Five Vital Topics to Consider When Adding Another Location

NEW YORK—Now may be as good of a time as ever to consider expanding your optical operation by purchasing an established practice or adding a new location. Interest rates remain favorable for both short- and long-term lending amid speculation that the Fed may raise interest rates later this year. Although you may have already achieved success with your current five or more locations, it’s important to consider the following five vital topics when evaluating all growth opportunities:

1. Valuation

Get an understanding of how the valuation of the practice you are considering buying is determined. What is the make-up of the current patient base and how much of the purchase price is goodwill? Also, is the seller willing to sign a non-compete for a pre-determined period of time? Can the seller hold part of the note as a portion of the purchase price?


2. Cash Flow

It is important to understand both the current and historical financial condition of the practice under consideration. Have the revenue and expenses for the practice been trending upward, downward or remaining steady? We recommend obtaining the last five years, or at least a minimum of three years, of financial statements (profit & loss and balance sheet) and Federal tax returns for the targeted practice along with an interim financial statement.


3. Cessation of Debt

Does the targeted practice have any outstanding debt to creditors and vendors? If so, will this debt be paid off at the time ownership is transferred? If not, has this debt been factored into the purchase price? If it’s not already built into the purchase price, any debt that will become the responsibility of the purchaser must be factored into the amount to be financed. It is crucial to obtain a copy of any notes outstanding on the practice to be clear of the terms involved. You may not want to assume responsibility of any obligations that would negatively impact the projected cash flow of the practice.


4. Transition Period

Is the seller willing to remain on staff for a pre-determined period of time after ownership has been transferred? Also, will you be able to retain any key staff members who are currently employed by the targeted practice? Both of these components are important for maintaining the patient base during the transition of ownership and for the integration of any new policies and procedures. The last thing you want is to buy a practice for its patient base and lose that asset before you have time to cultivate it.


5. Threshold

What is the scope and timetable for integrating the targeted practice into your operation? A good business plan is a great way to illustrate what changes will be made and how they will impact the current condition of the practice. Plans should be measurable through the use of timetables and quantitative goals that will enable you to evaluate the process and include allowances that can be adjusted as needed.

Having a successful track record of five or more locations with positive performance is always a plus. Be sure to include what processes contributed to the success of your current locations and how you plan to implement them in the new location. Furthermore, be mindful of what outstanding debt you currently have and how an additional location will impact the management of your overall practice.

Even if purchasing a new practice or adding a new location is just an idea at this point, be sure to keep an open dialogue with your accountant and banker. Periodic reviews will help determine the ideal time to expand. Also, involving them early during the process can help you plan accordingly and avoid stepping on those common landmines that can sink any acquisition plans even before they start.