Dear Jerry, 

I am in the process of selling my practice and am trying to determine a price that is fair to both myself and the new owner. I know that every practice is different and understand that value is in the eye of the beholder. 

Most of the formulas I have seen recently call for various types of weighted three year averages of the gross income multiplied by 50% to determine the purchase price including equipment, inventory good will, etc.  

I know this is a starting point, but 50% of average gross seems to be much lower than previous guidelines. 

Since a lot of "baby boomer ODs" are in this situation, I would like to hear your opinion. 

Thanks, 

Walter Docker, OD (name changed) 

Hi Walter,  

“How much is my practice worth?” is always a great question and one that I get a lot. 

In my opinion, the key financial metric to consider when valuing a ‘traditional dispensing OD practice’  is not Gross Revenue,

From a purely financial standpoint, which modality can be expected to deliver higher profits to your practice; spectacles or contact lenses?  

The answer is, BOTH.  

If you are an OD who views spectacles as more profitable for your practice than contact lenses, you may want to consider the following data presented at Vision Expo East by Dwight Ackerman, OD, Director of Professional Programs for CibaVision. 

Dear Jerry,

Your writings have been a major influence on how I manage my practice but, I question why I should include my optical staff salaries under cost of goods when calculating my overhead expenses.

You seem to stress this more than other consultants. Are there any other resources or schools of thought this topic?

Thanks,

Patrick Pirotte OD

Dear Pat,

Thanks for the question. The overhead ratios that I developed through the years tend to correlate very closely with the data put out by both the AOA and the CibaVision Essilor MBA program.

What I try to do is speak and write on topics that help private practice OD’s think about how these ratios affect their overhead and ultimately their practice profits.

Staff Expenses And Cost Of Goods

The reason I stress the overhead allocations between staff and cost of goods is because I feel practice owners can make better business decisions when they truly understand where they are spending their money.

Let me use the following example to illustrate.

Hello Dr. Hayes, 

I am in negotiations to purchase an existing practice and want to use The Hayes 7 Key Expenses to create my annual operating budget.  

Assuming I borrow the money to buy the practice, in which category would I include my loan payment?   

I really enjoy reading your blog.  

Sincerely,

Thea Shearer, OD

Thanks Thea!

This is a great question because it makes us step back and ask ourselves, “Do we approach this from a tax standpoint or as practice management question?” 

The answer is both. 

 Hi Jerry,

I wanted to ask your opinion on the practice of allowing patients to come in for a ‘refraction only’ without an eye health exam.  

Last week I had a patient who refused any part of an eye exam due to her religious beliefs. Our normal full exam fee is $100, but, we only charged her a refraction fee of $25.  

I did have her sign a waiver we made up stating that the eye health exam was not performed at her request.  

We also get an occasional request for refraction with patients who are seeing a retinal specialist for their eye health exams on a regular basis.  

We still have patients who sometimes complain about paying $25, so I hesitate to raise it a whole lot more all at once. My colleague charges $108 for his exam and $50 for the refraction. 

After my recent experience, I am considering not seeing patients for ‘refraction only’ without an exam.   

It hardly seems worth my time to see a patient for a refraction only visit given our current fee structure. What is your opinion on refraction fees? 

Thanks! 

Ranell Nobin, OD (name changed)  

Dear Dr. Nobin,  

There are really two questions here.  What should an OD charge for ‘refraction only’?   

And, are you putting yourself at risk to provide less than standard of care, even at the patient’s request?

Dear Jerry,

What are your thoughts about opening a second practice in a medium size city (500,000 population)? 

Our current practice location grosses about $2 million per year and we have an opportunity to purchase a building at a GREAT price about 3 miles away. 

I think it is a great location for an upscale boutique, but we are concerned that it may be a little close geographically to our current location. 

Thank you, 

Dr. Sherman (name changed)  

Jerry's thoughts:  

Sounds like you have a great practice in your main office!   

And yes, this is an absolutely wonderful time to buy real estate at rock bottom prices in many markets. But be careful

Dear Jerry,

Our mutual friend, Jim Thomas, the Editorial Director for OPTOMETRIC MANAGEMENT, recently sent out the following question to his editorial board.

“If we consider all the factors that impact patient care and practice management in optometry, which do you think will be most significant in the next one to three years?”

Are reimbursements about to decline?

In my opinion, the most significant change coming in the next one to three years is for independent OD’s who have come to rely on the medical portion of their practice for income. 

I think we are about to realize a negative adjustment in earnings.

Dear Dr. Hayes,

I read with interest your June 16 blog, “Staff Projects For When The Doctor Is On Vacation”. It was the one about having a staff member phone patients who don’t respond to written recall messages. (click here to read)

To be honest, I am not always comfortable doing that in my practice because I think it gives patients the impression we are out beating the bushes for business.

Your thoughts?

Best regards,

Dr. S. Terry (name changed on request)

Dear Dr. Terry,

This is a fair question and one that I’m sure many OD’s grapple with. Here is how I recommend you reconcile the matter in your own mind. 

Dear Jerry,

I enjoyed the podcast you did on May 25 with Dr Richard Hom on the future of electronic medical records.  I have utilized a PMS since we opened our office in 1995.

Having all patient encounters documented with an EMR since 2000 I can not think of any case where an OD would not benefit from converting from paper records to electronic. 

I have helped numerous other Docs implement EMR/PMS and at this point in time can see no downside