FIX THIS PRACTICE
Buying and Selling Basics
Save yourself the time, money and hassle -- get a professional's advice.
By Richard S. Kattouf, O.D.

Q I'm an optometrist attempting to purchase a practice. The seller and I don't know how to proceed. Can you help us?

---- Dr. C.K. Lake

A. Dr. Lake's question is one of the most common reasons for doctors to seek consulting services.

First, let me give you a perspective on the market for buying and selling practices.

• According to the American Optometric Association, approximately 5,000 O.D.s over the age of 65 are still practicing. Their practices are either actively for sale or the O.D. is thinking about selling. This statistic is causing an imbalance in the number of sellers compared to buyers.
• Only 30% of optometric graduates are seeking private practice opportunities, according to the Pennsylvania College of Optometry's Irving Bennett Business and Practice Management Center. This fact also adds to the imbalance of more sellers and fewer buyers.
• Private practice is perceived as being more difficult due to the onslaught of fixed-fee vision programs. This notion has created an environment in which most graduates seek employment opportunities, again adding to the market imbalance.

Due to these facts, we're in a buyers' market. This doesn't mean that practices aren't selling. Rather, both parties require professional consultants to perform a fair market appraisal, negotiate the terms and develop a buy-sell agreement. The cardinal rule is: Don't attempt these tasks on your own.

Why it's best to get help

In my 20 years of experience in practice appraising, brokering and buy-sell agreements, I've witnessed a full scope of problems when professional help wasn't requested. Below are some examples.

• A buyer signed a contract with the relative of a deceased doctor. The buyer agreed to pay more than the last year's gross income. The buy-out was for a period of 15 years, and cost more than $2 million with interest.
  The buyer sought my advice years after signing the document. In this case, the seller and the attorney took advantage of a na�ve, young O.D.
• An anxious seller didn't seek professional advice and never had his practice professionally appraised. He sold it for $90,000 less than the fair market value.
• Another buyer was an associate doctor for 3 years prior to purchasing 50% of the practice. Buyer and seller did their own appraisal and negotiations. The terms were a mess, and the appraisal was totally incorrect. Worst of all, these two doctors had to be married professionally for 20 years after their bitter financial battle.

With professional help, the consultant would've been the impartial, third-party negotiator, alleviating the adversarial posturing between the buyer and seller.

The buy-sell process

The buy-sell process is comprised of three steps.

1. getting an appraisal
2. the negotiation between the buyer and seller
3. the actual buy-sell agreement.

Have the hard-asset value, accounts receivable and goodwill evaluated. Goodwill has the most flexibility in the calculations. Don't make the mistake of having an accountant or attorney perform the appraisal. They've seldom performed an appraisal of an ophthalmic practice.

Points to consider

Consider the location of the practice, its age, the seller's willingness to stay on as a private contractor, the retention of staff, accepted insurance plans, collection policies and specialties practiced. Other intangible factors, such as the age of the buyer, also come into play.

Frequently, a buyer under age 30 will inherit a staff of 40- and 50-year-olds. Will the staff want to "mother" the buyer? Will they respect him?

Another issue is staff control. Does the existing staff have specific boundaries? How well trained are they and what are the levels of delegation?

Do what makes sense

Eye exams must be performed by vision care specialists. Practice appraisals, negotiations and buy-sell agreements must also be handled by consultants who have a track record in this confusing yet critical area.

This may be the biggest business move of your life. Seek professional assistance to save yourself time, money and a potential hassle.

Dr. Kattouf is in private practice in Warren, Ohio, and he's president and founder of two management and consulting companies. If you'd like Dr. Kattouf to address an issue you have with your practice, call (800) 745-EYES or e-mail advancedeyecare@hotmail.com.