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Alan H. Cleinman: What Is It Worth




Virtually every seller has a price in mind, which may be the result of a Fair
Market Value (“FMV”) appraisal. FMV is “an estimate of the market value of
a property, based on what a knowledgeable, willing and unpressured buyer
would probably pay to a knowledgeable, willing and unpressured seller in
the market.”

Such appraisals often don’t take into consideration all elements of a transaction.
Further, FMV appraisals generally focus strictly on the financial elements
of the business and ignore the more important strategic implications
of a transaction.

Deal design is far more important than the so-called FMV. The seller’s
request is just a starting point. And while
having a reasonable understanding that
the request is “in the ballpark,” investing in
a counter FMV appraisal is generally not a
good use of capital.

So how much is a practice worth? As the
buyer, you think you want to pay as little as
possible. As the seller; the opposite is true.
Either case may be wrong from a deal-making
perspective. While there are many elements
of the valuation process, reality is that “value”
comes out of the deal-making process.
Price is intuitively the starting point but actually
should be the end-point.

Consider that, with in any practice purchase,
you’re buying just three things:


A Cash-Generating Machine: What’s
the practice’s cash flow? The more cash that
the business generates, generally the more you can afford to pay for it. Hard assets
such as equipment and inventory are secondary to cash flow. Just because
the practice is “shiny/pretty” doesn’t mean that it’s profitable. Hard assets are readily valued and they’re value is generally no
greater than replacement cost.

An Opportunity for Growth: If the practice
hasn’t demonstrated historical growth, why would
it grow after you make the purchase? What are the
underlying operating ratios that would indicate opportunity?
Where does the revenue come from?
What assets are being under-utilized? What markets
are being underserved?

A Lifestyle: Be careful of focusing on the specific
deal instead of the lifestyle that the opportunity
represents. If you can’t see yourself living and
thriving in a particular community, don’t buy the
practice. You’re not just buying an asset but are going
to spend a significant amount of your life and
energy in a community. Is it where you want to live
and raise your family?

Designing transactions is an art form. While the
numbers have to make sense, there are many elements
that go way beyond price. Is the seller staying
on for a transition? Who’s responsible for what
aspects of the transaction? Can the
cash flow support the debt and deliver
a reasonable income and ROI? Does
the practice need to be re-branded? Is
there a manager in place? What about
family members? How will warranties
be handled? What are the legal and tax
considerations? What’s the condition
of the assets? The facility? What’s the
skill level and tenure of each team
member? The answers to these and
other questions are what drive the
value of the business. But focusing
on price up front can actually divert
your attention; result in a higher cost
or worse, a missed opportunity.


“Don’t agree to anything until
everyone agrees to everything.”

Every transaction is unique. What
appears simple can end up complex. Knowing what
questions to ask is mission critical. Make sure
you’ve got time and experience on your side.

This article originally appeared in the June 2016 edition of INVISION.

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



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