The reality
The day you stop flipping those lenses, life is going to become very different, both physically and financially. For starters, your daily activity won't be dished up for you in half-hour portions. All you had to do was work through the patient load, one after the other, and then the day was over. Suddenly, you will have to manage your time, which may have far too many voids. If you are lucky enough to pursue another career or activity, you may struggle to organise your day productively. It will take time, but you will get used to it. Financially, things are likely to be very different as well. Should you find yourself short, it won’t be so easy to fix. The answer is to plan your exit well in advance. It is extremely unlikely that proceeds from the sale of your practice, will provide the same lifestyle you enjoyed from a busy practice. If you have an exceptional nest egg, well then, happy days.
Deciding when to retire is anybody's choice. However, planning for retirement is not optional; it is essential, and it will take time. I once asked a good friend whether she had given any thought to planning her exit from practicing. The response was: “I don’t want to stop working yet”. That was not the response I was looking for! Planning and stopping work have two very different time lines.
The big question everybody wants an answer to is how much is enough to retire on? Well, that depends on how long you live! For example, to put it in perspective, if you have R5 000 000 to invest and you get an annual return of 12% (not a given), that comes to R600 000 per year, or R50 000 per month, before tax. On top of that, there is inflation to account for. An average practice with a turnover of R450 000 per month, or R5 400 000 pa., and netting 20% (as it should), comes to R1 080 000 pa., or R90 000 pm., before tax. One gets the idea of how this can fall short. The obvious temptation will be to draw on the capital invested to cover the shortfall. Then it begs the question: "How long will I live?"
What one must avoid
A solo practice – one optometrist over a long period – will make it much harder to find the ideal exit plan. This is even more so if this optometrist is a specialist in binocular vision, sports vision, low vision, or advanced contact lenses. It stands to reason that a newcomer will have to be able to step into these shoes to service the patient base. The only way to counter this is to employ a junior optometrist, with the view of a long-term relationship, even at the cost of making a financial sacrifice initially. This may be deemed unnecessary when retirement is not yet a pressing issue, but this is exactly when it should happen.
Another big negative is a descending turnover line. This is a sure sign that something is wrong or that something is tired. This should send a “steer clear” signal to any prospective buyers.
What is good
A practice that can sustain two or more optometrists offers a much better option to shape an exit plan. The opportunity may arise for a solo practitioner to amalgamate with or take over an opposing practice in the same area. This may seem like an uncomfortable prospect for some, but believe me, in hindsight, it would be far better than struggling financially in retirement.
From the first day you start to practice optometry, you are beginning to make decisions that will influence how you will be able to exit into retirement. Truly a question of beginning with the end in mind. These decisions will dictate your lifestyle when retired, and the last thing anybody wants is to be a burden to your children in your old age.
In summary, note these naked truths
- The banks won’t finance the purchase of an optometric practice without brutish surety.
- You won’t retire on the sale of your practice alone.
- For the young optometrist, starting from scratch is dangerous and invariably requires more funding than what was available in the start-up plan.
These truths motivated me to develop the Give and Take Method to exit, which offers a much better prospect than selling a practice outright and retiring with not enough cash.
There are two sides to this exit plan. It would be of interest to those in the twilight of their careers, as well as to the young, upcoming optometrists. Why? Because the exit of a retiring optometrist also presents the opportunity for a young optometrist to trade hard work for equity.
Part two of this article will explain why it is far better to give away shares in your business as opposed to selling it outright – The Give and Take Method
For investment advice:
Riaan Marais
MEQ Capital
0829220589
riaan@meqcapital.co.za