What is my Optometry Practice Worth? A Financial Planner’s Perspective

During my time as a financial planner for optometric private practice owners, I’ve seen the immense potential and challenges that come with practice ownership. In this post, I aim to shed light on the often-debated topic of optometry practice valuation. Obviously, understanding what influences practice value helps you make informed decisions that align with your long-term goals and aspirations.

However, figuring out the true worth of an optometry practice can be a complex and confusing process. So, today we’ll explore some different valuation methods, as well as some actionable info and steps to help optometry practice owners like you accurately assess the value of your business.

So let’s get into it. 

The Unpredictability of Practice Valuations

The truth is, there is no static formula for determining the value of your optometry practice. Practices trade at various valuations because of unsophisticated buyers and sellers in the market. This lack of sophistication leads to a wide range of asking prices and offers. While this may seem daunting, it also presents an opportunity for astute practice owners to negotiate favorable deals. 

The Value Conundrum 

Determining the value of an optometry practice can be a complex and subjective process. Appraisals often leave us questioning the accuracy of their conclusions. How do they know that X equals Y? The truth is, there are numerous assumptions baked into these assessments, making them less reliable than we might hope.  Traditional asset-based approaches, such as appraising the hard assets of a practice, fail to capture the true value of optometry practices. 

The assets within these practices are not the primary drivers of their worth.

So what are some practical valuation methods for optometry practices?

Here are a few that are commonly used in the industry:

1. Asset-Based Approach: The asset-based approach is commonly used to determine the value of businesses. However, when it comes to optometry practices, this method may not accurately reflect their true worth. Optometry practices are not typically valued for their physical assets, but rather for their intangible assets such as patient base, reputation, and goodwill. Therefore, relying solely on the asset-based approach may undervalue your practice.
   
2. Income-Based Approach: The income-based approach focuses on the potential income generated by the practice. This method takes into account factors such as revenue, expenses, and profitability. By analyzing historical financial data and projecting future earnings, practice owners can estimate the value of their practices based on their income-generating potential. This approach provides a more accurate reflection of the practice’s value, as it considers the unique characteristics and profitability of optometry practices.
   
3. Market-Based Approach: The market-based approach involves comparing the practice to similar businesses that have recently been sold. This method relies on market data and transactions to determine the value of the practice. By examining the sale prices of comparable optometry practices, practice owners can gain insights into the market value of their own businesses. However, it’s important to note that market conditions and individual practice characteristics can greatly influence the final valuation.

Also, a rule of thumb here: Always question an appraisal. There are times when you’d be surprised at how the sausage is made. 

Aks, “How do you know that X is worth Y? Where did you get that rule from?” 

If the appraiser can’t answer it, then take it with a grain of salt.

The Importance of Perspective

Now, if you’re on the “buy” side, avoid getting caught up in minor financial discrepancies when evaluating a potential practice acquisition. For example, if you find a great practice that aligns with your goals, don’t squabble over a difference of $20,000. In the grand scheme of your entire financial plan, this amount is merely a rounding error. Instead, focus on making the right decisions from the start and seek expert advice to ensure you’re making a sound investment.

For practice owners looking to get an accurate idea of their practice’s value, these are the steps that I would consider:

1. Gather Financial Data: Start by collecting and organizing your practice’s financial data, including revenue, expenses, and profit margins. This information will serve as the foundation for the valuation process.
   
2. Analyze Industry Benchmarks: Compare your practice’s financial performance to industry benchmarks to gain a better understanding of how it stacks up against similar practices. This analysis can help identify areas for improvement and provide context for the valuation process.
   
3. Consider Intangible Assets: Remember that the value of your practice extends beyond physical assets. Take into account factors such as patient loyalty, brand reputation, and community relationships when assessing the overall worth of your practice.
   
4. Regularly Review and Update Valuation: Valuations should not be a one-time event. As your practice evolves and grows, it’s essential to periodically review and update the valuation to ensure it remains accurate and reflective of the current market conditions.

5. Consult with a Financial Planner: Consider seeking the guidance of a financial planner who specializes in working with optometrists. They can provide valuable insights and expertise to help you navigate the valuation process and make informed decisions. (AKA, give us a call. We’re experts in this.)

Conclusion 

There’s a LOT of potential for growth and success in practice ownership.

Remember, the value of your practice is not solely determined by financial metrics but also by the intangible assets that make your practice unique. 

Take the time to assess your practice’s value and leverage this knowledge to drive your financial success

One final note. If you’re seeking guidance on valuing your optometry practice or want help with any other financial planning, click here to book a Triage call with our team of experts. 

In any case, I hope this post has helped clarify the limitations of traditional appraisal methods. Overall, I hope it’s clear that by embracing the unpredictability of the market, you can get a clearer picture of your practice’s worth, and make informed decisions that align with your vision and goals.