Buying or Selling Vision Care Practices
Get the Vant Advantage
Many vision care professionals are growing faster through acquisition than through sales.
The Vant Advantage begins with the fact that we have bought and sold many of our own businesses. And we have provided buyer and seller representation on hundreds of deals for our clients. We also understand both sides of the business transfers desk—and other key variables such as funding, valuation and business advisory services.
Selling your practice may very well be the largest financial transaction of your life—whether realized in gains or losses. The difference will be in how well your sell-side representative sources the best buyer and how accurately the value of your company is developed—and presented to that buyer. We offer the strongest sell-side performance metrics in the industry. We call it the Vant Advantage. You’ll call hiring us your best call ever.
The advantage begins from the very start of the selling process—with the right questions. From there, your TVG Business Intermediary will provide a priority list of the most likely type of buyers—and how to best sell to each.
When acquiring a practice we work with you to source, qualify, value, fund and close your next acquisition. Our value goes beyond merely searching for a deal. We know how to navigate the mine field that is the small and lower middle market. Our strategic relationships with other Investment Banks, Business Brokers, CPA firms and Financial advisors allows us to tap into a network of practice owners that are thinking about selling but not yet listed. And once we find the deal, we work to make sure that the numbers are in fact what they say they are. We help you structure the deal to increase the likelihood of financing. We work closely with all parties to close the deal so that your dreams become a reality.
An existing practice has a track record. The failure rate in small business is largely in the start-up phase. The existing practice for sale has demonstrated that there is a need for that product or service. Financial records are available along with other information on the practice. Most sellers will stay and train a new owner and some will also supply financing. Finding someone who will teach you the intricacies of running a practice and who is also willing to finance part of the sale can make all the difference to your success.
You want to consider only those practices for sale that you would feel comfortable owning and operating. "Pride of Ownership" is an important ingredient for success. You also want to consider only those practices for sale that you can afford with the cash you have available. In addition, the practice you buy must be able to supply you with enough income - after making payments on it - to pay your bills. However, you should look at a practice for sale with an eye toward what you can do with it - how you can improve it and make it more productive and profitable. Does the current practitioner’s patient population use the same payors that you serve? There is an old adage advising that you shouldn't buy a business unless you feel you can do better than the present owner. Everyone has seen examples of a business that needs improvement in order to thrive, and a new owner comes in and does just that. Conversely, there are also cases where a new owner takes over a very successful business and soon after, it either closes or is sold. It all depends on you!
Every practice search is different. No one can tell you exactly how long it will take to find a practice, but it can take anywhere from a few weeks to a few years. A lot depends on the search criteria, and geography that you are searching. Also having the ability to quickly analyze a deal and act plays a major part in how long it takes. Solid businesses don’t last on the market long. And more experienced investors often have the resources to move on a deal quickly.
There will always be some risk associated with buying a practice. But there are ways to reduce your risk as much as possible. The key is research. Your goal is to know as much as possible about the practice and the people in that business. Having a person who understands the due diligence process and all the rocks to look under can greatly reduce your overall risk. Being able to verify all the assumptions made throughout the process and check the financials against the tax returns can give you and understanding and comfort level with what is going on with the practice. Understanding the industry, should give you an comfort level with what is going on outside of the business.
Sellers are very concerned about confidentiality because of fear of losing customer, losing employees, general uncertainty and actions taken by competitors. Therefore, as a potential buyer, you must treat confidentiality seriously. Buyers should not talk to employees, clients, suppliers, or competitors without written approval from the seller. Maintaining confidentiality is also advantageous to the buyer because a smooth transition without problems is good for business.
Selling to your partner(s) or employees is another viable exit strategy. Since partners and employees work in the practice daily, they understand the value proposition of the business better than non-insiders thus these types of transactions could yield a higher value than other exit strategies.
Existing Employees
Many practice owners feel that the best prospect for their business will be within the ranks of physicians currently employed in the practice. This can be a viable, positive method of exiting while also rewarding loyal employees with ownership. It is normal to think that employees would be a natural choice, but there is a saying about people in business: “There are leaders and there are followers and very few followers ever become leaders.” After an employee and his spouse discover the reality of the down payment, the monthly debt payments, and the overall responsibilities involved in ownership, the employee usually remains an employee; however, this is still an excellent avenue to pursue especially if you have a management team in place.
Partners
Partner buyouts are the most easily financeable transactions of all, assuming the buying partner acquires 100% of the outstanding shares of the company. The buyer can often initiate the transaction for little to no money-down, based on the equity currently held in the business
Functions of TVG
- Consultation with seller to learn more about the goals of the Seller.
- Provide an independent business valuation
- Development of marketing plan and marketing package (if applicable)
- Assistance in determining asking price and deal structure
- Coordinate and facilitate all buyer / seller meetings
- Additional consultations with buyer / seller
- Assisting buyer (if applicable) with preparation of offer to purchase or letter of intent and presentation to seller
- Act as a buffer between buyer / seller during negotiations
- Offer follow-up with buyer / seller
- Meetings with buyer / seller to coordinate buyer due diligence
- Consultations with buyer / seller and outside advisors
- Assist buyer in obtaining financing (if applicable)
- Coordination of closing and other documentation with attorneys
- Consultation with parties regarding transfer of licenses, utilities, etc.
- Assist with and coordinate the closing and subsequent transfer of the business
Fees
Vision Source members enjoy a reduced rate for TVG services. On all transactions there is a preparation fee and a success fee at closing.
Placing a market value on a business will be the most important and perhaps most difficult part of the selling process. Prospective buyers will make the decision to purchase a business based on the potential future upside, but will establish a price on the business based on past and current performance. Fortunately, performance is well documented in company financial reports from which a business valuator can use definitive ratios to determine net worth. There are probably as many formulas to develop market value as there are different types of businesses. In the final analysis there is one definitive determinant of business worth, “The amount a willing and educated buyer is willing to pay for a business.”
Having said all that, there are some general rules of thumb. A practitioner looking to acquire another practice should look at the Annual cash flow a practice generates. This typically includes net income plus any non-cash expenses such as depreciation, etc. Add to this the amount the seller has been able to pay him or herself and any “perks” that have been expensed to the business. A practice will generally sell for a multiple of this Annual Cash Flow number. A typical range of this multiple will fall somewhere between 2 and 4 times. But contact us to get a free range of value estimate for your practice.
1.) Initial Meeting
Business Intermediary explains what’s involved in the selling process. Questions of the seller are answered regarding the business operation, history and future prospects of the seller’s firm.
2.) Review Financials
TVG team begins “recasting” technique to determine owner’s discretionary cash flow of the company. Spreadsheet analysis is then used to compare the three previous years of financial operations and the current year to date.
3.) Determine Value
Once the financial review is complete the TVG team works to assign applicable multipliers to the owner’s cash flow and to determine the applicable deal structure. Care is taken to use multiple standardized valuation techniques to determine a recommended selling price to the seller in addition to researching industry comps.
4.) Engage TVG Services
The TVG intermediary preliminary fills out the engagement agreement for the seller’s legal council to review with the appropriate monetary amounts and any conditions agreed upon. The seller’s attorney will usually have comments for the seller’s consideration before signing.
5.) Gather All Necessary Documentation
After the engagement agreement is fully executed, the next step by TVG team members is to obtain a comprehensive list of documents from the seller to develop the marketing package for purchasers. A business questionnaire, fixed asset list, copies of building lease and other documents are requested by the Business Intermediary to complete the marketing package.
6.) Develop Marketing Package
Developing the marketing package for sellers requires input from all TVG team members. The document in finalized form is an excellent roadmap of operational, financial, tax and other information frequently asked by buyers and their support groups. TVG takes pride in having one of the best marketing packages in the industry for marketing the businesses that they sell.
7.) Seller Review & Approve Marketing Package
TVG will not market a practice until the seller(s) have signed off on the accuracy of the marketing package and also the summary for the business listing website. Sellers are encouraged to thoroughly review both documents for any necessary corrections, clarifications, and additions.
8.) Begin Marketing Practice
Once the marketing package is completed and reviewed by the sellers, the TVG team will begin looking for qualified purchasers. An email notification of the new listing is sent to the TVG buyer database of over 10,000 potential acquirers. A very confidential written 100 page executive summary of the business is published on various web sites informing interested buyers. Qualified buyers are not informed of the location or name of the company until first supplying a signed and dated financial summary and a confidentiality agreement.
9.) TVG Interviews and Filters Buyers
Interested buyers are entered into the TVG system in relation to the practice they are inquiring about. Both TVG staff and business intermediaries will analyze the buyer profiles and speak with the buyer prospect to determine if they are appropriate to pursue in the opportunity. Interviews are then set up in person, where possible, or by teleconference, if necessary.
10.) Buyer / Seller Meetings
The initial meeting between buyer and seller allows the buyer to tour the seller’s facility and to ask the seller questions about the operation. The buyer should be prepared to open the meeting with comments about professional experience, acquisition goals, and why they feel, at least initially that the subject company is a possible target. The initial meeting is often followed by questions from the buyer that arose as a result of both his first meeting and continued analysis of the marketing information prepared about the selling firm.
11.) Buyer Submits LOI / Offer to Purchase
The most used technique to start the actual negotiations is the Letter of Intent to purchase (LOI). This document, although non-binding, is the roadmap by which negotiations follow. It will usually lead the parties through the due diligence process, the funding options of the buyer, and the final purchase contract which is generally drawn up just prior to closing.
12.) Negotiations Between Buyer / Seller
The TVG Business Intermediary is responsible for keeping the negotiating process moving forward, and maintaining an arms-length transaction between the parties.
13.) Solidify Price and Deal Structure
The basic deal points of price and deal structure usually lead the way in negotiations and will be the first items to get handled between the parties. Frequently, the LOI document will be changed several times before being signed by all involved.
14.) Apply / Obtain for Financing
Third party lenders have their own due diligence checklists which often stretch the closing process. Other financing vehicles such as conventional loans are usually quicker. Seller financing, where applicable is usually the quickest of all funding methods often only taking weeks to a closing.
15.) Finalize Purchase Agreement
For Vision Source members, standard transaction legal work is included in the fee. Both parties should have their own tax representatives contribute to review the final purchase agreement. As one would surmise, this process can take time to get all parties to reach agreement about the final “definitive agreement.”
16.) Transaction Close
TVG Business Intermediaries are responsible for setting up the closing at a venue acceptable to all parties. Each party will receive a buyer and seller’s closing statement outlining the proceeds/expense of sale. The closing will also encompass the buyer finalizing the loan process with any third party lenders. Closing generally takes one to three hours and is the final step in the sales process.
TVG recognizes that in some instances, a practice owner may have their own potential buyer prospect. Most of the time, these prospects do not move forward because the buyer and seller are unaware of the process and ultimately a deal never materializes. A qualified Business Broker proves invaluable in this process since both parties most likely will have never been through the process.
We have developed a process we term, Facilitation, that we feel mitigates this issue for sellers. In this scenario, TVG will perform the functions listed below for a reduced success fee. In the business transfer process, historically, finding a buyer is only 20% of the process. Actually walking a buyer and seller through the process and ultimately going to closing is the lion’s share of the work. While our fee will vary depending on the situation, our business intermediaries will be ready to discuss this with you.
Facilitation Functions
- Consultation with seller and review of seller’s documentation
- Development of marketing plan and marketing package (if applicable)
- Assistance in determining asking price and deal structure
- Coordinate and facilitate all buyer / seller meetings
- Additional consultations with buyer / seller
- Assisting buyer (if applicable) with preparation of offer to purchase or letter of intent and presentation to seller
- Act as a buffer between buyer / seller during negotiations
- Offer follow-up with buyer / seller
- Meetings with buyer / seller to coordinate buyer due diligence
- Consultations with buyer / seller and outside advisors
- Assist buyer in obtaining financing (if applicable)
- Coordination of closing and other documentation with attorneys
- Consultation with parties regarding transfer of licenses, utilities, etc.
Assist with and coordinate the closing and subsequent transfer of the business
The short answer is that it really doesn’t… not in the way most people think. Sellers in general often assume that the value of inventory can be added onto the sale price of their business. In actuality, your eyeglass frame inventory is part of your business, and would typically be transferred at sale. Having said that, it is advisable to actively manage your inventory to ensure that you have appropriate levels of relevant inventory to serve your patient base. As frames begin to age and fall out of “style” it’s best to discount them and turn them into cash, rather than allowing them to accumulate in a back room or in a draw at the Optician’s station.
You should maintain the equipment you need to serve your patient population in the most cost-efficient manner. If you are anticipating a sale several years from now, you should avoid the temptation to work your existing equipment past its relevant time horizon. A buyer will be reluctant to buy a practice if the equipment is outdated. Similarly, you should avoid large equipment purchases right before a sale… unless you need it. Equipment is typically considered to be part of any business. A buyer will have a compelling case to argue that they should not have to pay a premium for a brand new piece of equipment that may be deemed as overkill.
If you acquire any equipment using manufacturer financing and/or a lease, transferring the equipment along with the financing is often the easiest way to avoid any transaction hang-ups around equipment.