Dr. Steele (back row, third from left as you look at photo) with his practice team. Dr. Steele offers a view of practice appraisals that may differ from what you have been taught.
Optometry practice appraisal and cash flow optimization
By Kurt T. Steele, OD
Nov. 6, 2024
We all know the story: paying thousands for a practice appraisal, only to get wildly varying results. Banks don’t care about those details; they care about cash flow.
Years ago, I built a beautiful house. Appraisals ranged from $450,000 to $975,000!
Practice appraisals are similar. The methods are numerous, but the bank only cares if the cash flow supports the loan.
The Difference Between Income Produced By a Partner & Employed OD
For me, the key to valuing a practice is the income difference between a partner and an employee optometrist. This determines the monthly payment and sale price. Appraisals based on a hoped-for payment are outdated.
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Recently, I brought on two partners. One involved a bank loan; the other, we’re self-financing. The bank loan experience proved appraisals to be of very little help. What convinced them was a pro forma showing the cash flow.
A Pro Forma Showing Cash Flow is More Meaningful
The bank was very impressed that a doctor knew their numbers so well!
Once I dropped relying on an appraisal and showed the loan officers the plan, they were much more willing to give us the loan.
The days of easy bank loans for partnerships are over. We need to be creative: self-finance or prove cash flow to the bank, often over 2-3 years.
I’m lucky my advisor told me years ago to bring on partners when booked out and someone’s willing, rather than waiting until retirement.
Stay Conscious of Your Practice’s Value & Create an Exit Plan Now
I see practices struggle to sell because they wait too long, then try to sell the whole thing to a debt-ridden new grad. If you’re reading this, start planning your exit NOW.
I’m passionate about independent optometry’s future. We need to be proactive to keep thriving. Let’s ensure independent optometry remains strong!
Dr. Steele and his wife.
Kurt T. Steele, OD, is a partner of Vision Source of Newport in Newport, Tenn., and the founder of the coaching firm Legit Vision P.L.L.C. To contact him: idoc2316@gmail.com
