The Value of Your Practice

Most doctors go through a long process of deciding what to look for when buying a practice. Unfortunately, during their four years of professional education, there isn’t much covered on the business aspects of purchasing a practice or the realities of ownership. The answers to these concerns will ultimately be premised on one thing: the determination of what a practice is worth.

• Realistic Valuation: Over the last several years, the value of optometric practices has declined. Twenty-five years ago, a standard rule of thumb for evaluating practices would be some multiple of gross revenue. It was quite common to expect one year’s gross revenue—meaning that if I had a $600,000 practice, I would expect to sell it for nearly $600,000.

Over the last two decades traditional valuation formulas no longer apply, and the real intrinsic value is closer to 50% or 60% of a year’s collected revenue. An optometric practice is like any business—it is worth a combination of only two things: assets and earnings. It might be helpful to have a common understanding of what optometric assets and earnings really represent. In the following few paragraphs, we’ll look at the commonly accepted formulas used to appraise an optometric practice.

• Defining Assets: First, assets are either tangible or intangible. Tangible assets would include items such as ophthalmic equipment, computers, frame inventory, contact lens inventory, furnishings, and supplies. Some examples of intangible assets would be goodwill or a covenant not to compete. In my experience, the ophthalmic equipment—a large part of any optometric practice asset base—is the most difficult for which to determine value.
Hard tangible assets can be valued using one of three methodologies: book value, replacement value, or fair market value. An understanding of what these terms mean will help you get a better grasp of what these assets are worth.

• Book Value: is simply the value of an asset carried on the books of the business. This value generally is acquisition costs net of accumulated depreciation. For example, if in 1990 you bought a slit lamp for $18,000 and its current accumulated depreciation is $12,000 on the company books, this asset would have a value of $6,000

• Replacement Value: is the cost of replacing that piece of equipment in today’s market. Using the slit lamp example, if the slit lamp (which was purchased in 1990 for $18,000) was destroyed in a fire and needed to be replaced, its replacement value may be closer to $22,000 or $23,000—the cost of replacing it brand new in today’s market

• Fair Market Value: is the most subjective of the three accounting concepts, especially as it applies to ophthalmic equipment. It is nonetheless the concept that is most often applied to determining the value of hard tangible assets like equipment.

Key Considerations When Selling Your Practice

• Location: In today’s marketplace, the number one criterion a young doctor uses for determining whether he or she will buy a particular practice is its geographic location. Whenever I lecture at optometry schools, the overwhelming majority of students tell me that when they create their short list of practice opportunities, they do so by geographic location. Unfortunately for the seller, that is the one thing about your practice that is nearly impossible to change. So, knowing how to overcome objections is important.

• Region: Issues like demographics and the economic vitality of a community are critical considerations for potential buyers and should be considered by every seller when transitioning a practice.

• Buying Pool: There is, however, a small market for both potential buyers as well as sellers wishing to transfer ownership of a practice. The preponderance of the buyers and sellers today are other optometrists which, by definition, limits the liquidity the marketplace. Occasionally, some other entity such as a medical group or hospital group may buy a practice, but those purchases are few and far between.

• Optometric Presence: A factor often overlooked when selling is whether optometry has a strong presence and is supported by the state’s legislative practice act. There is no doubt that in certain regions of our country the profession has thrived and been a key player in the healthcare delivery system. As a result, potential buyers look for practices to purchase in these areas.

Is it Time To Add an Associate?

To identify whether there is a need for a new optometrist to join your practice, begin by looking at your numbers. As you review your weekly and monthly statistics, do you see your patient base growing or shrinking?

Measure that base by comparing your practice's established and new patient exams this year versus last year. Use both the complete and intermediate exams to determine this.

As you review the numbers, ask yourself, “Am I seeing more new patients this year than last?” If the answer is no, and you are booked three or more weeks in advance, this is a good indicator that you should add a new associate to your practice.

Next, answer this set of questions:
• Have you been in practice five to 10 years?
• Are you booked weeks in advance and having difficulty fitting new patients in to your schedule in a timely manner?
• Are you looking to improve your balance between family time and the practice?

When you can answer yes to the above questions, it’s probably time to explore the option of adding an associate.

Keep Your Practice Financials Organized

Your practice financials consists of three distinct systems that ought to be aggregated into your financial management report. The systems are Billing & Collections, Purchasing & Payments, and Payroll. Your practice management software provides reports for only one of these three – Billing and Collections.

We suggest that you think in this three-system framework to consider if any one of the three is blocking you from getting the information aggregated into a timely set of monthly financial management reports. An organized financial report ought to culminate in the three systems coming together into a financial management report that you can review within the first two weeks after month end. The following ought to be included in the financial management report: Balance Sheet, Profit & Loss, and Cash flow statements.

A business owner needs their balance sheet to assess their cash and asset position relative to their current liability and long-term debt position. The assessment can be as generic as, does what I'm looking at make me feel good? Do I have more assets than liabilities available to work with? Life can be very challenging if our assets only equal our liabilities. We perform better if our assets exceed our liabilities by a reasonable margin. This holds true with companies.

A business owner needs their profit and loss (P&L) statement to assess their operating net relative to other clinics in the profession. The P&L measures how well you’re using the assets you have, allowing you to compare how you're performing relative to your peers. To do so your P&L ought to be organized into six main categories to determine your operating income: Collected Receipts, Cost of Goods Sold, Staff HR, Occupancy, Overhead and Marketing. Each of these categories can be compared to national benchmarks to assess your clinic's performance relative to national averages.

A business owner needs their cash flow statement to assess what amount of cash is: #1 is generated from clinic operations, #2 consumed from financing activities (debt service), #3 used in investing activities (equipment purchases, distributions). Your cash flow statement will tell you if your clinic operations are generating sufficient cash to service debt and pay yourself and your taxes. The cash flow statement will give you a very clear understanding of where your cash is going.

From our experience, we have found that the most successful practices are those which have their financials properly organized.

Walk in your Patients’ Footsteps

Set aside time with the entire team to truly experience your office as your patients do!

We all become desensitized to the routine sights, sounds, smells, and feels in the places we spend most of our days, such as your office. We stop noticing the little details that may jump out at a newcomer. There may small changes you can make to create an even more pleasant and inviting atmosphere for your office visitors.

1. Do this before or after office hours, or use a meeting time when the office is normally closed. You’ll need an hour.

2. Designate a notetaker for the team.

3. Start in the parking area! Everyone will slowly walk from “the car”, up to the entrance, and follow the regular path that a patient might take through the office, including sitting in reception, and even stepping into the bathroom.

4. Everyone can call out the sights, sounds, smells and touches that are either really good or NOT good. The notetaker will record everything. The NOT good examples might be trash in the planter by the front door, clutter on a counter top, smudges on glass displays, bad fridge odors in the hallway, uncomfortable chairs, etc.

5. After the walk-through, set another meeting to brainstorm and prioritize any environmental tweaks you can make to create a sensational visit for your patients. Set up a plan of action and deadlines and assign people to each task.

6. Plan to repeat this process a couple times a year.

Where’d the Money Go?

You’ve examined the patient, made your recommendations, selected glasses, billed the patient and insurance, collected fees, and then dispensed those glasses to a happy patient… Great job!

But…did you GET PAID properly for all the work you did? Profit margins continue to shrink, so you BETTER get paid!

Make sure you do a revenue cycle audit to be sure:

1. Choose 10 patients from at least one month ago who bought products.
2. Pull chart notes, patient ledgers, lab orders, lab invoices, insurance EOBS, and any redo orders to create a full audit packet for each patient.
3. Analyze each step of that cycle for each audit…was everything done correctly?
4. Use this as a DISCOVERY exercise, not a disciplinary action to scold your team members.

Share the audits with the team and brainstorm ways to tighten things up and catch EVERY dollar you’ve EARNED with your fabulous patient care.

How To Keep Your Staff Engaged

We all worry about staff turnover, but we frequently struggle to find that perfect balance between practice management, patient care, ​and staff morale. The best advice is to have a plan in place. Be sure to have regular communication with every member on the team. Set team and personal goals, along with how we plan to achieve them and why it is important to the practice. Let your staff know you hear them and allow them to give ideas on how to run the daily tasks. We recommend taking a proactive approach by having short daily huddles as well as monthly team meetings to assess and restructure, managing each day individually making goals much more attainable for your staff.

A few other ideas to help keep staff engaged:
1. Teambuilding Activities
2. Annual Retreats
3. Community Projects
4. Host Lunch and Learns (new topic monthly for staff to learn new skills)

Should I Choose A Cloud-Based or Server-Based EHR System?

When choosing an EHR, one of the more impactful decisions can be whether to run as a cloud-based or server-based system. Whether it’s cost, speed, or reliability, each can have their benefits and drawbacks. Below are some of the biggest pros and cons when deciding between cloud or server:


Can be accessed from anywhere- Since it’s internet based, cloud systems mean your data can be accessed anywhere you have internet.
No server hardware- With your data hosted remotely, you will not need to worry about server hardware/IT costs. (Note that you will still need to have IT service for your client computers and local network)
Built in backups- Cloud systems typically include backups and multiple redundancies to protect your data.

Reliant on internet- slow or no internet means limited or no data access.
Cost- typically costs much more than a server based installation, especially as you extrapolate over time.


Fastest speeds- by taking the internet out of the equation, you can achieve the fastest data speeds
Cost- Server systems on average will cost much less than a cloud system, especially when extrapolated over time.
Reliability- Not having to worry about the internet means reliability is increased. Even if your server computer goes out, you can typically be restored to normal function within an hour.

Accessibility- While you can remotely access your data with a server system, it will require setup of a VPN connection or use of another software like Teamviewer or LogMeIn.
Hardware costs- Some software systems require an expensive server which can affect the cost savings. Luckily, Practice Director’s server requirements aren’t much more than that of a client so it’s not an issue.
Backup- Server based systems require you to arrange backup of your data. Luckily, Practice Director offers an inexpensive backup solution for our clients that allows backups multiple times a day.

The bottom line is cloud systems are great for multi-location offices that need access to each other’s data. For offices that are single location, have minimal interaction between the locations, or have limited internet abilities, a server based installation is typically best.

Does Your EHR Meet the Latest Certification Requirements?

The 2019 rules for Promoting Interoperability (formerly MIPS) are out. If your optometric practice bills $90k or more in Part B allowed charges or has 200 Medicare beneficiaries, then you can opt-in to attest. However, not opting-in may negatively impact your Healthgrades score, your Medicare business, valuable Google rankings, and could result in a -7% payment adjustment (paid out in 2021). Unfortunately, some EHR solutions aren’t 2015 Edition certified, a requirement to participate in PI starting January 1st, 2019. If you aren’t sure if your EHR is certified, you can search here (https://chpl.healthit.gov/#/search.)

Tips for Hiring Employees for Your New Practice

You are getting ready to open your practice. Many decisions are made and now you are ready to hire your very first employee. You have likely never been involved in the hiring process and may be a bit anxious. The key is preparation. Following are some tips to help you get prepared to hire.

Create Job Descriptions

Job descriptions define basic responsibilities and essential job functions. The definitions will effectively communicate job information to your potential employees, clear, concise and accurately. Written job description may help prevent you (the interviewer) from over or under-representing the position, which may protect you against any future legal actions.

Create an Employee Handbook

Your employee handbook will communicate policies and procedures of your business. Employee handbooks are an essential part of positive employee relations and should be in place before you begin your hiring process. Handbooks can also play a critical role in demonstrating employment law compliance and protect against claims of improper or unfair employee conduct.

Utilize a Structured Approach for the Interview Process

* Interview questions: Make sure to research and be informed of appropriate interview questions. Establish consistent interview questions so you are asking the same questions for candidate comparison.

* Background checks: Conduct legally-compliant reference and background checks.

* Utilize other hiring tools: Personality assessments and skills assessments are great tools to assist you in the hiring process.

Be consistent in your processes from candidate to candidate.

Key Considerations When Choosing A Location For Your New Practice

There are many factors to consider when choosing a location for your practice. Some are personal: where do I want to live? Others are business driven: does this area have the demographics that fit my vision and brand and the population to support my business? Once you decide on the general area, following are considerations as you search for the ideal location.

Location Costs

An important consideration when looking for space to lease is finding a place that you can afford. Rent costs vary greatly from area to area and even within an area itself. A commercial realtor can provide information on usual and customary rent costs in your desired area or various locations within the community. You will use this information to compare costs to the various locations you are considering and then work those numbers into your financial projections and business plan.

Visibility & Accessibility & Parking

Visibility is very important and at the top of the list when comparing your locations of interest. Is this location visible from the main flow of traffic, located in close proximity to a main road or intersection? The better the visibility, the fewer marketing dollars you will need to spend to create awareness about your new business. Accessibility, is also an important consideration when choosing a location. Available and adequate parking should be considered. Zoning requirements usually dictate the parking the building owner must have. Six to eight parking spots are recommended specifically for patients.

Other Neighborhood Businesses

Look at the neighboring tenants and types of businesses. Are they attracting your target market and the type of consumer that you want? Spend some time determining if the businesses nearby are compatible with your business.

Analyze the Competition

In many markets’ competition is plentiful. Study the closest competitors and determine what will make your brand and practice attractive to potential patients.

Are You Financially Prepared to Start a Practice?

If you are considering starting your own optometry practice, chances are you will need some outside financing to do so, and likely through a financial institution. Early on, even before you know how much money you will need to secure, you should start preparing for this financial investment and your quest for cash.

Lenders will want to know specific details about your personal financial situation. One of the most common measures that lenders will examine for a start-up business is debt-to-income or debt-to-asset ratio. Your personal debt will include student loans, personal loans and credit card debt.

Good credit is the fundamental basis for all financial investments and the ability to get lender financing. The first step is to review and monitor your credit score. Your credit report allows potential lenders to evaluate your credit worthiness. The higher your number the lower your risk may be to the lender. You can request a free copy of your credit report from each of the major credit report agencies such as Experian and Equifax. If there’s something that needs action you may be able to correct it before getting into the lending process.

Following are three additional suggested steps you can take to help improve your credit rating provided by advisors from Wells Fargo Practice Finance:

  1. Don’t max out your credit. It’s important to have credit, but you don’t want to use it all.
  2. Pay your bills on time. One of the actions that may have the greatest negative impact on a business credit score is not paying on time.
  3. Refrain from refinancing your student loans until you get your practice open. Taking on a higher monthly payment to shorten the repayment will factor into the debt-to-income ratio and may reduce your ability to secure enough financing.

It’s never too soon to make sure your financial profile is healthy and you are ready to secure the financing you need to start up your very own practice.

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