7 Key Steps to Purchasing an Optometry Practice

If you’ve ever thought about opening your own practice, you are in the right place. Even if it’s just been a far-off dream or you are just starting out in your career, it’s never too early to start planning. Over the past 20 years, I’ve acquired seven practices and worked with countless Vision Source practice owners and associates as a Practice Transition Advisor. While the process can vary each time, I believe there are seven key steps to a successful transition, and I’m excited to walk you through them. Before we get started, here is a preview of the process I’ve employed for more than dozens of successful optometrists.

The first step is to determine why you want to purchase your own practice ( ... or your second … or your tenth … ). By now you probably already know that ownership can unlock so many benefits including higher compensation, autonomy, and wealth creation—as well as some serious financial and operational responsibilities that I’m confident you will embrace as a new business owner. Practice ownership will also challenge you. It's a process of life-long learning that will stretch you to learn more about financial principles and getting along with people than you could ever imagine. However, if you have the energy, tenacity, and can be disciplined enough to learn organizational skills and work the hours needed, then it will be incredibly rewarding.

As with all major life decisions, I can’t underestimate the power of making a list of what your perfect practice looks like. Because recurring business and referrals are key for any business, you want to look for a high level of customer service and patient satisfaction (also called Goodwill, which we will get to in a minute.) Some of the other must-haves on your list may also include:

Location
Ease of commute
Steady growth
Well-established reputation
Good culture
Profitability
Returning patients
Reputation

Where’s the ideal location to open your
optometry practice?

So where are you going to purchase your practice? Location is one of the most important considerations, especially if you are willing to be flexible, which will open up many more opportunities for you. For example, many rural practices enjoy lower staff wages and occupancy costs compared to those in a large city, as well as standard of living advantages like low traffic and crime. Here’s a comparison of a rural and urban practice. As you can see, even with a higher doctor compensation, the profitability of the rural practice is greater due to lower staff wages and occupancy costs.

No matter where you choose to open shop, I recommend you conduct a thorough geo-spatial analysis to learn as much as possible about your location, including population growth and demographics of your potential patients to make sure you have a solid market.

If location is a primary driver, you may not have a choice when it comes to the size of your practice, but when analyzing a practice for sale, always consider that you aren’t purchasing a job or even a career. You’re purchasing a business. That’s why I always recommend purchasing a practice that generates at least one million in annual revenue if possible, in order to support yourself, and ideally, enable you to scale up and grow. While a million dollars a year in revenue can be an intimidating number, your ultimate goal should be to scale your business to a level that allows you options in the future, whether you want to sell it, continue to expand, or own it passively.

The truth is that practices that generate less than one million in annual revenue make it tough to support the average wage for a full-time OD and may require you to live on less or take a second job until the practice can support you and your staff. Larger practices can seem intimidating but can give you greater momentum toward achieving your ultimate goals.

Comparison of Rural vs. Urban Practice Setting

	Rural Practice	Urban Practice
Practice Revenue	$1,000,000	1,000,000
Cost of Goods	$280,000	$280,000
People Costs*	$220,000	$280,000
Occupancy Costs*	$60,000	$100,000
Other Operating Expenses	$120,000	$120,000
OD Compensation*	$170,000	$150,000
Practice Profit	$150,000	$70,000

^{*Assumptions: COGS same for both location types; lower staff wages and occupancy costs for a rural practice; higher OD compensation for a rural practice.}

How to find a serious Seller

While there may be a few optometry practices on the market, you aren’t looking for just any Seller—you’re looking for a serious Seller. I always advise getting curious about what’s driving any Seller’s decision—whether it’s retirement, health, divorce, or financial issues. In most cases there are usually pushes and pulls behind the Seller’s motivation, which can provide insight into negotiation tactics.

Seller red flags

If a Seller exhibits any of these red flags, they may not be serious about selling:

Doesn't know what the practice is worth
Doesn't agree with a realistic time commitment for the deal to happen
Is uncertain about life after the sale
Is concerned about the impact of a sale on employees
Isn't willing to negotiate
Finds any reason to drag out the deal
Is constantly changing terms of the deal based on new circumstances or just wants "to win"

What is Goodwill?

The majority of value in an optometry practice is Goodwill, otherwise known as the heart of a business. In terms of what Goodwill contributes to your practice, it’s the reputation of the seller across all channels, including patient reviews, social media, and word of mouth. While no optometry practice is perfect, you can get a good idea of a practice’s reputation and culture by reading reviews on Google and Yelp. And it goes without saying that you want to ensure the Seller treats customers and employees well, is able to retain patients, and exhibits honesty and integrity. A secondary consideration is to look for a practice with values similar to your own so you can perpetuate Goodwill intuitively. For example, if you want to carry high-end, exclusive frame lines, then look for a Seller with similar values. No matter how hard you try, you may have a hard time authentically endorsing a cheaper line of frame to your new patients if that is what the Seller carries, no matter how much you like a practice’s location. Additionally, if you drastically change up a practice’s inventory, patients may have a difficult time adapting. Goodwill is definitely nuanced, but it’s important that you trust your gut and make sure that your values as an optometrist are aligned with the practice you hope to purchase and Seller from whom you hope to buy from.

Should you sign an NDA?

Most serious Sellers will require potential Buyers to complete a Non-Disclosure Agreement (NDA). An NDA is a legally binding document between parties to agree to share information with each other in a confidential manner. Typically, it comes from the Seller as they will be disclosing confidential information—but an NDA also protects you as the Buyer.

Some Sellers might instead create a document called a Confidential Information Memorandum (CIM) or provide a Broker’s—or Appraisal—Summary. This document may include various aspects about a practice and can be helpful summarizing the important aspects of a practice:

Confidential Information Memorandum (CIM)

Business overview (location, years in business, number of employees, etc.)
Revenue (are sales increasing or decreasing year-over-year?)
Gross profit (is this consistent, increasing, or decreasing?)
Operating expenses (disciplined or out of control?)
Working capital
Account receivables (how many are over 30, 90, or 120 days)
Practice debt
Services offered
Key office metrics

Meeting with a potential Seller

When engaging with any Seller, I always recommend meeting in person. While you will want to see the office that may someday be yours, it can also be best to conduct a first meeting at a neutral location like a coffee shop. Think of this first meeting like a first date, where you want to be on your best behavior and seek to gain more information. You’ll also want to keep a finger on the pulse of your chemistry and values (this will help with Goodwill).

Sample meeting agenda with a Seller:

Greeting/Introductions
Seller provides overview of opportunity
Seller talks about any improvements or changes to the practice
Seller discloses current financial snapshot as well any forecasts
Q&A

Additional tips for engaging with the Seller:

Understand the Seller’s motivation to sell. This is key to getting a deal done.
For your first meeting with a Seller, choose a neutral location and be clear on what you are looking for in terms of location, practice size, culture, specialties, etc.
Be prepared with questions, and what information you will want the Seller to provide.
Give the Seller your “Why”. This can help with getting a deal done.
Advise the Seller on how you are going to pay for the practice: bank loan, personal resources, Seller Note, etc.
Be prepared to sign a Non-Disclosure Agreement (NDA).
Deals get complicated because of the people involved. There are many dynamics and emotions involved when Selling (and Buying!) a practice, so just keep everything in perspective.
Always utilize your own attorneys, accountants and advisors, and make this clear to the Seller. If the Seller is using a broker, they (the broker) often want to represent both parties, which is a major conflict of interest.

Step Two: Due Diligence

Next, you need to conduct thorough due diligence, which is a bit like looking “under the hood” so you can make an informed decision about whether you should make an offer on the practice. You can begin due diligence before or after your first meeting with a potential Seller. But if your first meeting goes well, and you believe that the Seller is someone with whom you would like to do business with, it’s time to start due diligence in earnest!

Your checklist of questions to ask or follow-up with the Seller:

Practice details
Practice operations
Insurance information
Employee information
Equipment and practice debt
Facility information
Retail information
Financial information

The more information provided, the more questions you can ask, and the more you will learn. You’ll also be able to use this information to provide a more comprehensive Pro Forma of the practice, which is your financial forecast of both income and expenses of the practice. The best way to ask questions? For your second or third meeting with the Seller, meet in person at their practice. In addition to your questions, make sure you take a good look at the external and internal appearance of the practice, including:

External appearance:

Visibility of the office
Ease of parking
Traffic into and out of parking lot
External appearance of building
Busy intersections
Office signage
Surrounding businesses
Neighborhood

Internal appearance:

Cleanliness inside and out
Entryway
Odors inside
Location of reception desk
Exam room layout
Potential for expansion
Patient flow
Room for expansion

Equipment analysis

Computers and workstations
Diagnostic testing space
Type and functionality of equipment
Management and electronic health record software
Is the ancillary testing space large enough for the diagnostics you want to offer?

How do you determine the value of an optometry practice?

What you are really doing with these analyses are looking at the value of the practice, which is made of two kinds of assets: tangible and intangible.

Intangible assets include things like the reputation of the Seller (remember Goodwill?) patient records, and a covenant not to compete. Intangible assets can also include brand recognition which a previous owner may have established (or not established) with advertising and marketing campaigns and social media presence.

Intangible assets may also include:

Patient records
Office personnel
Practice name
Website
Telephone number
Office Systems and Protocols
Non-compete Agreements
Office culture and training
Patient loyalty
Seller’s willingness to cooperate
Desired location
Industry sentiment
Advancing revenue
High profit margins
Controlled costs
Managed Vision Care (MVC) penetration
Doctor-owner transition plan
Funding considerations
Practice specialties
Reputation of the Seller and practice

The smaller portion of a practice’s value comes from tangible assets like equipment you need to see patients. There are generally two ways to value tangible assets. You can either determine an asset’s book value or replacement value. Book value is the value of equipment from an accounting perspective that includes depreciation (loss of value over time.) The limitation of book value is that while a piece of equipment might be fully depreciated and show a value of $0 on a balance sheet (typically this happens anywhere between 5 and 15 years), it still has some value.

Some appraisers of businesses prefer to use replacement value to determine a true value of an asset. This is the true cost to replace equipment if you went out and purchased it on the open market—which considers the value of equipment beyond depreciation years.

You’ll also want to pay attention to the frame inventory and how it’s displayed. Is it appealing to you? Because if this is going to be your practice, you want it to reflect your personal aesthetic — and at $50 to $100 per frame, this inventory is part of the practice valuation.

Reviewing the financials

You might feel a bit awkward about asking a Seller for his financial documents but don’t — If you plan to borrow money for the purchase of your new practice, a lender or financier is going to ask for all of this information anyway, and it’s an important part of your financial due diligence in order to create your practice Pro Forma. This will help you decide what a practice is worth and if you can afford it. It’s also used by lenders to determine how much money they will lend you. I can’t emphasize enough how important this process is.

First, get familiar with a practice’s key performance indicators (KPIs).

KPIs

Revenue Per Exam—Total practice revenue/Total comprehensive exams
Exam Capture Rate—Total exams performed/Total exam slots available
Frame Capture Rate—Total frames sold/Total comprehensive exams
Lens Pairs Capture Rate—Total lens pairs sold/Total comprehensive exams
Average Eyewear Sale—Total optical sales/Lens pairs sold
Contact Lens Sales—Total contact lens sales/Contact lens exams performed
Exams Per Doctor Hour—Total exams performed/Total doctor hours
Revenue Per Doctor Hour—Total practice revenue/Total doctor hours

^{NOTE: Poor practice metrics don’t mean you shouldn’t buy the practice. It’s just an indicator of what you may be dealing with. For example, Revenue Per Exam can give you insight into how well the practice is selling eyewear products, including contact lenses, and charging and collecting fees. A good ballpark number is $400 per exam. A low Revenue Per Exam could indicate untapped potential practice.}

Office lease considerations

And remember how we talked about location previously? You’ll want to get your hands on the office lease to consider the current status, including rental rate and number of years left on the lease. On the other hand, if there are several years left, you may be protected from short-term increases. In most cases, the landlord will assign the existing lease to you as the new owner rather than draft a new lease. In some cases, you can use this opportunity to negotiate tenant improvement or rent adjustments to improve the space. However, you should also be prepared to accept the terms of the existing lease.

Assessing the competition

I believe a well-run practice can be free of competitive threat simply by having a clear strategy in the way it delivers its products, services and care to patients. However, it’s wise to consider what competitive elements may be at play, including any private or commercial competitors nearby. Spend some time exploring the competition in the area, but don’t dwell on it if you are confident in the area.

Insurance considerations

As part of your due diligence it’s important to understand what insurance companies are contracted with your office to give you an indication of the types of patients seen by the practice. For example, is there a high penetration of VSP or EyeMed patients in the practice? If so, what is the mix of each? Ultimately, it will be your decision to continue with an existing plan or choose not to accept it—but a major influence on patient volume are likely a result of plans the practice accepts. I recommend that you continue operating the business as usual for the first 3-6 months after purchase so that you can get a better feel for the types of patients and insurance providers you are dealing with. There will be plenty of time to make changes afterwards.

Practice debt and leases

Sellers often mistakenly assume the Buyer will assume the long-term debt of the practice, but this is rarely the case.

The same goes for the sale of the assets of a practice. If both you and the Seller agree to a fair price for the practice, the assumption is that the practice is transferred to you debt-free, unless other arrangements have been made (like you will take over the lease payments on a borrowed instrument). In the event that you do agree to take over any debt, the outstanding principal balance should be deducted from the purchase price of the practice.

Accounts receivable

Accounts receivable represent the money owed to the practice but not yet collected. It’s common with both vision and medical plans to pay 30, 60, or 90 days after a claim is submitted.

Accounts receivable can be either included or excluded from the sale of a practice—and there are advantages and disadvantages to both. Technically, since accounts receivable represent products and services generated prior to the sale of the practice these proceeds belong to the seller. However, it’s important to realize not all of the money owed to a practice will be collected, especially any balances outstanding for 120 days.

Therefore, accounts receivable and accounts payable (bills owed to vendors) should be considered early on in the negotiation process.

Seller transition plans

Another important element to consider is what role the Seller will have in your practice after you take over. Will the Seller stay on as an employed OD? Will they provide consulting services—and if so, for how long and for what fees? Will they work full-time or part-time? While you may want to accommodate a Seller’s wishes to stay on, if the revenue of the practice doesn’t support both of you and your earnings, then you need to make a compassionate decision on what makes the most sense for you as the Buyer. While this might be a difficult conversation to have, it’s much better to have it before you sign any binding paperwork. And if you have a truly serious Seller, then he or she should be accommodating to these conditions.

Assessing the practice culture and HR considerations

A practice culture may be the most underrated aspects of purchasing a business. However, given that most optometry practices are valued at generate less than $1 million in revenue and have fewer than 10 employees, office culture is critical to a patient’s experience—and to your future quality of life. If you have excessive staff turnover, that is going to impact your practice’s bottom line as well as the flow of your business. Since the majority of a practice’s value is Goodwill, then culture is a major intangible asset that could make or break your future practice.

As a general rule, most businesses need 1 full-time equivalent employee for every $150K in revenue. This means that a practice that generates $1 Million in revenue will need 6-7 full-time employees. I generally don’t recommend you make any staffing reductions for your first 3-6 months as a new owner.

One caveat on staffing that I’ll share is that in each of the 7 practices I have acquired or consolidated, the entire workforce turned over in the first year. That’s OK. Anytime leadership changes, the culture changes. However, always give the Seller’s staff an opportunity to be a successful part of your team, even if those employees may not stay.

While there is a lot of information to consider, if you take them one step at a time, you will accumulate a comprehensive collection of data points that will give you a very clear idea of whether or not this practice is a solid purchase decision. For example, once you assess the value of a practice’s assets, efficiencies, profitability, culture, insurance and HR considerations, practice debt, working capital, and accounts receivable, you’ll not only have a financial snapshot of the practice, but you’ll also have the data necessary to forecast the future outlook of the practice.

Step Three: Crafting the Offer

Once you’ve completed the Exploratory Due Diligence and determined this practice is what you want, it’s time to make an offer.

How to make an offer

First, assemble a team of advisors, that at a minimum should include:
An Attorney with experience with business transactions
A CPA, who can also teach you about the finances of your business like the P&L Statement and Balance Sheet
A Lender from a major bank or credit union
A Mentor or trusted advisor who can provide business advice and support

Understanding the value of an optometry practice

It is never too early to start considering how you are going to pay for the practice and engage lenders in your area. In many cases, regardless of a practice appraisal or the negotiated purchase price, the practice often will sell for what a lender is willing to lend a borrower. Most banks will make a lending decision based on the global cash flow of the borrower. This means that they will consider the personal financial situation of the borrower, in addition to the cash flow of the practice when determining a loan amount. Take the time to shop as many lenders as possible to secure the best interest rate and terms of the loan.

In some cases, the Seller may have hired an appraiser to assist with determining a purchase price. Before you put in an offer, ask for a copy of the appraisal, if available, Appraisers will look at the tangible and intangible assets of the practice and summarize into a valuation. They generally look at a business from multiple perspectives and try to predict what a fair value is by applying Common Valuation Methods.

Often, you'll hear people talking about fair market value (FMV), which is the price that property would sell for on the open market. According to the IRS, fair market value is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.

Common Valuation Methods

% of Practice Revenue: Where the value of a practice is a percentage of the practice’s past revenue. However, while it’s true that most practices sell in the range of 40-80% of one year’s revenue, the problem with this strategy is that two very different practices could generate comparable revenue each year, but one could be run down and unprofitable while another has tremendous Goodwill, efficient operations, and greater profitability and potential — which makes it worth more.

Summation of Practice Assets: This is a valuation strategy that adds the value of tangible and intangible assets, which is usually valued as a multiple of 1-3X the adjusted cash flow of a practice. The downside of this method is that determining the value of assets is somewhat subjective.

Multiple of Practice Earnings: A practice earnings are generally considered to be what’s left over after all the bills are paid but before doctors get paid. It’s sometimes called “optometric net,” which should be about 25-30% of revenue. Under this method, the value of a practice is about 2-3X the earnings of the practice.

Capitalization of Earnings: This is a method of valuing a business based on future predicted profits, which takes into consideration the current cash flow and applying applies a capitalization rate, which is the rate of return an investor could expect to make if they put money into the business. A common capitalization rate is between 15-20%.

Practice Value = Practice Earnings (After OD Compensation)
Capitalization Rate %

Capitalization Rate %= Property's Net Operating Income/Current Market Value

EBITDA: Along with Revenue, EBITDA is a valuable piece of financial information, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This method of valuing a business is based on current cash flow without considering the impact of debt, interest, taxes owed, and depreciation and amortization, which allows a potential investor to compare two similar businesses by removing the variability of debt and tax strategies.

Debt Service Model: In my opinion, the most reliable way to determine a value of a practice is by measuring what the practice will support after all bills of the business are paid and your mortgage, personal bills, and taxes are paid. I find this is the least subjective method of valuation and one preferred by lenders. It’s important to keep in mind that lenders only lend about 80% of available cash flow and have an arbitrary lending limit of 60-80% of practice revenue — so if a practice sells higher than this limit, it will be imperative to come up with an additional method of financing.

What is the difference between an Asset Purchase and an Entity Sale?

Now, once you have established a fair market value for your practice, how you take ownership is an extremely important decision. Generally you can choose an Assets Purchase or an Entity or Stock Sale. Buyers generally prefer asset purchases as liability doesn't transfer while Sellers prefer stock sales since it lowers their tax burden.

At its simplest, an Asset Purchase means you are purchasing the tangible and intangible assets from a Seller — but not the actual company, which means you avoid any risk of liability from the previous owner’s business. In an Asset Purchase, the IRS requires the Buyer and Seller to classify all assets as tangible and intangible. You’ll want to lean on your CPA for this, but basically, tangible assets are taxed to the Seller as ordinary income while intangible assets are taxed at capital gains rate. Therefore the Seller may prefer a higher purchase allocated to intangible assets than tangible as ordinary tax rates are typically higher at the time of sale.

An Entity (Stock) Sale means you purchase the actual company through company stock (if a corporation) and all membership interests if it’s a Limited Liability Company (LLC). As a Buyer, you can’t depreciate assets with a Stock Sale, so you lose a tax advantage. This is where you’ll want to leverage your CPA and potentially reduce the purchase price to account for the loss of the tax benefit. However, one advantage to an Entity sale is you avoid recredentialing all of your medical and vision plans as the Federal Tax ID will be transferred to you.

You’ll definitely want to make the most of your attorney and tax advisor on this topic as there may be circumstances that influence your decision on how to take ownership as well as how to allocate the purchase price, if an asset purchase. The IRS will require the Buyer and Seller to agree on the allocation of purchase price since there are different tax implications for each party.

How do I craft a Letter of Intent?

Now it’s time to work on your Letter of Intent. Think of this as a marriage proposal. You’re definitely putting yourself out there, but this is a non-binding document that simply indicates you want to purchase a practice but does not obligate you to do so. In fact, either party can withdraw at this stage for any reason. However, like any good proposal, you want to be as detailed as possible.

The Letter of Intent contains the price the Buyer will pay as well as any contingencies built in. It should also include all terms and conditions of the sale, financing, lease, type of sale and anticipated closing date. Because the Letter of Intent is the framework on which the Purchase Agreement is based, you’ll want to work with your attorney to make sure all critical information is included. While it doesn’t have to include every single detail, the more time you put into the Letter of Intent, the less time you’ll put in down the road — and most likely you’ll encounter fewer surprises as well if you take the time to list all the deal points critical to you, those that are negotiable. If your ultimate goal is to obtain practice ownership, it’s important to be flexible. Stand strong on what really matters to you and be willing to bend if you can in other areas not as important to you.

What should your LOI include?

Name of Buyer and Seller
Description of what is being sold
Location
Price – This is usually a static number and not a price range, Including the amount paid at Closing and any contingency payments built into the deal.
Terms and conditions of the sale
Terms and conditions related to obtaining financing
Terms and conditions related to the office lease
Type of sale: Asset Purchase vs. Stock Sale
Anticipated Closing date
Excluded assets - if any
How debt of the practice will be handled
How working capital will be handled
How Account Receivables (A/Rs) will be handled
Expectations of Buyer and Seller during the Post-Closing Transition period
Exclusivity Agreement – Seller agrees to stop talking to other potential Buyers, usually for 60-90 days
Non-Compete/Non-Solicitation Clause and expectations, including length and radius. Prevents Seller from competing with Buyer in a specified radius and for a specified period of time after Closing. Non-solicitation agreements prohibit the Seller from soliciting or trying to hire Buyer’s employees after Closing
Approvals required - if any
Holdbacks – if any - 10% held for 12 months is common
Representations and Warranties – legal promises based on past and future performance and behaviors
Due diligence time period – usually 60-90 days - which is the number of days that the Buyer is allowed to “look under the hood" during which time the Seller may not entertain other offers
Employment Agreement overview - employment considerations post Closing (foundation for the Employment Agreement)
Other legal jargon: Non-disclosure language, Non-binding language, Governing law as needed, etc.

The value of the Non-Compete Agreement

A Non-Compete Agreement is a legally binding contract that prohibits the Seller from competing against you after you purchase the practice. The Non-Compete is usually part of the Purchase Agreement and written with a specified mile radius and for a number of years after the Closing. It is intended to protect you from eroding the value of the goodwill that you purchased in the event the Seller were to open another practice that could potentially compete against yours. Patients are loyal, and if you allowed a Seller to open across the street from you, you would likely see your practice revenue suffer. It’s difficult to place a monetary value on a non-compete agreement since it represents the lost cash flow that would occur if the Seller were to compete against you, and how successful they might be in doing so. Non-compete agreements are often not enforceable since they are state regulated, however, it is a good idea to create the expectation with the Seller that it would not be in either party’s best interest to compete.

Pro Tip

Negotiating the LOI and Purchase Agreement:

This document is not intended to provide all of the ins and outs of how to be an effective negotiator. Getting deals done requires cooperation from both the Buyer and Seller. Honesty and transparency are critical for accomplishing the most efficient Closings. It is good practice to take the time to list all of the deal points that are critical to you, including ones that may be negotiable, some time prior to starting the negotiating process.

There may be some issues that are non-negotiable to you, while you may have flexibility on others. Closing deals requires concessions on both sides. This does not mean you are losing. Always keep your eye on your ultimate objective which is to obtain ownership of the practice. Be flexible. Some matters may seem critical at the time, however, are of very little importance to the long-term growth of your business. Negotiating in good faith is critical to getting deals done. Credibility can be lost quickly if the Seller thinks you are not negotiating in good faith.

Closing is a process and takes time, so be patient with the process. When making a concession, always try to get something in return. When making a request, the first person that speaks often loses, so make your point, then be quiet. Avoid bullying the other side with tactics such as drawing a line in the sand; having a “take it or leave it” attitude; raising your voice or becoming emotional; getting wrapped up in unimportant details; overstating your position or making it personal.

Both Buyers and Sellers should utilize their own transition team: Attorney, accountant, lender and mentor/consultant. Avoid using one mediator to represent both sides. This can create a conflict of interest.

Step 4: The Confirmatory Due Diligence Process

While your Letter of Intent isn’t binding, it’s now time to dive deeper into Confirmatory Due Diligence, which includes the 5 critical tasks:

Drafting the Purchase Agreement
Finalizing Funding with your lender
Finalizing Lease Terms with your future landlord
Drafting an Employment Agreement if the Seller intends on staying with the practice
Creating the Purchasing Entity

As you can see, purchasing your own practice relies heavily on getting the details right. It's often a huge help to work with experts who can guide you through the process so you can save time and money while gaining peace of mind. Reach out at any time to my team at Vision Source and we will be in touch.

Step 5: Pre-Closing

While you should definitely congratulate yourself after you’ve executed the Purchase Agreement, before you take over as the new owner on your designated Closing Date, you have a few more things to finalize — but know that each box you check off your list brings you closer to your dream of opening your own practice, making this an incredibly worthwhile way to spend your time.

Insurance Credentialing:

After you’ve created your new company and obtained a Federal Tax ID, each vision and medical plan you choose to accept will have to be credentialed. It might be wise to hire a credentialing service to assist.

Financial & Banking:

Establish bank accounts for the practice as well as any merchant accounts for credit cards. You’ll also need a payroll account with a payroll service provider if you plan to outsource your payroll.

Employee/HR:

Prior to closing make sure you have your HR plan in place. If you are buying the practice as an asset purchase, the Seller will terminate all employees effective on the date of closing. If you are going to rehire them, you will need to do so immediately. You may also want to develop your employee handbook now and outline benefits like insurance, PTO, retirement plans, etc.

IT/EHR/Software Training:

If you are unfamiliar with the office Practice Management (PM) and Electronic Health Records (EHR) systems, it will be wise to begin training on how to use this software as soon as possible. The last thing you will want to deal with on your first day of practice ownership is learning how to use the practice software.

Marketing:

As part of the due diligence process, make sure you check in about which marketing programs are ongoing and which previous campaigns were most effective. This includes login information for the office, website, and any third party IT/SEO partners.

Business Licenses & Insurance:

If you are making an asset purchase and have created the company making the purchase, this is a great time to make sure your business licenses and other requirements (like state Board of Optometry) are up to date. You will also want to adequately ensure the office and its contents and obtain professional liability insurance.

Step 6: The Closing

Once you’re at the day of Closing, make sure to celebrate all you have done to reach your goal. You will likely meet with the Seller to tie up a few loose ends and sign all the dotted lines as well as any additional documents.

What You Need for Closing

Bill of Sale
Promissory Note (If Seller carried note)
Security Agreement
Assignment and Assumption Agreement
Assignment and Assumption of Lease
Settlement Statement
Escrow Agreement (If holdbacks)
Bank loan documents

While it doesn’t matter where you meet, meeting at the office can be symbolic and rewarding.

Confirm the inventory and AR:

The Seller should have maintained the frame inventory so it’s important to confirm this. I recommend that you do just a quick spot check to make sure it’s fair — you are just making sure the Seller didn’t offload the inventory after you signed the Purchase Agreement and Closing.

You can follow the same guidelines for Accounts Receivable. While it’s important that you confirm the Accounts Receivable at Closing, any receivable more than 120 days old are unlikely to be collected. But it’s a good idea to print out the Accounts Receivable report and outstanding insurance and patient balances and include them in the Closing binders.

Transfer of office keys:

Make sure you have a copy of all office keys and codes you’ll need. Also make sure you receive all software and website login credentials.

Transferring payment to seller:

And funds that the Seller is owed will be dispersed at this time. If a lender is involved, it’s possible that a bank will initiate a wire transfer directly to the Seller’s account. You may also be required to issue a certified check for any down payment or outstanding balances.

Step 7: Post-Closing and Beyond

While you are now the owner of your own optometry practice, there are a few things you can do in the next 30 days to ensure you have a successful launch.

Keys to a successful launch

Handoff meeting with Seller to tie up loose ends (if needed)
Training on any office systems
Let patients know — via marketing campaign, email, letter, direct mail — that you are the new owner and look forward to taking care of them.
Notify vendors you are the new owner.
Change name for utilities (phones, internet, gas, electric, water, sewer, websites/domain names, trash, etc.)
Change website domain names and web hosting into your name.
Record title documents such as vehicle titles, patents, trademarks and copyrights. Although these are uncommon in the purchase of an optometry practice, it is something you may need to consider. Your attorney will be able to assist you with these tasks if they do occur in your situation.
Obtain licenses or permits required in your state/county/town. Notify necessary governmental agencies needed to properly comply with the requirement to operate your new business such as Fictitious Business Name Statements.

Establish your new culture:

Try not to change anything in your practice for the first 3-6 months. You’ve purchased a successful business, so this is a great time to observe and take notes. This is a great time to lead with a softer, open-minded, inclusive approach.

Pro Tip: Direct communication vs indirect communication

Certain cultures (think southern) communicate somewhat indirectly. That means they are always polite and courteous of others, even if it’s not genuine. Other cultures, such as New Yorkers, take a much more direct approach when communicating. It’s important to understand your own communication style because communicating directly in an indirect culture can result in trouble. I’ve seen it in my own practice where we have somewhat of an indirect communication style. Indirect cultures take more time, are slower to change things, and usually don’t feel (or act like they feel) much urgency. Direct cultures, especially in the northeast, tend to have a more urgent style.

Meet with your team

Genuinely introduce yourself to the team
Share your vision and goals
Explain how decisions are made
Tell them you want to learn the existing business systems
Let them know where to go if they have questions
Clarify your expectations and lines of communication