Buying Into the Great Optometry Dream

In Australia, there are almost 5,500 registered optometrists1 and approximately 3,700 practices of various descriptions – that indicates a high level of ownership.

If you’re considering taking on a practice yourself, there are plenty of options to consider – you may like to operate as a completely unaligned independent practice, or to take advantage of the buying, marketing and administrative power of a group like ProVision or Eyecare Plus. You may decide to become a joint venture partner with Specsavers. You can consider other franchise opportunities such as EyeQ or OPSM, or buy into an existing or establish a new partnership with another optometrist.

There are some other important questions you need to consider as well…

Far easier and safer to buy something that already works rather than setting up yourself

Do I want to leave the security and salary certainty offered by employment?

Owning a practice gives you enormous freedom to practice in your own way, and to forge your own destiny, but it has a downside.

One of the biggest negatives about depending on income made from your own business is that your earnings can be quite unpredictable. Especially if your business is brand new, chances are that you’ll have absolutely no clue how much you will make in any given month.

This makes expense planning and budgeting extremely difficult, not to mention stressful. Imagine having to
cover your mortgage, everyday expenses and bills based solely on sales projections and patients coming in through the practice front door…

Imagine trying to make a large purchasing decision that requires financing when you have very little idea whether you’ll be able to make the monthly payment. There will be a time when you look at the bank accounts and it looks like a black hole.

Fortunately, planning and setting up properly can handle most of this potential problem, but it’s still a stress factor that generally doesn’t come with employment.

What Do You Want to Be?

Pull up your pants and tighten the belt. We are talking strategy. To conceptualise your direction, you need to answer the following two questions:

• What unique skills do I possess that set me apart from other practitioners?
• What areas of optometry am I interested in or passionate about?

The answers to these questions will enable you to consider the direction of your practice. You may possess skills in behavioural optometry but have special interests in orthokeratology. Your main concern is to decide which of your skills or special interests will offer you the most job satisfaction while being profitable. It is not necessary to limit yourself to one area of interest. Many practices successfully specialise in more than one field, but it is up to you to decide what will provide you with the best return on your investment.

Management strategists talk about competitive advantage. What is it about your practice that enables you to compete in your chosen market in a sustainable way? Not an easy question to answer if we are truthful and honest.

Should I Buy New or Existing?

You have two choices… to start a practice from new or buy an existing location. If all we are talking about is strategy and risk, there is no choice. An existing practice is by far the best option. Why? Because you can see what you are getting (to a large extent) and the outcome of ownership is more predictable.

Buying an established practice is not without its complexities. We can look at an existing practice and see pretty clearly how it runs, what it does and why, and assuming all goes according to plan, what you will get out of it by way of profit and income. An established practice is certainly easier to acquire and to move in to. But there are some things that might need some compromise.

1. You may have to be flexible on timing and location – someone needs to be selling the practice you would like to buy.
2. You might want a practice with sales of over a million dollars, but the one for sale in your desired location might be only $500,000. Is that acceptable? Can you get it to where you want it to be?
3. Is there anything needing to be done to bring the practice up to your standards? Fit out, equipment, operations, patient care?

There are many other aspects to consider.

There is very much more risk involved in setting up your own practice. The main risk being cash flow and attracting patients. Twenty years ago, maybe even less than that, it was possible to set up a practice and almost be guaranteed a flow of patients from day one. Not anymore. There are very few places to set up where there isn’t already at least one, but probably more competitors who already have the market split between them. Today, setting up a brand new practice takes guts, a very clever plan, a bucket load of cash, and a pile of hard work.

An established practice comes with its own patients and cash flow. You will have to pay for this, but the price you pay will usually reflect the economic value of the profits available.

Can I Fund the Initial Capital Needed?

You are going to need money. Setting up your own practice is going to involve half a million dollars (plus or minus depending on factors). When you have set up, its completely possible that you may have to fund the operations from your own pocket for six months or more. This is not always true, but it’s very unwise to expect profitability and break-even cash flow from day one.

Most health professionals can get money from financiers pretty easily. That’s nice, but caution and a dollop of realism is required. Fortunately, there are people in the finance sector who have a great knowledge of optics and know when to and when not to lend. They don’t want you to get into trouble.

Can I Get the Appropriate Return on Investment?

Owning a business is an investment. You will need capital to purchase or set up your practice, and like any investment, it needs to provide an appropriate return by way of profit. We are talking about profit after salary. A practice which pays the owner $200,000 per year is providing about $80,000 of profit. We can’t count salary because you can earn that without buying a practice.

Of course, there are many reasons why you own a practice besides profit, but it is pretty important. The return needs to be relatively high in percentage terms because we need to cover the cost of the capital and also the risk of being in business.

If you are buying a practice, the return on investment (ROE) is easy to assess. Setting up a practice from nothing is much harder to work out.

How Will I Cope with Management Tasks?

Good news! You now have at least two jobs. You are an optometrist and a manager. The practice does not manage itself and managing a complicated business like an optometry practice is not easy. Hopefully you will have great staff who will help you, and if you are big enough, maybe you will have a purpose-built practice manager. You can also buy management support in both general and specific areas of business.

A new practice will more than likely need the owner optometrist to sort out all the management activity. Most start-up practices will find it hard to afford support people.

Be rational about your skills and knowledge as a manager. This is an area of professional practice just like optometry. Sometimes it is more than one body of knowledge, like accounting and marketing. If you are DIYing, please make sure you know what you are doing… or get advice… or do a course.

Do I Want to Deal with Staff and Industrial Relations Issues?

A very well known senior member of the optometry profession and practice owner once described staff management as “jelly wrestling with no beginning and no end”. It can feel like that sometimes. What he meant was that it’s complicated and demanding and needs continual management. Most small business owners will tell you that this is one of the hardest parts about owning a business, but as long as you are aware of your own limitations, and know when to call for help, you will quickly come to grips with managing people. But it’s not for everyone…

Have I Got Good People Around Me?

Do you have a good accountant, solicitor, and business advisor who can act not only as technicians on the necessary bits, but also as advisers and sounding boards in the course of your evaluation and business operations? It’s always good to have people on your side who can handle the specialist stuff.

What Planning and Research Do I Need To Do?

Understanding what you are getting into as fully as possible is a vital part of the process. Risk is all about information. Not enough information and your decision risk increases. Fortunately, we have many sources of information and there are very few guesses that need to be made.

The information available for setting up a new practice is limited, and more speculative than investing in an existing practice. There are many helpful facts that we can research about the environment and practice operations that will help us; such as demographics, industry KPI’s, competitor analysis and breakeven analysis. The process is much easier with an existing practice. We know what’s going on and can see everything. Risk is substantially reduced. For example, a practice with rising sales and average income per patient is an attractive picture, but a closer look might reveal a falling ratio of new to old patients. Maybe the practice is pushing price and sales to appear more profitable at the expense of long term sustainability?

Owning a practice is a wonderful thing and is a fundamental desire for many optometrists. It’s doable but not simple or easy. Far easier and safer to buy something that already works rather than setting up yourself, but in the end it’s all a matter of judgement and research. Do your homework, get the fundamentals right and be confident.

Mark Overton Bsc MBA, is the Managing Director
of Ideology Consulting. Mark has consulted to private and public businesses for over three decades, including public hospitals, Federal Government medical research institutions and professional associations. He has an extensive portfolio of experience in general management, consulting and professional service roles and has lectured at universities. Mark is often engaged to advise optometrists who are interested in selling or acquiring a practice.

References
1. Optometry Board of Australia Registrant data; 1 October 2017 – 31 December 2017

Different Perspectives

Eyecare Plus – 153 Practices

Simon Lewis, General Manager

Q. What are some of best reasons for buying into your own practice?

A. There are five solid reasons for doing so:

1. Independence: you work at your own high level of clinical care without restrictions. You decide the clinical services and product offerings which best suit your demographics.
2. Business Mentoring: the vendor is going to coach you intently into business ownership. They want their patients to be looked after as well as they looked after their patients for many years. And more likely than not, the vendor will be working for you for a number of years, so the transition of patients into ‘your’ practice will be well managed.
3. Income growth: by specialising and developing your personal niches as the local eye care professional.
4. Return on investment: generally it’s better than other investments such as real estate, shares or bank interest.
5. Interest rates are currently low: you may be able to borrow at around 5 per cent but make a gain of around 25 per cent over time.

Q. What sort of practice should you look to buy?

A. Definitely purchase an existing practice! Your bank funding will be less complicated. There are so many variables when considering a purchase: your budget, where you want to live and work, whether you want to be in a shopping centre or have street front or destination practice etc….

Ideally, purchase a practice that is well managed but has room for growth. A practice operating at capacity will command a higher purchase price based on profit, but will often have less room for growth. A neglected practice can be an opportunity but will require more marketing effort to re-establish itself.

Q. What services does Eyecare Plus offer new practice owners to help them maximise the potential of their new practice?

A. Eyecare Plus will coach you to grow your practice and provide tools to improve your business. We make marketing easy and affordable so you can develop a consistent plan to connect with your existing and potential patients.

Through our shared branding and territory protection for each practice, your practice can participate in geographic cluster advertising to reduce your costs and increase your impact.

EyeQ Optometrists – 25 Practices

Lily Wegrzynowski, Chief Business Development Officer

Q. What should you consider when buying a greenfield practice?

A. It’s a big decision and a number of factors need to be taken into account… what is the area you are considering; is there a good and diverse population base and when are people out and about (eg. throughout the week rather than only in the evenings and weekend?); what other businesses are in the surrounding area; what other optometry practices are there and are any of them ready to consider a succession plan? These are just some of the questions to consider as part of the research and preparation that goes into determining which approach will be best.

Q. What are the pros and cons?

Buying an established practice brings many benefits including an active database, and a business known in the community. The challenges include establishing the new owner’s relationship with patients, particularly if there has been a very long standing and loyal following who may no longer reside close to the practice.

Making changes in the practice can present some hurdles for any current staff, particularly with new systems and processes. This is where a good transition from previous to new owner makes a big difference in helping to communicate confidence and certainty for the patients and staff alike.

A greenfield practice offers the benefit of starting fresh with no outdated systems, processes or resistance to change. Everything is new and while this in itself can feel challenging, it enables the practice owner to start out as they mean to continue. While no one is the master of all elements, having a good support mechanism in place, for example EyeQ’s Franchise Associate model, will ensure everything runs smoothly from the get go.

Q. What services does EyeQ offer new practice owners?

An EyeQ Optometrist’s franchise practice is your practice – using our systems to enhance profitability and work/life balance. It is a franchise model for independents, which delivers services and support that enables you to concentrate on what you do best. It works equally well for new practice owners who wish to open a greenfield practice or take over an established practice.

Support services include many elements that revolve around taking care of the business backend and they are customised to individual needs. They can include payroll, accounts payable, financial reporting and full IT management. Franchise Associates benefit from marketing support that covers national campaigns, website and social media as well as personalised local area marketing.

Training is a key ingredient for franchise associates and their teams, and is delivered one on one as well as through a structured training program. Merchandise planning and product purchasing and pricing advantages assist in improving profitability.

One of the areas we all find challenging is HR. At EyeQ we provide full HR services, from recruitment to contract negotiation and HR support as you need it. Practice design and fitout, as well as clinical equipment procurement, is provided. Finally, we understand that the financial obstacles to opening or buying a practice can be prohibitive for many and EyeQ can provide funding assistance and advice so that the dream of owning your own practice can become reality a lot sooner.

ProVision Eye Care – 452 Practices

Graeme Schneider, Business Development Manager

Q. What are some of the most common traps practice buyers fall into?

There are a few traps to be aware of:

Purchasing a business can come with a lot of emotion, so having someone to share the load and provide a balanced perspective is key in obtaining the right outcome. A practice purchase is a long term investment and the pressures from sellers and brokers can be high during the process. Having a professional adviser who understands the optometry industry and is able to provide an unbiased view is really invaluable.

The decision to purchase your own business needs careful consideration as it will change your lifestyle. It will also require substantial focus, particularly in the early stages. It’s important not to underestimate the magnitude of this change, for example, don’t assume it’s a 9am to 5pm job. Preparing for this reality and having the necessary family support is a key to success.

The time it takes to complete the practice evaluation process and agree on a reasonable settlement period is often underestimated. Firstly, there are many elements of assessment that must take place for due diligence to occur. While it’s important to move through this process efficiently, due diligence should never be short-circuited. Once an agreement in principal is reached, the time required to finalise all processes can take longer than most people might expect. Some of these, such as formal contract preparation and assignment of the premises lease, are usually not fully in your control.

Q. How does ProVision help buyers avoid these traps?

At ProVision, our prime intention is a win/win position for both parties and we endeavour to facilitate this every step of the way. We look out for both our member and the purchaser throughout, as we recognise that the purchaser is a potential member of ProVision should the sale of practice be successful. That’s why our advice and support always promotes a good outcome for all parties. We also have access to many core industry benchmarks so that core elements such as dissection of income, rent, terms of the premises lease and staffing just to mention a few, can be readily evaluated.

Q. What services does ProVision offer new practice owners as they establish themselves in the market?

Purchasing a practice is just the first step and after that, the work begins. Our members often tell us we are like a trusted friend they can turn to for advice on almost any issue. That’s because we offer holistic support – we offer HR advice, help them recruit the right staff, develop customised merchandising and product selection strategies, provide marketing support from branding to campaigns to resources as well as education, training and business coaching. We are always looking for ways to innovate and keep our members ahead of the pack through technology solutions such as ProSupply, ProMarket and ProLearn.

We are invested in understanding what keeps our members up at night so we can make their lives easier every day. We’re here to support them in running their practice while they do what they do best: support and care for their patients.

Specsavers – 324 Practices (in Australia)

Peter Larsen, Director of Professional Services

Q. What should you look at when considering a greenfield location?

The most important thing to consider is the make-up of the local population, the prevalence of competitors and the growth potential in that area, foot traffic, parking and more. Once the location is set, the art of sizing the correct premises and negotiating the lease terms are critical as the proportion of rent to forecast sales will be important in the early stages. Our business development, legal and property teams take care of this.

Q. Does Specsavers find a site then find its JVC partners or vice versa?

Our normal process, when opening a greenfield store, is to identify a location once an optometry partner and a dispensing partner have been identified and have agreed to go forward into a store together, as joint venture partners.

With 324 Australian stores currently in the Specsavers Australian network, there are also opportunities for new partners to apply to buy into a store on the retirement of an exiting partner.

Q. Why is buying into a Specsavers franchise a good idea as opposed to buying into an independent?

It all depends upon the individual. Specsavers offers a genuine turnkey ‘walk-in’ solution with deep layers of support including marketing (our marketing fund will total some AU$60 million in 2018); optometry and dispensing CPD and professional development programs; back end administration (including monthly P&Ls, annual accounts, fortnightly payroll, accounts payable, BAS, loan management and more); recall and direct mail services; product development; online appointments; retail and optometry support consultants and much, much more.

Q. What are the positives about buying into a greenfield practice with an established brand?

We provide all the finance for our joint venture partners’ (JVP), funding and managing the store fit-out, all ophthalmic equipment and more – while managing the payback of loans out of the store partners’ cashflow.

Another key feature of the Specsavers JVP franchise model is the guaranteed market rate salary that partners earn for the lifetime of their franchise agreement. JVC Partners earn:

• Annual salary + super package (paid monthly)
• Annual profit (paid quarterly once the business is making profits)
• The future value of your shares in the business you build (paid when you retire from the business)

Bailey Nelson – 33 Practices (in Australia)

Peter Winkle, CEO

Q. Why would an optometrist consider partnering with a group like Bailey Nelson as opposed to becoming an independent owner?

We focus on making the end-to-end optometry experience enjoyable, for both patients and partners. The support we offer compliments our partners’ optometric expertise so that they can concentrate on providing optometry services. We drive customer advocacy, excellence in clinical standards, sales growth as well as market penetration.

Once we form a legal partnership, we work with our partners to pick a site for the new practice, design the store, select optometry equipment acquire the leadership skills necessary to successfully run the store.

We also handle the back-end administration: payroll, monthly accounts and leasing; and we provide practices with IT systems, including online booking, maintained by Bailey Nelson.

To help our partners reach their full potential, we provide business and clinical coaches, and centrally developed training and recruitment programs.

Q. What level of financial commitment is involved?

Entry into our partnership program requires a significant capital contribution, however our partners receive a salary while they work at the store, at a market rate that reflects their hours and billings. They also receive profits from the store, in proportion to the capital they have initially contributed. For example, if they contribute half of the capital required to set up a store, they receive half of the profits of that store.

Q. Bailey Nelson is young, how much brand value is there is the partnership?

We were established in 2012 and today we have practices in New Zealand, Canada, London and Australia, each of them drawing inspiration from the local community for the unique look and feel. So, for example, our Melbourne Central store pays homage to the metro railway above which it sits, while our Newtown store incorporates a mural designed and painted by a local artist, which perfectly fits the creative urban atmosphere of the street.

Q. How much strength is there in your supply chain?

Our partners retail frames and lenses sourced from our own supply chains – we have factories in Italy and China that we visit regularly, which are focused on responsible, high quality production. We’ve worked to create one of the fastest optical supply chains in Australia. Our lens ordering system is fully integrated between store and lab, and all orders are returned rapidly via express courier. We offer a comprehensive range of lenses, including freeform digital personalised lenses with blue light filters, polarisation, tints and photochromic transition coatings.