The Retirement Math That Makes a Practice Sale Work
Most optometrists spend close to two decades building a practice and just months trying to plan the sale.
The outcomes tend to reflect that imbalance. Owners walk away from what looked like a clean deal and find the retirement plan ends up short once taxes settle out. Or their practice simply wasn't sale ready.
I've been thinking about the small set of decisions that determine how a practice sale actually plays out. Five questions are worth working through long before a sale shows up on the calendar:
- What value makes the retirement math actually work?
- What's your ideal exit path?
- Is the practice ready? See my recent podcast episode on this topic.
- How to plan around the expected tax?
- What happens to the proceeds afterward?
I'll be writing about each one in the coming weeks, both here and on the podcast. Today I want to spend most of this email on the first question, because it's the one that quietly sets the floor for everything else.
What value makes the retirement math actually work?
Practice valuation only matters in relation to one number: the gap between what you have outside the practice and what your retirement actually needs to support.
Until that gap is modeled, you don't really know what the practice sale needs to do for you - or what flexibility you have in how it gets done.
Do you need a specific sale price because your retirement plan requires it? Or do you have flexibility in how you exit?
Does the structure matter - lump sum vs. installment sale, all at once vs. to associates over time?
Do you need to continue working post-sale?
Your retirement readiness shapes what's possible at sale. Knowing your number - really, the range of values that make work optional - tells you how to prepare the practice and when to accept or walk away from a deal.
The more you build for retirement outside of the practice, the more flexibility you have at exit.
Here's what's involved in projecting the math here:
Start with the spending numbers. What will your retirement lifestyle actually cost in today's dollars? The starting point is current spending, adjusted for what changes in retirement. Mortgage may be paid off. Healthcare costs typically climb. Travel and hobby spending often goes up before settling back down later in life. Commuting and dry cleaning drop. The number people land on after a careful pass is rarely what they guessed initially.
It's important to say it's not always possible to get these down perfectly. The closer you are to this point, closer your numbers will be to reality.
Then map what's already covering it. Social Security at various claim ages, any pension, spouse income, rental income, and existing investment accounts (taxable, retirement, HSA) all factor in. The gap between those resources and your spending number is what the practice itself actually has to deliver.
That gap becomes the negotiating floor. The minimum after-tax sale proceeds required to make retirement work is the number that tells you what kind of deal actually works for your family - what timeline, what kind of buyer, what payment structure, and whether you'd need to keep working part-time after. It also tells you when an offer is worth accepting.
Then stress test it. What changes if the practice sells for 25% less than you're hoping? Or what if you choose to sell to an associate at a lower price rather than a larger consolidator? What if an earnout doesn't fully pay out (looking at you, PE)? Same with a sale delayed by two or three years, or a market downturn landing in the year of the sale. A health timeline forcing an earlier exit creates yet another version of the same question.
Each scenario changes what the deal itself needs to look like. And each one becomes a planning conversation you can address - through savings rates, mix of assets, tax planning, improvements to the practice - when you have the runway to do it.
That's the bigger point. Owners who run this exercise long before a planned sale tend to end up with the most flexibility. They've had time to close the gap through their own savings and investment growth, which means they have less riding on the sale itself. That changes how negotiations play out. For someone running the math for the first time during an active deal, the offer usually ends up dictating the retirement plan.
You become a price taker, rather than intentionally seeking the ideal exit.
If you're early in practice ownership with decades ahead? You have so much time to wisely use the cash flow your practice generates - first to reinvest back into the practice, then to build assets elsewhere.
We all exit our businesses at some point - either on our terms, or on someone else's. The more you build outside of the practice, the more chance you have to exit on yours.
Next week I'll get into the second question: what your ideal exit path looks like.
If you're not sure where you stand, let's talk. I help optometrists all over the country, along with fantastic consultants, navigate exactly this kind of planning - helping practice owners plan financially for the exit of their business into the next stage of life.
Click here to schedule your free consultation. We can look at what's on your mind and figure out if there's a better path forward for your situation.
Have a great weekend!
Evon Mendrin, CFP®, CSLP®
New From Our Education Hub
|
|
Podcast Ep. 160: How to Maximize Your Optometry Practice Value Before You Sell with Erich Mattei
Erich Mattei of Akrinos joins me to dive into how ODs can prepare their practices leading up to practice exits.
|
|
|
Podcast Ep. 159: An OD's Guide to Quarterly Tax Payments
I dive deep into how ODs can better manage tax withholdings and quarterly payments for lower stress and more control.
|