Optometry Australia has seen an exciting new trend of young optometrists planning to own their own independent practice or buy into a private practice within the next five years.
According to a representative study of 765 optometrists conducted by Optometry Australia, close to half of the optometrists who aim to be working over 35 hours in practice within five years also aim to have their own practice.
It’s not just the ambition of experienced optometrists. Andrew McKinnon, CEO of Optometry NSW, says there’s a noticeable trend among young optometrists, and Tony Martella CEO of Optometry Western Australia agrees. Both have received a growing number of calls from young optoms over the past few months, asking for advice on location, buying in strategies and business development.
“There are certainly more young optometrists, two to three years out, considering the idea of establishing or buying into a private practice within the next five years. It’s a trend we haven’t seen for a few years, it seems to be cyclical – you get groups of young practitioners who are, or are not, interested collectively in private practice,” said Mr. McKinnon.
All of this, combined, makes you a destination practice – there’s no point in being a ‘me too’ practice that competes with the main stream.
Mr. McKinnon believes it’s a sign of a recovering economy. “When the GFC hit, for about three years, we went without any enquiries about establishing a new practice.”
It’s a great time to be thinking about buying into an existing practice because co-incidentally there is a strong cohort of optometrists preparing to exit.
“There are plenty of them out there – guys particularly, and women too – in their late 50s early 60s who all went into private practice in the 1970s,” said Mr. McKinnon.
“They’re seeking to retire now, so they’re the prime target – in the next five years there will be some good practices coming into the market – perfect for those young optometrists with about five years’ experience.
Planning Well
Mr. McKinnon said the young optometrists he speaks to are planning well and in advance.
“It’s a really active conversation we have – we spend a couple of hours in random conversation, talking through all sorts of things: location; council requirements; how to find finance: the conversation evolves as we go.”
He said the advice he gives is to buy into an existing practice rather than starting afresh.
“There are few opportunities in Sydney’s metropolitan areas for new practices – every corner of the globe has an optometrist on it – it’s best to get into an existing practice, with a steady patient base, and cash flow – that’s going to work better. So I advise young optometrists to start looking now for their ‘sugar daddy of optometry’. The best way is to go in and work with them – partner with them – and in five years’ time, when they’re going out to play golf and starting to pull back, that’s when you can take over the practice.”
“You could say (to the exiting optometrist), you stop on Friday and I’ll start on Monday, but the slow transition is best.”
Identifying Practice Potential
The perfect practice to buy into offers a delicate balance of existing cash flow and strong potential.
“I advise young optoms to be wary of considering practices that are run down – because there are a few around with
paint peeling off the walls, old stock, poorly located equipment, and bad lighting,” said Mr. McKinnon. “Practices like this, where people have obviously stopped showing an interest in the business are like walking into a shell – whatever you pay for it is too much.”
But neither do you want a practice that’s running at full steam. “Then there’s nowhere to go. It’s a bit like buying a property – you need to be able to add value… you need to find a practice with scope to grow.”
So, the perfect balance… “Look for a vibrant practice, one where the owner wants to transition out. Your enthusiasm will reshape it,” advised Mr. McKinnon.
What’s it Worth?
The value of a practice will vary but, according to Mr. McKinnon, a good rule of thumb is to use a multiple of two to three times the maintainable net profit; that is, the net profit stripped of any oddities.
Stripping the books of “oddities” which might for example, include donations or the purchase of the daughter’s car, is an essential job and one for the professionals.
“We advise optometrists to talk to a broker and an accountant. Get them to thoroughly check the books and produce a maintainable net profit. This is a really important step to take – these guys have seen practices with huge variations once there’s a clean out… Once you’ve got a clean set of books you can look at the net profit over three years, and multiply it by two to three. That’s the ball park to negotiate from,” he said.
With negotiations finalised, most optometrists who buy into a practice will take equity through a profit share over time or perhaps buy with vendor finance. Those who choose to establish their own practice will pay a visit to the bank or consult a specialist financier.
“Banks will ask you for your house as security. Specialist financiers have credit criteria but they take a different approach which can be more flexible,” said Mr. McKinnon.
Starting Afresh
Establishing a new practice, Mr. McKinnon says, can be a death wish unless approached with great care.
“If you’re seriously going to do this, you really have to do a lot of research to find out where there might be some gaps in the market – for instance, you wouldn’t go into competition with Specsavers by opening up a new store in a shopping centre.”
And be wary of new suburbs, which can look promising on weekends when they’re bursting with life.
“These are often dormitory suburbs – people sleep in them at night then leave to go off to work in the city. Those who are around tend to be young people with young kids – and they’re not the ones who need optometrists… If you’re going to open in a dormitory suburb, it would be best to open at 11am and close at 9pm every day – that’s when your target market is there. It’s a case of being innovative and offering things the big guys don’t offer.”
Such as interesting stock… “This is critical. There is no point in opening a new practice and stocking the standard brands – the big guys have them, they do more advertising than you can and they can undercut you. It’s as simple as that,” said Mr. McKinnon. “So find the frames no-one else has and back that point of difference with clinical excellence. All of this, combined, makes you a destination practice – there’s no point in being a ‘me too’ practice that competes with the main stream.”
Starting Out New An Exciting Prospect
One young Sydney optometrist, who chose to remain anonymous (for obvious reasons), said she plans to establish a new practice within the next two years. Having graduated five years ago, she currently works for an independent optometrist, and says she is excited at the prospect of going out on her own.
“I realise that starting up my own
practice will bring about new challenges but it also presents me with the opportunity to bring more colour and fun into the profession. I aim to challenge the status quo of optometry – to be a positive disruption if you like – which is why I’d rather start up my own practice than buy into someone else’s… it’s something I vaguely thought about as a student but, working under someone else, and reading books on entrepreneurship has really fuelled that dream.”
The vibrant young optometrist is perfectly aware that her biggest hurdles will be her lack of experience and financial knowledge; however she plans to draw on the likes of Andrew McKinnon at Optometry New South Wales to assist her along the way.
She said she plans to open her business in a metro area of Sydney and is still searching out the best location. Aside from injecting her new practice with colour and fun, she refused to be drawn on her planned point of difference. Smart woman!
