By Maria Sampalis, OD
Jan. 30, 2019
Buying a practice is a milestone in any OD’s career. You may have saved for years, and finally secured the loan that you need, to get started on your own. In the process, you will have many conversations with sellers. Here are some points to make, and questions, to ask, to gain leverage. I used these tactics when buying my own practice a couple years ago.
Your Practice is Worth How Much?
It’s easy to get overwhelmed when numbers are thrown at you, but it’s worth pausing and considering whether there is math behind the seller’s asked-for price, or whether it’s just a price that happens to sound good to them.
A great way to begin negotiations is to consider that the selling price should be 3-4 times profits. If the price that is quoted to you seems too high–or is too high for you–ask the seller to tell you how they arrived at that number. If they balk, explain that your understanding is that the sale price should be no more than 3-4 times profits.
Other Pieces to Explore
Will You Finance the Purchase?
Some sellers are willing to finance the purchase of their practice over a few years. You could agree to meet the price quoted by the seller, but to do so over a three-year period. The seller gets the exact amount of money they wanted for the practice, and the buyer gets a manageable plan to pay for it, rather than depleting their savings all at once.
Another advantage for the buyer is the seller in a financing purchase arrangement is motivated to help the buyer succeed. The seller in this arrangement may be more likely to share tips for managing, and building, the patient base they have become so familiar with over the years.
I Would Have A Lot of Competition
The number of nearby competitors can be a bargaining advantage for buyers. Before meeting with a seller, do research on all the eyecare competitors, independent and corporate, within at least a 10-mile radius of the office. There may be a dozen. If you have find many, you may be able to use that point as leverage to lower the sale price.
Rent & Equipment Appreciates Over Time
If part of the deal would be you taking over rented office space and existing equipment, you could use that as a bargaining point. The cost of rent and equipment on average appreciates 3-4 percent per year. The cost to you of taking over those expenses could be factored into the amount you pay.
Staff Costs Will Be High
To some extent it’s good to have a staff in place, but to another extent, it means added costs. For example, let’s say the office manager earns $60,000 annually. They are a well-qualified, important employee to keep on staff, but to do that, you will have to maintain their salary. That’s a substantial cost to you.
Your Practice Has Been On the Market a While
Research how long a practice has been on the market. Look back at the listings where you found the practice for sale, and see when the original listing was placed. In the world of online listings, looking back to see when an advertisement of a practice for sale was originally placed is easy. It’s worth knowing when you go into the negotiation how long the practice has been on the market so you know how motivated the seller is to get rid of it already, and to potentially lower the price.
Would Love to Buy, But Student Loans & Starting a Family
If a seller–at least one with a practice they are motivated to sell already–is getting close to a deal with you, but the price is still higher than you were aiming for, consider being upfront about your financial obligations.
You could say you would love to buy the practice at the price they are asking, but, for instance, you have student loans to pay off, and you are in the process of starting a family. Some sellers, especially those with practices that have been on the market for a while, may be inclined to make a deal with you, lowering the price so that it is more manageable.
I Have Other Options; Make Them Sell it To You
Even if you are not interested in purchasing a corporate sublease, you could use the often-ample opportunities to purchase a sublease to your advantage when negotiating with independent practice sellers. “There’s a corporate location not far from here that is looking for a new OD to take over the sublease. I could take it over tomorrow. Why would buying your practice be a better option for me?”
Maria Sampalis, OD, practices at Sampalis Eye Care in Warwick RI. She is also the founder of Corporate Optometry on Facebook. Dr. Sampalis is also founder of the new job site corporateoptometrycareers.com and www.corporateoptometry.com. She is available for practice management consulting. To contact: firstname.lastname@example.org