5 Topics Optometrists Should Consider When Planning for the Unexpected [A Tribute]

Every now and then, certain events happen that cause us to take pause, reflect, and see the big picture. For me, May 21st was one of those days.

I was just finishing up a call with someone and was popping back into my inbox to move on to the next task-at-hand when I saw an email come in from the Chapter Executive of the FPA (Financial Planning Association) – Greater Indiana chapter, an organization that I’m proud to serve as a board member. The subject line had two words: the name of one of my fellow board members.

My first thought was that Jason was taking a leave of absence or had something else come up that required the board to be notified.

I wish that’s all it was.

Turns out, Jason was taking a break from his practice and was enjoying some R&R. (I know this because my email exchange with him a couple of days’ earlier let me know that he was going to be OOO taking some time to “recharge”). He was traveling south on I-65 in Alabama when his Nissan was involved in an accident with a semi. He did not survive the accident and died at the scene. He was 38.

As I read the email, I was just sitting at my desk and trying to process what I just read. Why? How? What happened in the moments leading up to the crash?

Then, just by nature of what I do day in and day out, my mind started thinking about the aftermath. He was a CFP® and owned his own practice and had also acquired a number of other practices from retiring advisors (both here and in the state of FL). Did he have a succession and continuity plan in place? What about personal estate planning documents? What was going to happen to his clients? In the midst of the emotional toll this will have on his family, will they know how to handle his business affairs?

I have no idea the extent of the planning that Jason had done. As planners by day, it’s assumed that we have our “ducks in a row” but that’s not always the case. Jason was a passionate financial planner that wanted to help as many people as he could get their financial affairs in order and was a tireless servant to the FPA-Indiana chapter. As I work to reconcile this in my own mind, one way I can honor his life is by continuing to “burn the planning torch” and help people get their affairs in order. With that in mind, here are five essential planning considerations that every optometrist needs to have in place.

Personal Estate Documents. I’ll lump the components of your personal estate planning documents into one line item. The major components of your estate plan are going to be your last will and testament, your living will, your healthcare power of attorney (POA), and your durable power of attorney.

Your last will and testament are the final instructions for the property that you own that would not directly pass to your beneficiaries by way of beneficiary designation. This would be items like jewelry, cars, homes, family heirlooms, and pets. Most tangible property, as well as business interests, will pass by way of your last will. If you have done any advanced planning, such as the formation of a revocable living trust, your last will and testament will provide the instructions on the transfer of property into your trust.

Your living will is (jokingly) referred to as your “pull the plug” instructions. In other words, in the case of your incapacitation, how long do you want to be kept alive on artificial support and provided water and nutrition? What are your personal preferences?

Along the same theme, your healthcare POA (HPOA) grants the person named in your HPOA to make medical decisions on your behalf that may not be able to be discerned from your living will.

Your durable power of attorney (DPOA) is the document that gives the person named in the DPOA to make decisions related to other aspects of your life until either (a) you recover, (b) a judge deems it revoked, or (c) you pass away. Common items that are acted upon through a DPOA include:

• filing tax return
• paying bills
• transacting real estate transfers
• signing checks
• making gifts to charities
• paying healthcare expenses and insurance billings

Having these key documents in place are essential for everyone, optometrists included. However, if you own your practice, the planning doesn’t stop there.

Succession Planning. As the practice owner, you have an additional level of responsibility to ensure that one of your largest assets–your practice–has the proper documentation and structure in place to ensure a successful transition from one owner to the next. This is important in cases of both disability or death of the owner…neither of which can be predicted, but both can be planned for accordingly.

The importance of this planning cannot be understated. For most ODs, their personal financial success is tied to the financial success of their practice. Not only have you invested your actual money into the practice, but you’ve invested an incredible amount of time, emotional, sweat, and relationship equity as well. It’d be very unfortunate to see that disappear simply due to lack of planning and intentionality.

In the absence of proper planning, the value of the practice can deteriorate significantly in a short amount of time. This is simply due to the circumstances of the situation: a buying doctor is going to know that pt attrition will be higher than normal, there will most likely be staff turnover, word will spread that the doctor is no longer around, etc. In short: the “continuity of care” is lacking, if not completely non-existent. Best case scenario is you have (a) a rockstar practice manager who is committed to seeing the practice succeed and stays on board to help with the passing-of-the-torch while (b) various colleagues in the area generously step up and into your practice to help see pts already on the schedule.

So what goes into proper, proactive succession planning? There will be various advisors involved in the process to help you evaluate the best path to take given the current state and health of your practice. At a minimum, you’ll want to make sure you’re aligned with the following individuals that have experience dealing with optometry practices (or, at the very least, other medical practices):

• CFP® Practitioner
• CPA/tax advisor
• Business attorney
• Valuations analyst (someone with the CVA designation demonstrates a level of competence in valuing businesses)

The documents that you’ll come away with will be the backbone to your succession plan. It will include who is buying your practice, the valuation method being used, the type of sale (asset or stock sale), and other terms that will be outlined in coordination with your attorney and other advisors.

Have a buy/sell. A buy/sell agreement is part of this process, and that buy/sell agreement needs to be funded. Typically, certain types of life insurance are used to provide the liquidity needed to purchase the practice from the deceased owner. There are a couple of different ways a buy/sell can be structured, and we’ll save that for a different post. The biggest takeaway that I want you to know when it comes to the buy/sell: it does NOT HAVE TO BE FUNDED WITH WHOLE LIFE INSURANCE! In fact, I rarely recommend using any type of permanent insurance.

So far we’ve just been covering what happens in the case of your sudden passing, but it’s important to have continuity planning in place in the case of a disability as well. One component of disability planning is to make sure that you’re defining disability. Is it a total disability? Partial disability? If partial, how are you defining partial? This is all language that’s important to have documented as part of your planning.

Who’s it going to be? This is a big question to consider and is often an area that causes practice owners to forego this part of planning.

One option to consider is giving another OD that is relatively close to your practice the option to buy your practice. In optometry and other professions, we know that it’s “location, location, location” and one of the biggest challenges in acquiring another practice is doing what you can so that patients do not see much of a difference in drive time to the new location. Each OD could incorporate a “right of first refusal” in the contract so that they’re not obligated to buy the practice, but at least have the first option to buy the other’s practice before it is listed or offered to other potential buyers.

Along with geographic similarities, the type of practice can also make a difference. To use an extreme example, you would not want a high-end, boutique optical purchasing a largely Medicaid-based practice. A big part of integrating the acquisition of one business into another is doing everything that you can to streamline the process. Having similar practice models can help the acquiring team deliver the same type of patient experience to the newly acquired patients…because it’s a similar patient base to what they are used to serving.

Have adequate life insurance. This is a “Captain Obvious” statement, but the statistics show that only 59% of the population own some form of life insurance. There are a variety of tools out there that can help you calculate how much life insurance coverage. Here’s one that I like from Nerdwallet.com. However, the one variable that’s not taken into consideration is the equity that’s in the business or the valuation of that business in its current form. In its current form, it’s important to consider how much of your personal financial plan is banking on the valuation of your practice and the proceeds that you would receive from a future liquidity event like selling your practice to a buyer. If your plan is banking on that event happening, then it would behoove you to include that amount in addition to the other factors at play in helping you determine how much life insurance coverage you need.

Each one of these topics requires and is worthy of its own deep dive discussion and we’ll be sure to follow up on them in subsequent posts or podcast episodes of 20/20 Money. In the meantime, hopefully, this information has helped bring some sense of urgency and clarity to the importance of planning for the unfortunate and unexpected.

If you’re interested in setting up a time to discuss this very important issue? Schedule an initial conversation…it’d be our privilege to determine if we can serve you.

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