What a Buyer Sees When They Look at Your Practice
You've spent years building your practice. You know what it means to you - the patients, the impact, the team, the income it's provided, the life it's funded.
At some point in your life, it's going to be time to step back from ownership and pass the baton to the next owner(s) - everyone exits their business at some point.
When a buyer looks at your practice, what are they seeing? One lens they look through is financial - evaluating the financial story of the practice.
They're looking your financials and asking one question: does this business cash flow well enough for me to borrow money, pay myself a living wage, and cover the debt?
And a bank is asking the same thing - that may be all the bank cares about.
And whether you're thinking about selling in five years or twenty-five, it's worth understanding how that lens works - because the decisions you're making right now are shaping the answer to that question.
Fair market value starts with cash flow
The value of your practice isn't determined by how hard you've worked, how much you love it, or even how much revenue it generates. It's determined by how profitable it is - and how reliable that profitability looks to an outside party.
Cash flow is the primary driver of value, and how likely is that cash flow to continue in the same way for the next owner.
A buyer and their lender are going to look at your financials and reconstruct what the business actually earns. That means adding back your owner salary, subtracting out what it would cost to replace you with a hired doctor, and then evaluating what's left. That's the number they're building a price around.
So the cleaner and more profitable your financials look - and the more confident a buyer feels that those numbers will hold up after you leave - the higher that number is going to be.
What they're scrutinizing
A few specific things buyers and their advisors are going to look at closely:
Expense benchmarks: There are generally accepted ranges for the major expense categories in an optometry practice - cost of goods sold, occupancy, non-doctor payroll, and general overhead.
If your numbers are out of range, it raises questions. High COGS suggest money being left on the table. Bloated general overhead often signals personal expenses running through the business. These things either reduce your value directly or force awkward conversations about add-backs.
Add-backs: An add-back is an adjustment made to your financials to reflect the true performance of the business - the most common being your owner salary (adjusted if it's too high or too low) and personal expenses.
But if your books are full of personal trips, vehicles, and household expenses that got run through the practice over the years, you're going to be writing a lot of explanatory footnotes for a prospective buyer. Lenders don't love that. Buyers don't love that. And it can quietly chip away at both your price and your negotiating position.
Payor mix: Not all revenue is equal in the eyes of a buyer. A practice generating strong revenue from cash pay and strategic insurance relationships is seen as less risky than one that's heavily dependent on managed care and vision plans โ plans that reimburse less every year and can change their terms without warning. The mix of patients and payors is important.
Risk gets priced into valuation. A more insurance-dependent practice, all else being equal, may be worth less than one with a healthier mix of cash and medical revenue.
Equipment and physical condition: A buyer is stepping into your practice and trying to picture themselves running it. If the exam lanes are outdated, the OCT is on its last leg, and the optical inventory looks like it hasn't been refreshed in a decade, that creates uncertainty about what they're taking on - and uncertainty reduces what they're willing to pay.
The earlier you think about this, the more options you have
None of this is meant to be overwhelming. Most practice owners aren't doing anything wrong - they're just running their business the way it's always been run, without necessarily thinking about how it looks through an outside lens.
But that lens matters. And the good news is that if you're five, ten, or even fifteen years from a potential exit, you have real time to make meaningful changes.
Tighten up the expense benchmarks. Clean up the books. Think intentionally about your payor mix and what kind of revenue you're growing. Invest in the practice so a buyer can walk in and feel confident.
And the better you plan financially for financial independence outside of the practice, the more options and flexibility you have to exit on your own terms.
These are all things Erich Mattei and I dive into in this week's podcast episode, which you can find below ๐. Check it out to learn even more.
The practices that get the best outcomes at exit aren't necessarily the ones with the highest revenue. They're the ones that were run like a business - with clean financials, controlled expenses, and a story a buyer and their lender can follow without a lot of footnotes.
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.
โClick 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, CFPยฎ, CSLPยฎ
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