In this series, Review of Optometry takes a close look at the dilemmas, decisions and life changes at each stage of an optometrists careerfrom optometry school to active practice to retirement. In each installment, we talk with optometrists in that career stage as well as consultants who have relevant expertise and insight. Tips for a Smooth Sale Source: Craig Steinberg, O.D., J.D. Issues to be Addressed in Buy-Sell Agreement Source: Craig Steinberg, O.D., J.D.
At just 51 years old, Corwyn Mosiman, O.D., is a young retiree. He sold his optometry practice in Watsonville, Calif., in June, and is just wrapping up a six-month transition period during which he has worked two days a week for the young woman who bought his practice.
Being able to focus on patient care has been nice, he says. When Im with patients, I remember what I love about optometry but I also like not having to be there all the time and not having to be responsible for the practice.
Dr. Mosiman had always planned to bring in an associate to learn the ropes and eventually take over his practice. But, over the years, young graduates came and went without ever being the right fit. I couldnt find anyone who shared my approach to optometry, he says.
Many of the young doctors left for corporate optometry or other settings where they could work as employees and not have to devote time to managing staff and promoting the practice. Unfortunately, many young people have unrealistic financial expectations for their first few years out of school, he says. They didnt understand that it takes time to reach your earning potential, and many of them werent willing to go out in the community to build the practice. They simply werent interested in the business aspects of private practice.
As he approached the 25-year mark in practice (17 of those at the helm of his own practice), Dr. Mosiman decided to stop looking for a partner and focus on finding a buyer. Ultimately, he decided to make a clean break, selling the main practice, the building he owned and a smaller satellite office to a buyer who was able to put together the financing to buy the whole package.
Since the sale, Dr. Mosiman has been busy working part-time, visiting family and enjoying the outdoors. He hopes to continue practicing a couple days a week for several years. He also hopes to do some lecturing and consulting to help optometry students and practicing O.D.s learn how to be more successful in private practice.
He wonders if boredom might set in during retirement, but in the next breath, he rattles off a list of new hobbies and business ventures he has in mind. Right now, Im trying to decide what my legacy is going to be for the next 30 years, he says.
Part of my decision to retire when I did was that I didnt want to be one of those people who hang on too long, Dr. Mosiman says. I wanted to quit while I was ahead. Certainly, by anyones measure, his practice was ahead of the game. When he sold it (for a top-dollar rate), the practice was grossing about $850,000 a year, with net revenues consistently in the range of 40% and higher.
According to practice broker Scott Daniels, a practices sale value is very much based on its adjusted net profits. Many doctors expect to sell for 50% to 80% of gross annual revenue, regardless of the net revenue, says Mr. Daniels, a business and real estate broker who runs the consulting firm Practice Concepts with his wife, Alissa Wald, O.D.
A more realistic expectation, Mr. Daniels says, is 1.5 to 2.25 times the adjusted net revenue, although very large or very small practices may deviate from this norm. An optometrist who buys a high net practice will have the cash flow to support the practice debt.
Optometrist and attorney Craig S. Steinberg, who has worked with Mr. Daniels on many practice sales, agrees. The salability of the practice is driven by cash flow and whether the buyer can live on whats left after debt service, he says. Older doctors may sometimes have a hard time relating to the costs younger doctors have to bear, especially when they feel they have been making a comfortable living from the practice.
Similarly, different generational expectations can make for a major culture clash when sellers and buyers intersect. Consultants and financial or legal advisors often end up playing the role of therapist in the transaction. This is naturally a transaction that is fraught with emotion, Mr. Daniels says. After all, the senior doctor has poured blood, sweat and tears into building the practice and may have spent more time in it than with his family over the years. Handing that off to someone else can be very scary.
Another problem that arises: The potential buyer comes in asking a lot of questionsquestions about the money and the books, about why things were done a certain way, about new services that used to be beyond the scope of licensurethat put the seller on the defensive almost immediately, Mr. Daniels says.
A third party can be helpful in ratcheting down the emotion, putting together all the information the seller wants, and negotiating the terms of a buy-sell agreement. Various professionalsincluding practice consultants, lawyers, accountants, appraisers and practice brokersmay fill this role, but its best to get recommendations from other satisfied sellers. Critics say inexperienced or unscrupulous appraisers or brokers often undervalue a practice to sell it quickly or, conversely, overvalue it and unnecessarily delay the sale.
I found it very helpful to have someone who could stand back and be objective about the situation, says Jerry B. Park, O.D., of his experience working with practice appraiser Marilee Blackwell. He sold his Conway, Ark., practice in March 2004 at age 63.
Like Dr. Mosiman, he had always hoped to take on a young associate who would work with him for a few years and then buy the practice. Initially, things seemed to be on track. He found an associate, worked out an agreement, and had the practice appraised. Unfortunately, the associate left after the first year, due to a misunderstanding over compensation.
But, Dr. Parks solo practice was a strong one, grossing more than $750,000 the year he sold it. It wasnt long before a local optometrist in a commercial practice approached him about buying the practice and an agreement was worked out.
Dr. Park financed the sale himself, something he recommends other practice owners consider when theyre ready to retire. Its difficult for a new doctor to borrow the full value of the practice at a reasonable rate of interest, so seller financing turned out to be beneficial for both of us, he says.
Part of the agreement was that the buyer would pay no interest on the loan during the first year unless the gross reached $1 million (which it did). They also agreed that Dr. Park would stay on as an employee, earning a percentage of his gross revenues, for about a year-and-a-half after the sale.
I feel strongly that buying a private practice is a much better opportunity for a young optometrist than corporate practice, he says. The young doctor has the advantage of starting off with a patient base and being able to earn money right away, while the retiring doctor can see the practice carried on and get some value out of it for retirement, so its a win-win situation, he says.
My name is still on the practice, and I made myself available to the buyer after the sale, so the patients perceived that I was still connected to the practice. My reputation in the community helped him get started, but it certainly wont carry him forever, Dr. Park says. He will need to become actively involved in the community as well.
Dr. Park went to great lengths to introduce the new O.D. (Dr. Todd) to all his patients and to encourage them to stay in the practice even after he left. One thing I did was to call in Dr. Todd to consult with me during patient exams. By asking his opinion in front of patients, I reinforced that I thought he was a good doctor. Little things like that can really solidify the relationship between the buyer and your patients, he says.
Although he still fills in when Dr. Todd takes time off, Dr. Parks twice-weekly schedule was cut short by nearly a year when he was diagnosed with prostate cancer and needed surgery a few months after the sale.
Hes doing well now and enjoys seeing patients occasionally, while devoting most of his time to gardening, fishing, horseback riding and volunteer work.
Signing the Papers
In my experience, most solo practitioners want to cash out, but that doesnt preclude them from working a few days a week as an employee, as Dr. Park did, Dr. Steinberg says. From the patients perspective, it really doesnt matter who is the owner and who the employeethey just see a smooth transition.
When hiring an associate with a contract to buy into the practice at a certain point, a lawyer should be involved up front. Otherwise, Dr. Steinberg cautions against getting the legal team in place too early. Bring in the lawyer too soon and youll spend more and possibly make the transaction more difficult, he says.
Instead, buyer and seller should come to an understanding on price and the general terms of the deal, then have a lawyer draw up the contract. A good lawyer will often be able to point out a few outstanding issues that need to be clarified.
From a lawyers standpoint, the sale of a practice is a fairly simple business transaction. Nevertheless, Dr. Steinberg says, doctors should not attempt to save on attorney fees and do it themselves. Some people just rely on escrow instructions to serve as their buy-sell agreement. But this can really backfire if there is a lawsuit and they dont have a contract that identifies who will cover attorney fees, what rights have been waived, etc., he says.
Keeping It in the Family
When Weylin Eng, O.D., decided it was time to sell his optometry practice in Orinda, Calif., he didnt have to look far for a buyer. His daughter Kristine Eng, a 1998 graduate of University of California-Berkeley School of Optometry, was already waiting in the wings.
In fact, the Engs come from a long tradition of optometrists. Weylin Engs father, aunt and sister were all optometrists. Its nice to be able to pass the torch to the next generation, the way my father did with me, he says.
His daughter came to her new role as practice owner well prepared. Kristine has worked in the practice since junior high, doing everything from sweeping floors to working as an assistant while she was in school, Dr. Eng says. Im so proud of the fact that shes a total professional and passionate about what she does.
Although his daughter took over the practice, she paid a fair price for it. They got a lawyer involved and worked out a formal buy-sell agreement. We treated each other like business partners, he says. I suppose I could have just turned the keys over and given her the practice, but I didnt raise my daughters to expect something for nothing and I didnt want there to be any misunderstandings between us.
Since he sold the practice to Kristine in 2000, Dr. Eng has continued to work a couple days a week as a paid employee. I dont need the money, but I think its good for my soul to keep working, Dr. Eng says.
In fact, he says hes enjoying optometry more than ever. My arrangement is that I just see patients. I dont have to deal with insurance paperwork, personnel issues, workers compensation claims or anything like that, he says gleefully.
Even for a doctor who doesnt have a family member to carry on the business, Dr. Eng thinks finding a young associate and working side-by-side for a while is the ideal way to go. Patients get the best of boththe senior doctors experience and the younger ones new ideas and comfort with a higher level of practice, he says. Plus, you get to ease slowly into retirement. I think it would be traumatic to go cold turkey after working 40 to 50 hours a week.
There is no timetable for how long hell continue the part-time work. I guess Ill keep going as long as I enjoy it and can do a good job for the patients, Dr. Eng says.
Family transitions dont always work out so smoothly. We know of other father-daughter or father-son partnerships that didnt work out, Dr. Eng says. I think the key difference is that Kristine and I listen to each other.
They also respect each others strengths and differences. For example, the younger Eng makes full use of paraoptometric assistants, but she doesnt insist that her father do the same. So while she sees patients on a 15- to 20-minute schedule, his schedule is booked with one patient every 30 to 45 minutes, or even longer.
She knows when to ask for my help, he says. In many ways, though, Kristine Eng has taken the practice in a very different direction than her father would have chosen. Not long after she bought him out, she sold one of the two offices and expanded the other, hired four additional employees, computerized the office, bought new equipment, and hired an interior decorator to supervise a complete renovation.
As a parent and a businessman, I really didnt agree with what she was doing. I thought the practice was fine the way it was. I had always made a nice living from it, and I supposed I wondered why that wouldnt be good enough for her. I just couldnt imagine spending all that money if you didnt have to, he says. Nevertheless, he recognized that these were her decisions to make, and he now admits that many of them were the right ones, despite his initial skepticism.
Dr. Eng is philosophical about the changes in optometry over his career. When I started out in 1965, you did a good job and patients paid you for it. Today, optometrists have far more insurance, legal and regulatory issues to worry about, he says.
Of course, expanded scope of practice has been tremendous. There isnt a doubt in my mind that todays graduates are far better trained than my generation was. The new generation of optometrists is very sharp, very well educated, and I think theyll go further in private practice than we ever could.
