Practice Transition Team Checklist: Get the Right People On Board

When buying or selling a practice, you need the right people resources in place. Here is a winning-team checklist.

Many optometrists have told us they are not sure how to go about their practice transition. Whether it’s buying, buying into, or selling a private practice, you need an experienced “practice transition support team.” We have found that experienced resources are very hard to find.

Who should be on this team and where can you find them? Below is a list of the most important team members and the services they should perform. Use the list to double-check that you have the practice transition resources you need in place. If you can’t find the resources, call us. We will share ours with you or help you find them.

Consultants can perform many services for buyers and sellers. Consultants must be optometric-specific. There are only a few reputable consultants in the industry and they work on practices across the country. Price ranges vary based on services provided and are considered a very good investment by most ODs. The cost ranges from $1,000+ for situational consulting to $25,000 for hands on management consulting for multiple years. There might be an additional cost for multiple practice locations. At Vision One, we finance management consulting costs into the practice acquisition loan. Consultant services include:

  • Matchmaking – find buyers or sellers
  • Weeding out “tire kickers,” saving the seller’s valuable time.
  • Conducting buyer due diligence.
  • Creating sale contracts – Though not attorneys, they generally have standard forms that should be reviewed by an attorney for conformance with state law.
  • Supplying non-disclosure agreements to protect your practice financial data.
  • Determining practice sale price or appraisal.
  • Helping buyers with transition management issues. Streamlining processes and flow.

Look for a firm with optometric or at least medical practice and sale transaction experience. Most accountants are state-based, but it is not required. Cost ranges vary based on services provided and are considered a very good investment by most ODs. Costs range from $500+ for situational consulting; $2,000 to $5,000 for setting up the books properly; $1,000 to $2,500 for a basic tax return.
Benefits to Sellers

  • Manage gain on sale tax issues (i.e. seller note deferrals, recapture, capital gains).
  • Advise on financial / retirement plan (also consider using a financial planner).
  • Asset basis determination (tax impact, part of sale negotiations).

Benefits to Buyers

  • Financial due diligence of the seller’s books.
  • Support in the preparation of budgets to determine expected cash flow.
  • Asset basis determination (tax impact, part of sale negotiations).
  • Setup the proper accounting systems for ongoing operations.
  • Create financial reporting to recognize trending, metrics and alerts to significant changes / problems.
  • Tax management – shelter ongoing practice earnings.

Look for an attorney with optometric or at least medical and sale transaction experience to help with the following areas. Attorneys must be licensed to practice in the state where the optometric practice is located. Legal fees generally range from $3,000 to $5,000 for full documentation; less for a review of an existing contract. The costs vary from state to state. Often, legal fees are shared between buyer and seller.

  • Sale contract – terms, conditions, price / payment terms, definition of property conveyed, seller note preparation (if any), employment and non-compete agreements, etc.
  • Attorneys should review contracts from consultants and brokers to ensure conformance to state law.
  • Seller representations and warranties.
  • Property lease review.
  • Incorporation, fictitious names.
  • Partnership or shareholder agreements – terminating partners, buy-out provisions, valuation methods and compensation terms.
  • Knowledge of state board requirements – acceptable names, number of locations, ownership structures, etc.
  • Overhead sharing – operating agreements, use of property / staff, primary and sub-leases.
  • Escrow closing (lien satisfactions, clear title and disbursement of sale proceeds).

Practice Valuation / Appraiser
Appraisals are useful for impartial third-party opinions of value, only when needed. It has been our experience that an appraiser must have optometric practice experience to provide a realistic value. There are only a few appraisers with these credentials; many are also consultants in the industry. Appraisers generally work on practices across the country. Appraisals range in price from $1,600 to $2,700 and are beneficial in the following areas.

  • To resolve value impasses (unrealistic sellers or buyers).
  • Valuations for a buy-in or buy-out of partners.
  • Valuations to satisfy terminating partner situations (retirement, death, disability, dissolution).
  • Occasionally for lending purposes.

Financial Institution
Almost all buyers require financing to pay the practice purchase price plus working capital. Financial institutions with optometric-specific experience are essential. There are only a few institutions, such as ours, that have the experience that are willing to make practice acquisition loans. Many lenders exited the market during the recession, some have recently returned. Expect a good financial institution to:

  • Lend to your practice, not just take your deposits.
  • Have an intimate understanding of how private optometric practices produce cash flow.
  • Provide loan structures that match the borrower’s income needs with the cash flow of the practice.
  • Understand and adapt the loan structure to support various practice transition plans.
  • Help educate the borrower / buyer on practice cash flow.
  • Provide a loan term that fits the cash flow requirements. Loans terms that are too short create payments that are too high. Loans terms that are too long mean excessive interest payments and less ability to borrow ongoing to improve the practice.
  • Understand third-party payer empanelment and help a buyer setup the practice checking account for electronic settlement.
  • Understand the needs of both buyers and sellers in order to make the transaction work.

Many doctors focus on rate as the only criteria for choosing a financial institution. A reasonable rate is a good thing, but it is only one item in a long list of important criteria. A good, optometric-knowledgeable financial institution is a partner you will want and need for your entire career.

Consider the Optometric-Specific Experience of Partners
Members of your practice transition support team should have substantial experience with optometric practices. You wouldn’t want a patient to see a general medical doctor for eyecare, so don’t expect good results from service providers who only occasionally serve optometry or rely on a general medical model. A knowledgeable support team will understand many of the transition risks and will take the time to explain them to you.

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Robert Schultz is president and CEO of Vision One Credit Union in Sacramento, Calif. To reach him: