Succession Planning: Life on the Other Side

Despite the lure of ‘life on the other side of business’, selling wasn’t an easy decision for Peter and Carolyn Hewett, the owners of Peter Hewett Optometrist in Cremorne, Sydney.

As a third generation optometrist, Peter had his family’s legacy of independent eye care to consider as well as the continuity of care for patients and the well-being of his staff.

Ms Hewett, Peter’s long term partner in life and in business, explained their history to mivision. 

“Peter’s maternal grandfather, Billie Patterson, opened his practice in Martin Place, Sydney in 1923. Peter joined his father, Lloyd Hewett, in practice in 1980 and I joined the family firm in 1986. By any standard that is quite a legacy. We did not decide to sell our practice without a lot of heartache and discussion with our young optometrists.”

The Peter Hewett Optometrist practice tests over 6,000 people every year, with Peter testing full time alongside two other young optometrists, Chris Pooley and Nick Stanley. Ms Hewett’s role has been to lead the team and handle all the administration, buying, human resources, and marketing.

When the Hewetts decided it was time to make plans for their succession, they felt well prepared, having put in place “the best team” they’d had in their working lives.

“We had engaged two really wonderful young optometrists in Chris and Nick, who work with us every day. We are all aligned in thinking and share the same moral compass. They were the natural successors to our practice,” she said.

However, due to current economic pressures, it was challenging to set up the right structural and financial model for their succession into practice ownership.

“We had to face the fact that we had built a very big and profitable business that no one independent optometrist felt they could afford in an environment of tight lending with an uncertain future in which to pay off that debt.”

Three years ago, George & Matilda solved the problem with “a generous price for the business and the opportunity to work at full pace for five years”, which suited the couple down to the ground, and especially Peter who did not feel ready to stop working.

Today George & Matilda runs the practice’s back office and handles the marketing and buying, while Peter, Chris and Nick provide clinical care.

“I did my last practice Business Activity Statement two and a half years ago. It gives me great pleasure every quarter to get that time back,” said Ms Hewett, adding that at the end of the contract, the plan is to reduce their commitment with a timetable to be determined together with the practice’s young optometrists.

“We look forward to being able to provide them with things we never had, like extended holidays and paternity leave down the track.”

Along with a mutually beneficial succession plan, Ms Hewett says there have been other advantages gained from joining George and Matilda.

“George & Matilda has given us the unexpected benefit of building new relationships with other optometrists and practice managers in the community. It can be quite isolated in independent practice. It is nice to have conversations with others that benefit your business and help strengthen the network once the competitive restraints are removed. There is nothing like a good laugh with someone who really gets the ‘funny’ side of practice because they have total empathy.”

Having lived the life of an independent optometrist, it would be reasonable to think that working within a corporate structure could be difficult to get used to. However, Ms Hewett says in this case, the transition has been smooth.

“Chris Beer calls his network a collective of optometrists. I think that is a good word for what is building with George & Matilda. A lot of very different individual independents are forming a group where they maintain their independent thinking but have the latest equipment, marketing resources, supply chain technology and back office administration supporting them. That allows them to focus on delivering better patient outcomes, free from the stresses of compliance and administration.

MAKING WAY FOR CHANGE

“If you ask Peter how he feels at almost three years into our five year contract, he will tell you he hasn’t regretted the decision for a minute. We went into this venture with a positive motivation, open to new ideas, and understanding that to make the most of the opportunity, we had to welcome change in a collaborative environment.

“If you really think about optometry, it is a very different landscape to the one Billie had during the Depression and WW2, different again to Lloyd’s time of contact lenses, emerging fashion eyewear and academic and professional development. Peter and I have seen great changes in technology in product and equipment, as well as the recent decade of great disruption. Our young optometrists need to make their way forward, as each generation has before them, and find the best way to deliver great patient care and have a rewarding life from their labours.

“After almost a century of independent family practice we are happy to see the next generation taking on the future with the support of the George & Matilda network,” Ms Hewett added.

Getting Started on Your Plan

When it comes to retiring from practise, optometrists and ophthalmologists can either close their doors and walk away, or sell the business they’ve built up to another provider or group of providers.

While closing your doors can be done overnight, it will typically be your worst option. Not only do you miss out on the final financial rewards that come from successfully navigating the ups and downs of practice ownership, you also leave your staff and patients at a loose end.

Which leads you back to the option of securing a sale.

Regardless of whether you choose to sell your practice to a group or an individual, executing your succession plan will take longer than you think, so it’s best to start the planning process well before you want to retire.

it can be difficult to find the right buyer – a bit like Perfect Match – so we’re building a pipeline of people who are interested in buying a practice

James Thiedeman, Chief Executive Officer and Managing Director of Vision Eye Institute recommends that ophthalmologists should plan three to four years ahead of their intended retirement, because that way, “you reduce the risk of being sideswiped by an unexpected issue.”

He also recommends seeking advice on how to manage the transition from relevant experts, such as lawyers, accountants, financial advisors and trusted colleagues.

According to Graeme Schneider, Business Services Manager at ProVision, “A well thought out succession plan, commenced even 15 years in advance of your exit will help maximise your financial return and achieve the work/life balance you’ve always dreamed of. In doing so you’ll prolong your enjoyment of those last months or years that you spend in practice.”

PREPARING FOR SALE

Preparing your practice for sale should take you back to the basics of reviewing your practice for its strengths, weaknesses, threats and opportunities.

According to Philp Rose, National Business Development Manager from Eyecare Plus, “If you are not already doing so, review your practice key performance indicators on a monthly basis to identify the weaknesses and then work with your staff to improve your results.

“We offer members, as well as non-members, a free confidential practice assessment to improve their practice’s performance and, if required, prepare for succession.

“During the process we try to look through the eyes of a buyer, to help the owner prepare for the upcoming conversations. An important aspect is to determine price expectations and how value can be added to any practice sale – will the vendor optometrist be prepared to work as an employee, even part time, for instance.”

“Things that make a practice attractive to buyers will be at least a five year lease term, consistent marketing of the practice into the community, a well maintained patient database that especially includes occupations and email addresses, as well as good stock control with up to date frame selections.”

Mr Thiedeman said it’s also important to demonstrate how the relationship with referrers is being maintained and nurtured, how staff have been retained in the practice, how equipment has been well maintained and what the succession plan is for the principal eye health practitioner.

Another major consideration is whether the administrative systems you have in place will enhance or diminish your appeal to prospective buyers.

“Practices that have been operating for many years often have old systems in place that can make it difficult for an interested optometrist to make an objective analysis of the business’ potential,” said Lily Wegrzynowski, Chief Business Development Officer at EyeQ Optometrists. “Old systems also make it difficult for an incoming optometrist to pick up and run the practice.”

“At EyeQ, we help outgoing optometrists refine their systems and then we are able to support the incoming optometrists by helping them understand and maximise the potential of systems in place. This can be especially valuable for optometrists who are new to practice ownership – you don’t know what you don’t know, or what is or isn’t missing, and there is no sense in learning to use a system that is less than adequate.”

VALUING YOUR PRACTICE

When it comes to valuing an eye care business, most practice owners will have a good gut feel of how their practice is performing financially, though some may hold unrealistic expectations based on the hard labour they’ve put in over the years. A third party opinion, will be invaluable.

“There is a high degree or rigour and transparency in valuing a medical practice,” said Mr Thiedeman. “In the simplest sense, a valuation is typically based on a multiple of the expected future profitability of the practice, with adjustments for expected future growth, any ongoing investment required and the likely impact of the retirement of the principal doctor. In preparation for sale, an ophthalmologist should ensure they have prepared a clean set of financial figures for the practice for the last couple of years. If they own the property in which the practice operates, they need to determine if they wish to sell this with the business.”

It’s easier at Specsavers. Raj Sundarjee, Head of Professional Recruitment says, “All our joint venture stores operate the same chart of accounts and accounting principles, the same treatment of loans, adjustments and so on, which makes it relatively straightforward to ascertain an apples-for-apples assessment of value for all Specsavers stores.

“That creates a ready market for buyers and sellers alike albeit the selling partner ultimately sets the price for their own shares as you would expect. Probably the biggest issue we face in many stores is strong profits; which escalate the value. So, it’s important that buyers gain some clear guidance from their own professional advisers to ensure they understand the valuation that has been placed on the shares they are looking to buy,” he said.

Having prepared the practice and its records for sale, Ms Wegrzynowski emphasised the need to keep working. “Practice owners can be tempted to ease off as they head towards retirement, but in reality, you need to work as hard in your last years as you did in your first year – if you let things trail down, then the financial returns will trail off, and you’re only as good as your figures.”

FINDING THE PERFECT MATCH

Mr Rose says once you have your plan in place, and have prepared your practice for sale, finding the right buyer could take six months or longer.

“It’s very rare that an optometry practice finds a buyer quickly. The process can become a huge distraction and be emotionally draining, especially when buyers are ‘questioning’ your business.”

Ms Wegrzynowski agrees. In fact, she recalls helping negotiate the sale of a practice that had been on the market for two years. “The owner of the Baulkham Hills practice had given up and was about to close the doors – his lease was about to expire and his Optometry Australia membership was due to be renewed so he’d decided not to hold on any longer. We heard about him and had a dispenser within our group who wanted to open in the area, so we partnered them up.”

“Unless you’re selling to a corporate, it can be difficult to find the right buyer – a bit like Perfect Match – so we’re building a pipeline of people who are interested in buying a practice, and then it’s about finding a practice that’s available in the location they’re after and evaluating the opportunity,” she said.

In the end, it’s worth putting in the effort to find the best buyer because, as Mr Schneider says, “With careful planning, you will find one who is willing and able to maintain your practice’s independence and ensure it thrives beyond your ownership. This will give you peace of mind, knowing your patients will be in good clinical hands, along with your staff and any other stakeholders,” he said.

Majella O’Connor, the former owner at Ocean Eyes Optometrists in Victoria, turned to ProVision for advice on retiring and selling her practice.

“When the time came to sell, ProVision led the way by preparing information for potential buyers, vetting prospects, and generally facilitating the process to make it as easy as possible for me. The preparation paid off and I am delighted with the result,” she said.

Last year, optometrist Tony van Aalst worked with Eyecare Plus to plan his exit from Werribee Optical Centre, a solo practice in Victoria that he had owned for 39 years – virtually his entire career.

“My plan was to sell the practice, preferably to an independent optometrist who intended working in the practice themselves. Also, for at least a couple of years, I was hoping to continue as a parttime employee for the new owner,” he said.

“The main challenge was how to go about finding a suitable buyer – I considered placing a classified ad in the optical media and handling enquiries myself, but then I heard that Eyecare Plus was inviting prospective buyers and sellers to contact them.

“Philip collated the necessary financial and other information that would be needed to present to prospective purchasers and discussed a realistic asking price. He then set about looking for a purchaser – initially by word of mouth, and then by advertising in mivision. He handled enquiries from two very interested parties, and a sale to one of them was forthcoming.

“The whole process took about six months and I am currently very much enjoying my transition to retirement, working 2.5 days per week for the new practice owners,” said Mr van Aalst.

If you are not already doing so, review your practice key performance indicators on a monthly basis to identify the weaknesses and then work with your staff to improve your results

Opticare recently started to expand its business by acquiring independent practices. The first practice owner to sell into the new model said he was attracted by the flexibility of Opticare’s model.

“Their flexibility has allowed me the clinical freedom to practise behavioural optometry and has supported my existing practice culture and level of patient care. For the first three years of my succession plan, I am working a nine day fortnight but plan to reduce my hours.”

Originally a 100% Australian owned optical lens manufacturer, today Opticare distributes innovative technology that includes the VisionSC – an electronic liquid lens system that replaces trial frames and conventional phoropters; the 2WinS, a binocular mobile refractometer and vision analyser; and the fully automated Huvitz optical coherence tomographer with axial length measurement.

In acquiring optometry practices, Opticare’s founder George Nasser said, “The primary aim is to drive the use of new technologies into eye care practice and support Australian owned suppliers. We keep exactly the same staff and listen to their needs.”

HANDING OVER THE BATON

Eye care professionals will generally progressively transition from full time to part time clinical practice rather than abruptly cease working. This allows them to slowly wind down and allows patients time to make an adjustment, as the cessation of practice of their trusted doctor can be confronting. It also allows a younger generation of practitioners to ease their way into practice ownership and management.

The whole process took about six months and I am currently very much enjoying my transition to retirement, working 2.5 days per week for the new practice owners

Chief Executive Officer and Managing Director Chris Beer says a key strength of the George & Matilda model is its ability to support the development of young optometrists in practice.

“By understanding what makes a practice successful, we can connect existing owners to younger optometrists who are passionate about taking the next step in their career as practice owners and would like to join George & Matilda but are not yet in the position to own their own practice. The young optometrist can learn from the existing practitioner, and eventually take over as a partner so there is certainty around what the future looks like for all stakeholders, and the peace of mind that patients will continue to be in good hands when the exiting partner is no longer practising.”

Specsavers also focuses on developing the careers of young optometrists with a structured six month ‘Pathway’ businessskills development program that helps employees make the transition into ownership when opportunities arise.

“When it comes to identifying new or replacement store partners, the Partner Recruitment team at Specsavers is ultimately responsible to ensure that the various litmus tests for partnership roles are met,” explained Mr Sundarjee. “The Pathway program graduate cohort is the natural first port of call as all of those graduates are partner-approved and will have given some indication as to geographic preferences; thereafter it tends to be a fairly smooth process of introducing a replacement partner into the store concerned.”

As is the case with the other groups we spoke to, exiting partners are able to to ease themselves out of their practice over a period of time. “This sees a new partner join the practice, taking over the exiting partner’s role and shares over an agreed time period,” Mr Sundarjee said.

PROTECTING YOURSELF

Professional, independent and experienced advice is essential, regardless of how, when or who you intend to sell your business to. This will help overcome any inevitable emotional attachment to your business that may cloud your judgement or ability to negotiate.

Ensuring you have insurance to cover yourself against unforeseen legal action is also critical, not only from a medical indemnity perspective but also from a tax, staff employment/industrial relations and public liability perspective.

“A lifetime of contribution can be undone without the right protections in place. Thankfully there are many insurance products available today to ensure doctors can cover themselves post retirement, which I would strongly recommend, said Mr Theideman.

“Selling one’s practice can be a confronting exercise, particularly given it often represents moving on from a doctor’s life’s work. With good planning and good advice however, the process should be straightforward and rewarding.”