- October 7, 2021
- Posted by: New School
- Category: General
At OptiRova, we get that question all the time. Unfortunately, there is no concrete answer. We have had eye care practices sell in two weeks, and we’ve had other practices that have not sold after 2 years. There are however steps you can take to get your practice to sell faster.
We have found that the hardest practices to sell are small practices located in distant rural areas. If your practice is in a rural area that is a long way from other larger towns, there is not much you can do to change that other than to move your practice. There are however ways to increase sales, and increase the value. A practice that has a better cash flow to the owner has a much better chance of selling. The more attractive the financials, the more likely the time frame will be shorter as well.
Here are some actions to take to sell your ophthalmology or optometry practice faster, and for more money.
1. De-clutter the practice. Suppliers are great at getting you large ads featuring their products to display at the practice. It is VERY easy to have an overload of advertising pieces in the practice. Reduce the number by half, and then in a couple weeks, reduce it by half again. Get rid of the old edger that hasn’t been used in a decade. Recycle the old cardboard boxes sitting around.
2. Visual appeal. Take a good look at the practice from the outside, walk in through the patient entrance, follow the circuit that patients would take on a visit. Look for anything that can be improved, such as an old planter that is now home to candy wrappers, an area that needs some new paint, landscaping in need of pruning, etc. Make the practice look as attractive as possible. Another idea: get rid of that old worn display and buy an attractive new one. There are many sources that are easy to access, such as framedisplays.com.
3. Clean up the books. Make sure that your financial reports are current and accurate. Categorize and benchmark your expenses. If you have any areas that are out of line, address those areas as quickly and thoroughly as possible. The two easiest areas for Ophthalmology and Optometry practices to get out of line is in staffing and cost of goods sold (COGS). If you are not looking at your categorized expenses at least every month, bad things are bound to happen. If you don’t catch them right away, they can compound and become disastrous for the practice. If you need help in this area, we will categorize and benchmark your expenses for a one-time fee of $500.
4. Build cash flow. An optometry practice with Seller’s Discretionary Earnings (SDE) of $300,000 is going to be more attractive to buyers than an optometry practice with SDE of $80,000, even if it is located in a rural area. There are three ways to build cash flow: reduce expenses, improve margins, and increase sales. Let’s look at them individually.
Reduce expenses: some areas to consider are COGS, insurances, occupancy, and even office supplies. Make sure that you are buying as well as you can. Reduce the number of vendors to increase the amount of product you buy from the vendors you keep to get better pricing. Renegotiate your lease – many leases have automatic increases that over the years may be out of line with market rates in the area. There are many ways to reduce expenses, make sure you are utilizing them all.
Improve margins: Make sure you are charging the correct amounts for the products and services you provide. Have your pricing at least as high as the highest insurance reimbursements. And don’t be shy about charging for your own services, including eye exams and medical services. Most patients are not nearly as price-sensitive as we think they are. And another note: make sure you are receiving your insurance payments! We have seen many practices where the billers haven’t even billed the insurance company for services, which is devastating for the practice and the owner’s bottom line.
Increase sales: This is the biggest key. You are already paying fixed costs for your practice, including the rent, insurance, utilities, etc. In an ophthalmology or optometry practice, about 30% of the costs are typically in COGS. So when you increase sales, about 70% of the incremental dollars will fall to the bottom line. In other words, if sales increase by $100,000 (say from $500,000 to $600,000), about $70,000 will fall to the bottom line. If you figure you are going to owe more in taxes due to SDE going up, then still at least $60,000 will go to the bottom line. And the best part: increasing sales in an ophthalmology or optometry practice is easy! We consult with practices nation-wide to increase sales, and can typically drive about 30-40% increases immediately. Contact us to learn more!