BUSINESS

  BY THE NUMBERS

PROOF IS IN THE PROFIT CENTERS

WHETHER BUYING OR SELLING, OPEN YOUR EYES TO MORE THAN A VALUATION

JAY BINKOWITZ

ARE YOU ready? Have you done your homework? These are the questions I ask clients who want to buy or sell a practice. You cannot depend on a standard valuation to accomplish your goals. There is a lot to think about; it’s similar to buying and selling a home.

KEY QUESTIONS:

1. What repairs/upgrades are completed?

2. What are the neighborhood and schools like?

3. What are your favorite restaurants, proximity to shopping and recreational areas?

VISUAL IMPACT

Can you imagine walking in to buy a home where the owner’s dirty laundry is on the floor, mud is on the carpet or stinky, old food is in the refrigerator? I have seen countless stained ceiling tiles, ripped carpeting and clutter at our practices. How you “stage” your home or business is a representation of you, and it may affect the willingness of a buyer to pay what you want more than you know.

PRACTICE VALUE

Review the numbers to assess a practice’s profit centers vs. its tax return or traditional profit and loss statement. Identify the areas of low-hanging fruit, where revenue/profit can grow quickly to support the new debt. As such, focus on the following:

1 EQUIPMENT

Create a list of all equipment, including the age, history of maintenance and debt owed, to uncover your potential areas of risk and additional need for more money.

2 PROFIT CENTERS

Assess net-collected revenue, true cost of goods and payroll for each of the practice profit centers:

a. Optical

b. Clinic

c. Contact lenses

d. Specialty services

3 SALES ANALYSIS

Look at a 12-month sales period, and determine the conversion rates by refractions. Areas should include:

a. Frames sold

b. Pairs of lenses

c. Complete pairs of eyewear

d. Annual supplies of contact lenses

4 DEMOGRAPHIC EVALUATION

Compare the number of special tests performed with the number of patients seen for the year. Also do this to find the percentage of specialty products. Then, compare the capture rate of these two services, and evaluate it against the practice’s patient demographic, age group and gender, to identify areas for growth. For example, if the percentage of progressive lens sales is 10%, but the patient demographic indicates 60% of patients are older than 40 years old, this is an area of low-hanging fruit.

5 PERSONNEL

Evaluate the longevity of the current team, and ensure a clear understanding of the role of each staff member. This includes a sit down with each staff member to ensure that your expectations are understood and supported.

CASH IS KING

Cash flow is the paramount factor to a practice transition. Most buyers borrow just enough to purchase the practice, but can’t afford to fix/modernize it. Then, it takes years to realize the practice’s true potential. Evaluate practice value to avoid this. OM

MR. BINKOWITZ is president of GPN, a leading business management company based in Farmingdale, N.Y. He has had extensive experience in retail operations, merchandising and marketing. Email him at AskJay@GatewayPN.com, or to comment on this article, visit tinyurl.com/OMcomment.