LA Consultants
Life Abundant 1.502.544.5757
Your Practice is Worth

Have you developed an exit strategy that will allow you to live out the remainder of your life as you have always envisioned? The wonderful thing about selling your practice is that you can decide how you want to exit and the length of time you want it to take. For example, you can sell outright or you can hire an associate who will pay phantom equity or cash for "x" number of years before assuming ownership of the practice. Honestly, your exit strategy can be as creative as you want it to be but it does require your understanding the true monetary value of your practice.

My biggest challenge in helping senior doctors exit is helping them take a realistic view of his/her practice and accepting its worth. Many doctors bring expectations to the appraisal such as, the years of hard work and sacrifice of time they have invested into their practice. This makes the practice priceless and unsellable in today's market because your time is invaluable. I challenge doctors to not look at the past when considering the value of the practice but instead look at the practice's future.

Whether you have been in practice for 20 years or you have just graduated Optometry school you may have to read, understand and make a decision based on a practice appraisal. This can be a daunting task. Practice appraisals do not follow a single format. They vary according to the appraiser. However, by understanding the basic methodology of appraisal techniques you will be able to understand how the conclusions were reached and what you can do as the seller to increase the value. As the buyer you should be able to identify the trend of the practice, its current value and the potential growth that exists when you purchase the practice.

Terms to understand:

Tangible assets are hard assets such as optometric equipment, furnishings, computers, frame/lens inventories and supplies. They are not valued at what you purchased them for. A certified equipment appraisal will be necessary to validate the equipments' fair market value for a lending institution. The equipment appraisal will include a replacement cost (brand new), the wholesale value and the fair market value. Furnishings, computers and office supplies depreciate very quickly. Rarely does the appraiser's worth of these items match the seller's estimate.

The fair market value of frames, ophthalmic lenses and contact lenses is 60-75% of retail cost. Frames take a bigger hit than your lenses and your contact lenses.

Accounts receivable is challenging. I encourage the seller to include AR in the value of the practice. This means the buyer will benefit from the seller's recent exams however it rids the confusion of collecting and continuing to pay out to the seller. The value is dependent upon the age of the accounts. Our method for this is 95% of net charges (total charge minus non-allowed) for charges within 60 days. 75% of net charges for 60-90 days and 50% or less on charges over 90 days.

Liabilities for an Optometric practice in our appraisal is primarily new equipment purchases and other debt obligations that are not monthly cycled accounts payable expenses such as rent, utilities, taxes, cost of goods, etc.

Goodwill or Future Earnings Potential is based upon current earning capacity and its value. We use the "Net Income Basis Method" to arrive at the present value of future earnings. This dollar average is then applied to the practice valuation in an effort to afford the buyer the most accurate assessment of the practice's true value.

Break-even point analysis offers insight into the feasibility of a practice purchase or sale for both the buyer and the seller. Break-even point analysis will not determine the value of a practice or for what price a practice should sell. It does, however, offer the user a method of calculating the likelihood of being able to afford the monthly payments based on historical financial performance, expenses, the buyer's desired personal salary, and loan value. With the information you supply you will be able to determine the monthly collections necessary to cash flow the practice. This information gives insight to the seller as to the feasibility of his asking price and the buyer's position to afford. We will use the practice value supplied by you or LA appraised value if purchased with a 8% interest for the break-even point analysis.

We encourage you to use our appraisal system to create your own valuation. It can be used with an official certified equipment appraisal or you may want to use it to compare with another appraisal you have received. Regardless, we are confident you will find the appraisal informative and helpful when making selling/buying decisions. Our fee for this service is only $250. The results will be emailed to you within two business days.

Please consider our iCoach services if you are looking for a way to increase the value of your practice.

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