities ($20,000), leaving $505,000 in expenses. The adjusted net profit is $95,000. A common issue is the owner excluding their salary in the practice wages, inflating the net profit. Be aware, this will be adjusted when the accountants audit the financials for sale.
Buyers and sellers can expect the practice to be worth 2.8-3.5 times the net profit. In the example, that’s around $285,000. This excludes recently purchased equipment or inventory that, depending on negotiations, can be added to the value. If selling, you want to show the buyer the maximum theoretical available cashflow by washing out the tax minimisation strategies, extra super contributions etc. Also, a practice management software report won’t suffice, it needs to be an audited profit and loss (from the past three years) that clears the accountants and ultimately the buyer’s bank.
Rent is also important. This can be as low as 5% of turnover in regional areas, while in metro areas or shopping centres, it will ideally be between 10-15%. This is an advantage of going regional, in addition to more staff stability and many owners benefit from lower housing costs and a brilliant lifestyle.
Buyers can be found in many places, but it’s important for sellers to start under their nose. Often, we ask if the employed optometrist would be interested, or maybe a nearby practice wants to expand? The more successful transactions often involve the selling/retiring optometrist phasing out. With a longer succession strategy, you transfer goodwill to the new owner and therefore drive up the practice’s value, protect the legacy and create a larger pool of potential buyers. You also become the practice’s locum post-sale, if you wish.
We’re often asked to value a practice to the cent, but it’s not a science. Often, the available market dictates this. Sometimes, the owner has several offers, but the preferred candidate isn’t the strongest bidder (because they are a better fit for the practice). Owners should consider they may work alongside the buyer for two to three years, and should be happy for them to look after their patients long-term.
And if you’re selling, remember the buyer is coming in unemotionally, and may talk the price down. To achieve what your practice is truly worth, you need clear explanations and documentation to support your valuation to provide buyers confidence and understanding they can achieve a return on their investment.
The nature of your practice will determine the buyer pool. Not everyone is seeking a contact lens or behavioural practice. It’s also important to manage expectations around the time it will take to execute the sale. Marrying the seller with potential buyers can take time. Sometimes they fall through so having a contingency plan is important
While not without its challenges, independent ownership can be one of the most rewarding journeys for an ambitious optometrist – and you don’t have to do it alone. Whether it’s joining formal groups like Eyecare Plus or ProVision, or informal chats with others who have been there before, the independent community is collaborative and supportive.
ABOUT THE AUTHORS:
Name: Philip Rose; Mark Corduff
Affiliations: Eyecare Plus, general manager; ProVision, business services manager
Locations: Sydney; Melbourne
Years in industry: 15; 5
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