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6 Questions to Ask Yourself Before Buying a Second Practice

Acquiring a second optometry practice might seem like a win-win situation, offering the prospect of enhanced growth and an immediate improvement to your bottom line. However, acquisitions come with their own set of risks. Identifying those risks and applying strategies to mitigate their impact or avoid them entirely gives your optometry business the edge it needs to achieve success.

When considering buying a second business, ask yourself the six questions below. These questions help to bring important issues to the forefront so that you can address them before they become detrimental to your business:

1. What Is the Goal of the Acquisition?

Acquisitions, like any other business decision, must be predicated on a well-thought-out end goal. A Doctor of Optometry (OD) should resist the urge to enter a deal solely on the virtue of a potentially profitable opportunity presenting itself.

Whether it’s to eliminate a competitor, expand your reach to service more clients, or secure an independently managed revenue stream, a goal allows you to determine whether the acquisition is worthwhile. With a specific objective in mind, you can assess whether the potential value of buying a second practice justifies the monetary cost, effort, and risk that accompanies such a deal.

2. What Becomes of the Acquired Practice?

Securing a deal on a second practice that achieves a desired goal is only the beginning, and what comes after finalizing the deal holds even greater implications. Even before you enter the contract, consider what you plan to do with the acquired practice should the purchase push through.

One common outcome is deciding to keep the current OD or hire a new one, allowing them to manage the practice and collecting the net cash flow to service debts and secure profits. Another involves growing the acquired practice to attract more business or optimizing it to provide more services that might give you access to a broader patient base. Finally, you may also choose to roll it up, using the acquisition to transition patients to your care. Doing so eliminates the competition, negates the costs associated with running two practices, and keeps your focus fixed on maintaining a single, larger practice.

Ultimately, the acquired practice must become something, and knowing what that is from the onset helps keep your efforts aligned toward that desired result.

3. Can I Manage Two Practices?

Regardless of what your desired outcome is for the second practice, you may have to oversee it for a certain period immediately after its acquisition. Even if you decide to allow the current OD to manage it, you may still have to get involved with the second practice until you iron out every detail. If, on the other hand, you plan to roll it up to absorb its patients into your own practice, you may have to operate the second practice for a year or so until its patients commit themselves to you.

Running two practices is never easy since you cannot be at two places at once. Before you even get to that point, make sure your accounting and management systems are ready to handle the additional strain of the second practice. Getting timely and accurate reports and having key personnel you can trust are your keys to success in this situation.

Remember also to consider the size of the acquired practice. Too small, and it might not be profitable to manage, so rolling it up immediately might be a better option. Too large, and it might stretch your management capabilities too thinly. It might be best to maintain separate accounting for the individual practices in case you need to change course when you have actual data or you decide to sell either practice.

4. What Effect Would the Acquisition Have on Net Cash Flow?

Any acquisition affects the net cash flow of the acquiring practice. This may be positive if the second practice earns enough to cover debt servicing and management costs. It may also be negative if the pooled liabilities of operating two practices and debt servicing exceeds the combined income of both businesses.

Before settling on an acquisition, work with your accounting firm to determine how the strain of the second practice might affect cash flow.

5. How Can I Optimize Earnings from the Acquisition?

In some cases, a sustaining a negative or diminished net cash flow for a limited amount of time might be worth the risk. This is especially true if you determine that instituting changes to the second practice could steer cash flow toward a desirable outcome. Regardless of whether your acquisition results in improved or diminished net cash flow, ask yourself how you might earn more from the second practice.

Possibilities to optimize earnings include identifying missed opportunities caused by the acquired practice not offering a full range of services to satisfy patients. You might also save money by consolidating offices and management systems.

Buying a second practice might give you access to savings on higher-volume procurements of optical goods. Work with your accountant to identify potential optimizations and determine their effect on your bottom line.

6. Is the Acquisition Worth It?

Finally, take everything you’ve learned by answering the previous questions and weigh the entire acquisition on its merits. If you assess that the acquisition is worth it, then proceed. Otherwise, walk away.

Given the complexity involved with answering some of these questions – or with practice acquisitions in general – having a reliable accounting partner is important. Contact Caro Associates for expert advice and accounting services before purchasing a second practice.

   

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