Selling an Optometry Practice or Optical Shop

What a buyer pays for

A buyer pays for the earnings left after the doctor's own pay is taken out at a fair market rate. This matters most when the owner is also the only optometrist. If you work the exam lane four days a week and take home one lump sum, the buyer will subtract what it costs to hire a replacement doctor, and what remains is the number they price. Our post on what seller's discretionary earnings means covers how that adjustment works in general, and the same logic applies here.

After the earnings, buyers look at exam volume by month, the number of new patients each month, and how many of them came back the following year. A practice with a recall system that works, where patients get a reminder and book their next exam before they leave, has a base that renews itself. A practice that depends on walk-ins and one good location is harder to value with confidence.

Then comes the capture rate, which is the share of exam patients who buy glasses or contacts from your own optical instead of taking the prescription down the street. Owners in this trade know the number even if they call it something else. A practice that sends most of its patients out the door with a new pair is worth more than one whose optical sits quiet. Buyers will ask for it, and they will ask how you measure it.

What makes one practice worth more than another

The mix of revenue matters. Routine exams paid by a vision plan are steady but pay a fixed fee. Medical eye care, such as managing glaucoma, dry eye, diabetic eye exams and red eye visits, bills to the patient's medical insurance and often brings a higher fee and more follow-up visits. A practice that has built up a medical side usually draws stronger interest, because that revenue is harder for a retail chain to take.

Equipment counts for more than owners expect. A visual field machine, a retinal camera, an optical coherence tomography scanner and a good slit lamp let a doctor catch and manage disease in the office, which keeps patients from being referred away. Buyers will ask the age of each machine, whether it is paid off, and what a replacement costs. Equipment near the end of its life is a number they take off the price.

The optical has its own measures. Frame inventory that turns over is an asset. Frame boards full of styles from several seasons ago are not, and a buyer will discount them heavily or ask you to clear them before closing. Lab arrangements matter too. A practice with an edging lab on site can finish a pair of glasses the same day and keep the margin. A practice that sends every job to an outside lab depends on that lab's prices and speed. Contact lens sales, especially ones set up as recurring shipments, add the kind of repeat revenue we write about in our post on recurring revenue and contracts.

The records a buyer will ask for

Buyers and their lenders will ask for the business tax returns, monthly profit and loss statements and a balance sheet. They will want a revenue report that separates exam fees, medical billing, frame and lens sales and contact lens sales. They will want the aging report from your billing system, because vision and medical claims that sit unpaid are a quiet problem in this trade.

They will ask for every payer agreement, a list of the vision plans and medical plans you are credentialed with, and your payer mix by revenue. They will ask for the staff list with pay, tenure and licenses, the associate doctor agreements, the equipment list, and the vendor accounts for frames and lenses. Some vendors give better pricing to a practice that meets a purchase minimum, and a buyer will want to know whether those terms follow the business. If you want to see how clean books look from the buyer's side, our post on getting your financials ready is a good start.

What has to transfer

A practice that bills insurance is in a different position from a retail shop, because a payer contract belongs to a named provider. When the ownership changes, or when a new doctor takes over, the plans may need new credentialing, and that can take weeks or months. During that time a practice may be unable to bill a plan for some patients. A sale that does not account for the gap leaves the buyer short of cash right when they take over, so we plan the timing with the buyer early.

The doctor's license does not transfer. If the buyer is an optometrist, that is straightforward. If the buyer is not, many states limit who can own an optometry practice or require a licensed doctor to control clinical decisions, and the structure of the deal changes. Rules vary by state and your attorney confirms what applies to your practice. We raise this early with buyers, because a deal that looks fine on price can fail on ownership structure.

Patient records come with their own rules about who holds them and how long they must be kept. The lease needs the landlord's consent, and a lender will want a long enough term to cover the loan. Our post on the lease as part of the deal describes how that tends to go. Equipment leases, the phone and software contracts and the electronic health record license each need a look as well, since the software holds years of patient history the buyer needs on day one.

What tends to sink a sale

The most common problem is that the owner is the practice. Patients come in because of you, the associates are part time, and nobody else can take the chair. A buyer sees a practice that will shrink when you leave. We usually suggest bringing in an associate doctor well ahead of a sale and letting patients meet them. Our post on owner dependency covers the general approach.

Other problems repeat. The optical's inventory is old and the counts do not match the books. A payer agreement turns out to stay with the doctor rather than the business. Cash exams and cash eyewear sales are never recorded, so the returns understate what the practice earns and the buyer cannot rely on the higher figure. Staff, especially a long-serving optician who patients ask for by name, hear about the sale and leave. We market a practice confidentially for that reason, as described in our post on how we market a business confidentially.

How to prepare

Start a year or more ahead if you can. Pull your capture rate and recall numbers every month so you can show them. Clear out old frames and count the inventory. Make sure every sale goes through the system and the returns match it. Hire or promote an associate doctor and give patients time to see them. Ask your landlord about renewal terms and read every payer agreement so you know which ones need the other side's consent.

At Business Advisors of America we start with a valuation built from your own numbers, then prepare the package a buyer and a lender will expect, and screen buyers before they see anything that identifies your practice. If you want to know more about selling an eye care practice, the sub-industry page is a place to start, and we are glad to talk through the timing with you.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.