business strategies

Execute an Exit Plan

Start sooner rather than later, if you want to enjoy your retirement.

GARY GERBER, O.D.

My son is starting college in August. I’ve been saving for this since his birth. Like most Americans, what I’ve saved isn’t enough to cover the cost of his education. I’m not off by a mile, but there’s definitely a short fall. Two things could have prevented this gap:

(1) Had the economy been better in the last few years, I’d probably actually have a few extra bucks.

(2) If I started saving before he was born, I’d be in better shape to cover his education.

Here, I discuss the importance of executing an exit plan from your practice sooner vs. later, and how to leave profitable.

Do you have a plan in place?

You do have an exit plan, don’t you? If not, just as illustrated above, the sooner you start, the better off you’ll be. In fact, if you don’t have a plan in place, I suggest you start planning right after you finish reading this column.

Your practice’s worth

My company has been involved in the sale of many, many practices. While I generally reject the practice of a simple formula to answer, “So, what is my practice worth,” as there are too many variables, retrospectively most practices have sold for roughly twice to 2.5 times the previous year’s net. That statement alone is open for lots of interpretation, as “net” can have many definitions. For this article, I’ll call it the owner’s compensation before personal income taxes.

The sale of your practice is highly unlikely to fund your retirement.

In its simplest terms, that means if your lifestyle doesn’t change, you’ll have enough money from the sale of your practice to continue living as you do now for two to 2.5 years. After that, the well will have dried up.

Even if I get incredibly liberal and say that your practice will sell for three to five times the previous year’s net, this still means you’ll only have (at best) five years of income of which to live off. And if you sold your practice for what it grossed, which in 20 years of consulting I’ve seen happen only once, you’d only have that amount of which to live off.

So what does this all mean? Simply stated, the sale of your practice is highly unlikely to be enough to fund your retirement. So, if you haven’t already, it’s time to start making other plans for retirement income right away.

Plan advice

My advice is to start planning for a more profitable exit as soon as possible. It’s beyond the scope of this article to talk about other retirement strategies outside your practice, so I’m just going to discuss how to make your exit profitable.

First, pick a tentative retirement date. That date, no matter when it is or how malleable it is, is your starting point (not the end point) of your planning.

Next, decide what you’d like your net to be at that time. Now, plot the slope of the growth you’ll need to achieve your goal. For example, “Through the next five years, I need to increase my net 8% per year in order to be netting $260,000 by 2018.”

Finally look at 2014, and put a plan in place to figure out how you’ll increase your net next year by 8%. It might be, “Sell 12% more high-end glasses,” “Reduce my labor cost by 1%,” or something else. Regardless, at least you’ve now got a starting point.

From here, take each individual step, and get busy. And above all, remember that you can never start too early. OM

DR. GERBER IS THE PRESIDENT OF THE POWER PRACTICE, A COMPANY SPECIALIZING IN MAKING OPTOMETRISTS MORE PROFITABLE. LEARN MORE AT WWW.POWERPRACTICE.COM, OR CALL DR. GERBER AT (800) 867-9303.