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John Marvin

How Much is Your Practice Really Worth?

When someone wants to buy your practice make sure to take into account all of the intangibles.

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ANYONE PAYING ATTENTION over the last five years knows there is a significant amount of consolidation happening. An estimated 20 or more companies with funding from private equity firms are actively purchasing private optometry practices. The idea is that this will ultimately lead to a second round of acquisitions with potentially huge valuations.

This consolidation has produced a windfall for companies that professionally, and supposedly objectively, determine the value of a practice. I often get calls from doctors who want to retire and sell their practice to a young associate or entrepreneurial optometrist. I direct them to a handful of professionals I trust.

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Historically, there are three valuations for a practice: the value the buyer determines, the value the banker or lender determines, and the value the seller believes is correct. They all have competing interests. What’s happened in the past five to seven years is the addition of a fourth valuation: whatever a private equity funded company will pay for the practice. I have often heard that the value of anything is what someone is willing to pay.

Many are jumping at the chance to cash in, which usually requires the selling doctor to sign a three to five-year employment agreement.

There are essential aspects to a practice’s value that traditional calculations do not take into account. For people who have been successful in building a large optometry practice, some things are as important as money. For these entrepreneurs, there are other aspects to consider when determining the value of their practice.

Freedom

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This might seem esoteric, but there is actual value to having the freedom to practice as you wish. Once you have sold the practice you no longer have the freedom to make equipment purchases you consider essential. You no longer have the freedom to take a vacation with your family on your terms. You no longer have the freedom to determine what products and services you will offer patients.

Connection to Community

When you own a practice, you are grateful for the people in your community who put their trust in you. You show gratitude by becoming involved in your community. You donate to fundraisers. You join civic organizations. You enjoy living in a community that expresses its appreciation for you, your staff, and the health and welfare you contribute. There is a value to your community connection. If you no longer own the practice this changes. It’s now the responsibility of the new owner to connect with their community. Your practice is one of many purchased by them, and they do not have the connection to the community you valued.

Relationships

When you own a practice, you have both independence and responsibility to form relationships. This includes relationships with your staff — and their families — and with your patients. You have staff members who have been with you for years and are invested in you and your commitment to providing care. Those relationships took time and energy and aren’t something an accountant can place a value on. When you no longer own your practice, the building of these relationships is out of your hands.

I could go on … and I bet you can too now that you’re thinking. When someone wants to buy your practice and attempts to determine how much it’s worth, make sure to take into account all of the intangibles. I would encourage you to place some value on things other than just EBITDA.

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John D. Marvin has more than 25 years of experience in the ophthalmic and optometric practice industry. He is the president of Texas State Optical and writes about marketing, management and education at the practiceprinciples.net blog. You can email him at [email protected]

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