Smart groundwork can help you prepare for any major change
This article originally appeared in the April 2016 edition of INVISION.
Thinking about a major transition for your practice? The experience can present myriad opportunities and pitfalls. Before you embark on any kind of transaction it’s important to think strategically. Here are three questions that I use to explore my clients’ objectives.➤ What are you really trying to accomplish? Really!
➤ What is the right way to accomplish it?
➤ Are you “partnership material?”
AND HERE ARE A FEW SCENARIOS:
Sarah is 40 and grossing $700K working four days a week. She’s wired and in control ... a “Type A” personality. “I’m busy and I need assistance with managing my practice,” she says. “I just don’t have the time to do all that needs to be done. I need a partner.”
Sarah is strong-willed and loves to be in control. Sarah likely needs a manager experienced in working with entrepreneurs, not a partner.
Jordan is 62 with a $400K practice. He nets about $90K. “I want to hire an associate so I can retire when I’m 65,” he says.
This practice can’t support two optometrists. Hiring a second OD would drain Jordan’s income and retirement resources in the short term. Instead, he needs to build profitability to maximize his earnings and value, then sell outright in a few years.
Joseph and Martha gross over $2 million per year. They own their facility. They’re good leaders and partners. Just in their late 30s, they’ve enjoyed a history of year-over-year growth. “We need to bring on another partner, as we need more capacity.”
This married team has made considerable investment to get where they are. A third partner would likely change their dynamic and reduce their return on their hard-fought gains. They need an employed associate, not a partner.
"Explore and define, in advance of any deal, what it is that you want. But be realistic.”
➤ Eliminate nepotism. Employed family members can be problematic. Your buyer must look to replace multiple parties. Nepotism can cause mistrust and it introduces unique dynamics. Prepare early for the exit of family members.
➤ Know what you want. Explore and define, in advance of any deal, what it is that you want. That said, your objectives must be realistic. You’ve invested 30 years in your business, but that doesn’t mean it is worth more than fair market value.
➤ Ensure your assets are in prime condition. There are four legs to the value of your business: you, your team, your location and your financial performance. Be ready to transfer your brand equity. Get the right people on your team and the wrong ones off. And make sure your facility is in top condition.
➤ Operate for profit. Your practice value will be largely based on cash flow for the prior three years. If you’re not operating at maximum profitability, you won’t achieve maximum return.
➤ Get time on your side. You will invariably make mistakes with initial forays toward your transition. Give yourself the time to make them and recover.
➤ Don’t underestimate the complexities. Surrounding yourself with the right resources and following recommendations will make your process easier, providing a higher return with less stress.
Alan Cleinman is the founder and CEO of Cleinman Performance Partners, a consultancy for optometry practices. This three-part series is based on his book A Different Perspective: An Entrepreneur’s Observations On Optometry, Business And Life. Proceeds from the book benefit state optometry PACS. Learn more at invmag.us/acbook.