Business, Feature, Management, Report

Sticking to the script on succession planning

Most independent practice owners want to place their business in the safe hands of a new owner who can take their established practice and move it forward. But first, they need a succession plan – and a buyer.

A chance meeting at a succession planning seminar at a conference three-and-a-half-years ago altered the course of two optometrists’ business careers, with the result exceeding expectations.

Mr Mark Leverett describes selling his practice of 40-plus years to an independent optometrist as the best decision he could have made.

Leverett and Kindler Optometrists is an independent practice established by optometrist Frank Kindler in 1966 in the leafy north-eastern Melbourne enclave of Greensborough.

In 1977, Leverett – then a recent optometry graduate from the University of Melbourne – joined the practice and became a partner in the business in 1978. When Kindler retired 10 years later, Leverett became sole principal.

Mark Leverett, former practice owner
Mark Leverett, former practice owner.

“Frank was a fantastic mentor, and we got on really well. We were in partnership for five years until he retired,” Leverett says.

His experiences with Kindler, a man he admired, taught him a valuable lesson about business partnership.

“He was in retirement mode, and I was in practice growth mode. We had different agendas, which could be frustrating at times. Decisions took forever to be made. I wanted to invest in new equipment, but Frank wanted to save money for his retirement,” Leverett recalls.

“It was liberating when I took ownership. I was happy to not have a partner, and I owned my own mistakes. As a result, until I had a firm desire to exit the practice, I decided that I wouldn’t take on a partner.”

Although the business’s succession conformed to a traditional model of employee-turned-partner-turned-owner, Leverett says it wasn’t the exit strategy Frank Kindler had in mind.

“Frank retired prematurely due to ill health. It could’ve been a 20-year partnership but was only five.”

Leverett also learnt another valuable lesson when he purchased the practice: “When I bought Frank out, I changed the practice name and it was a disaster. Patients didn’t realise it was the same practice. The name of a practice carries goodwill – there is no benefit in changing the name.”

As his career progressed and the years passed, it reached a point where he had to consider his own exit strategy, with the shoe now firmly on the other foot.

“I didn’t want to use the same strategy I used to enter into practice ownership – I didn’t want a 10-year transition period to pass the practice to a new owner,” he says.

“I left my exit strategy fairly late.”

To help guide his belated strategy, Leverett, who has been a member of ProVision since its inception – he was a founding member of the group – attended a seminar at the Southern Regional Congress (SRC) on succession planning, hosted by Optometry Finance Australia managing director Mr Paul McKinley.

He was discussing exit strategies and how to finance them, as well as the challenges of opening a greenfield practice compared to buying into equity in an existing practice.

This was a topic familiar to Leverett who knew from experience that it’s better to buy equity.

“I opened a greenfield practice in The Pines shopping centre in East Doncaster 17 years ago. I opened from scratch with the support of ProVision, when I was on ProVision’s board of directors,” he says.

At that point in time, Leverett owned two Leverett and Kindler practice locations – in Collingwood and Greensborough – and had purchased another existing practice in Eltham. He sold the Collingwood practice when he opened The Pines.

“The practice in The Pines ran for five years. It was growing slowly, to the point I needed to employ another optometrist, but the landlord wanted to increase rent and it wasn’t worth the effort, so I closed it,” he says.

McKinley and Leverett openly shared their views about greenfield versus existing practices among the audience at the succession planning session.

“Paul said, ‘I have to agree with you, that if you can, you are better off buying an existing practice’. Unbeknown to me, Amelia was sitting behind me – she was thinking about opening a greenfield practice,” Leverett says.

He also shared with the audience that he was thinking about selling his practice.

“Amelia contacted me shortly after.”

Opportunity knocks

Optometrist Amelia Jiao, the incumbent owner of Leverett and Kindler Optometrists, graduated 10 years ago – in 2001 – from the University of Melbourne. Qualified in therapeutics, she worked as a locum optometrist for several years but ultimately wanted to own her own practice.

With this goal in mind, Jiao completed a Master of Optometry at UNSW, where she cultivated a special interest in behavioural optometry and orthokeratology, and an MBA at Melbourne Business School.

Jiao was pursuing a path to open a greenfield practice when she met Leverett, then owner of Leverett and Kindler. She began working in the practice a few days a week, amid early discussions about ownership. As both saw an opportunity to realise their respective goals – Jiao to own a practice, and Leverett to sell – their plans converged. The pair implemented a three-year handover, which is now complete.

“It took a while to find a practice fit. I approached Mark, knowing he had many years’ experience in the industry,” Jiao explains.

Amelia Jiao, current practice owner
Amelia Jiao, current practice owner.

“I essentially walked in cold to an established practice when I started working at Leverett and Kindler. But now, after three years, I know the patients by name, and have built rapport with them. Part of the transition in ownership from Mark to myself was about retaining the culture of the practice and keeping the feel of the patient experience the same.”

As the practice owner, Jiao manages a team of 13 staff, and Leverett continues to work in the practice. Her business administration skills have come to the fore, although running a small business in the allied health sector is a different orientation to an MBA, she says.

Jiao plans to continue the practice’s strong patient-focus.

“There is a lot of goodwill in the practice – the duty of care to the patient comes first, and I want to continue that. Frank Kindler founded the business [in 1966] and Mark was the second-generation owner. I want to continue the legacy and value of the business, so I’m keeping the name,” she says.

Jiao’s special interest in behavioural optometry and orthokeratology has also injected fresh ideas into the practice.

“Mark saw my clinical skills as a potential opportunity for growth when he looked for a business partner. He wanted someone to add children’s vision services and we’ve built more clinical space to accommodate that. We’ve also added a designated kids frame range which could be seen as a controversial decision business-wise, but we want to build that specialty and niche around children’s eyecare,” she says.

Start with the end in mind

ProVision’s CEO Steven Johnston and business services manager Mark Corduff are in solid agreement on a key part of implementing a successful succession plan.

“You have to start your business with the end in mind,” Johnston says.

“You have to think about how you set up your business entity structure, whether that be as a trust, sole trader, private company, et cetera. This can affect bringing a partner, family member or employee into the business in five, 10 or 20 years’ time.”

Corduff’s advice to sellers is to be well-organised ahead of seeking a buyer.

“This includes practice management and presentation including up-to-date fit out and equipment, financials, and a long-term lease, ideally a five-year lease plus an additional five-year option,” he says.

Mark Corduff, ProVision
Mark Corduff, ProVision.

“Anytime, COVID or not, a person buying a business wants certainty and to avoid risks, such as a short-term lease or a demolition clause, which can be the case in some shopping centres.

“Buyers look for growth over the last three years. Owners selling their business need to demonstrate growth potential. Buyers want a clean sale. Younger buyers are not looking for a ‘renovator’s delight’.”

Having identified a need for optometrists to have access to succession planning expertise in one place, ProVision created SuccssionPro.

Corduff says the resource aims to arm optometrists with information so they can have a conversation with ProVision that prompts thought and consideration as to how best to manage their exit.

ProVision has helped guide several successful business transitions for optometrists including Mr Norm Russo, a founding partner at Russo Optometry, Ms Majella O’Connor, former owner of Ocean Eyes Optometrists, and Mr Peter Lewis, former owner of Lewis and McConnell Optometrist in Mount Waverley.

In line with a typical transition model, optometrist Mr Stewart McConnell began working with Lewis in 1997, became a partner in 2002, and took over the practice as a sole owner in 2015, with Lewis continuing to practice there.

Johnston says transition is an important aspect of succession planning discussed early and explicitly.

“Ninety percent of inexperienced buyers want the owner to stay on, to mentor and assist, and provide continuity for patients and that same level of patient care. It’s a distinguishing feature,” Johnston says.

“Whereas an experienced buyer may not, and their business decisions have the potential to upset the original owner. That’s why we advocate for values alignment between the buyer and seller.”

Despite the best laid plans, sometimes potential sales come unstuck because buyers are ill-prepared, don’t seek finance in time, or have unrealistic expectations of how long a sale will take.

Negotiating staff as part of a deal can also derail plans.

“How staff are treated, especially long-term staff and long-service benefits, can be a point of contention. Who takes on the obligations? The buyer or seller? It can be a sticking point,” Johnston says.

Corduff says negotiating perceived value can also be challenging but it’s ProVision’s role to set expectations for both parties.

“It’s relatively straight forward to value goodwill in business, but equipment and stock can be a challenge.”

Johnston adds: “Selling out to a consolidator is not the only choice. We only recommend opening a greenfield with a well-considered business plan. Be prepared to pay for goodwill and a platform from which to grow.”

Uncertainty on both sides of the table

Eyecare Plus national business development manager Mr Philip Rose understands buyers and sellers are both putting a lot on the line, which is only heightened in the current COVID climate.

“Succession planning is a delicate matter and at the moment, almost everything is on pause,” he says.

Philip Rose, Eyecare Plus
Philip Rose, Eyecare Plus.

“Owners wishing to sell are finding it difficult to find a buyer that’s committed, and to find an agreed price point. Buyers usually take an average of the last three years’ profit and loss figures, but owners are resisting that, because it’s currently not a fair reflection of the value of their business, as the last two years’ figures have been directly affected by forced closures during COVID lockdowns.”

This can create disagreement on price and perceived value. Rose says some owners are reluctant to sell in 2021 because they don’t want to drop their price, which could be by as much as 30%. Instead, owners are biding their time.

“Many owners are saying, ‘I’ll wait’. If a buyer and seller can’t agree on pricing, it’s a stalemate. It’s made more difficult because we currently don’t have enough vaccinations to lift restrictions and re-open retail and business,” Rose says.

“Even if a patient or customer just wants to buy a pair of sunglasses from their optometrist, they can’t in all areas because of the health restrictions. How can a seller achieve a fair price in these conditions? It’s like a stalemate, they’re in limbo.”

Rose says there is hesitancy around value-finding for buyers and sellers.

“This issue is relevant and current. How do you determine the value or purchase price in a period of continued business disruption due to COVID-19? The value of optical equipment and stock is relatively fixed but the goodwill component is not fixed,” he explains.

“As an owner, do you ignore the last two years profit and loss when determining your sale price? Or do you take the last five years average?,” Rose says, explaining the quandary buyers and sellers are facing.

“And who determines this? How much influence do banks and accountants have in determining a practice’s dollar value? Owners are saying, ‘If I sell now, I’m selling cheap’, and buyers are saying, ‘I can’t buy at the price you’re asking because the profit and loss figures don’t support that price’.”

In his view, standard succession planning ‘rules’ don’t apply in the current economy.

“From a financial point of view, appetite for risk is low. There is uncertainty on both sides of the table.

“Optometrists sometimes forget the buyer is unemotional – the buyer’s accountant looks at the numbers and they’re even more unemotional. They’re looking at the figures in black and white, they’re evaluating actual performance.

“Determining value depends on what 2022 will look like. What will retail look like? I think we can expect retail to come back with compulsory masks, with regionally-targeted lockdowns, and a limit on how many patients can enter a practice, as per 2021,” Rose says.

He anticipates economic activity will pick up towards the end of the year, especially with the ‘use it or lose it’ period associated with unclaimed optical health fund benefits, Christmas and summer holidays, and hopes succession planning can resume successfully in 2022.

One element of succession planning that hasn’t been affected by the turbulence of the pandemic is the strategy behind transitioning a practice from one owner to the next.

“The transition process is not affected and remains, for a flexible period, a central component of any good succession plan, for a flexible period. Mentoring is important, not just in a full-time capacity – it can be just two to three days a week, for the former owner to guide the new owner and remain a face in the practice,” Rose says.

Unexpected success

While the advice is overwhelmingly in favour of laying out a five to 10 year exit plan, Leverett was intent on a quick exit strategy, and had started to consider his options.

He had been approached by consolidators and corporates six to 12 months before meeting Jiao. They were professional in their approach and presented attractive offers. Because of exclusivity agreements, he had been in discussions for a period of more than 12 months.

“They [consolidators and corporates] could accommodate what I wanted, which was a three-year handover, not five or 10, but it was pivotal that I stay on in the business,” Leverett says.

“They were not interested in a walk-in, walk-out sale. There was very little appetite for that.”

But there was pressure to make a decision.

“I had discussions with the team at ProVision. It’s good to speak to as many people as you can, and get as much advice as you can,” he says.

Ultimately, Leverett turned down the offers when the opportunity to implement a succession plan with Jiao started to materialise. They both had some mutual friends in the profession, and their informal background checks were positive.

The business agreement that eventually transpired between them was exactly what he wanted.

“Although it came about completely out of the blue, it was the ideal scenario. Amelia presented with the right skill set, the right culture, in the right timeframe,” he says, explaining that a three-year transition ensued.

“Amelia had not run a practice before, so for the first 12 months, she was observing. Then she began to take over more and more, and by the third year she was running the business, with my mentorship and support. I’m happy to take a backseat.”

He is currently working in the practice four days a week and has no input into the running of the practice. He also has no plans for retirement at this stage.

While it has proven to be a successful succession, Leverett admits it was an ambitious plan, and was advised he may need to be prepared to compromise.

“Once I made the decision to sell, I wanted it done and dusted in a few short years. I guess I wanted a lot, and I had a list of attributes I was looking for in a new owner that may have seemed unattainable,” he says.

“I was looking for an optometrist who had the same patient-centric culture as me, strong in financial and business management skills, somebody with strong administration skills, and a special interest or behavioural optometry background to generate a new generation of patients.”

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