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Compensation model important when recruiting a partner
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NEW YORK – Bringing on a partner or selling your practice can be accomplished successfully with proper preparation, according to a practice consultant during a continuing education session here at Vision Expo East.
Bill Nolan, of the Williams Group, started by explaining the four life cycle phases of a practice: starting phase, development, stable and decline.
Bill Nolan
The starting phase can go from the office’s inception to 8 to 10 years out. Growth is slow early on, he said. In the development phase, at around 10 to 20 years growth accelerates. At the stable phase, which happens around 20 to 35 years, growth slows to 4% to 6%. Lastly, in the decline phase, about 35 years and on, practices typically see a decline in revenue.
Nolan highlighted the many motivations for an optometrist to bring on a partner: return on capital, stress of ownership, new services, growth and professional reasons.
When it comes to taking on a partner or associate, he noted that 60% of associates will fail; the first associate that an optometrist hires will rarely become a partner, he said. It can be a challenge to locate and hire the right person, and do not expect to succeed on the first try, he said.
In transitioning your practice to a partner, it is necessary to determine the appraised value, the terms and conditions of the partnership and the compensation model, Nolan said.
The compensation model can be most difficult for optometrists to manage, he said. The rule of thumb is two to one, he explained. If you hire a full-time associate at $95,000 a year, the incremental revenue that he or she brings to the practice must be $175,000 to $180,000 in cash.
In the case of selling a practice, when determining the value it is necessary to consider in-place value, he said, which is the value of goods, products and/or equipment on-site that will have intrinsic value to the transitioning optometrist.
In contrast, any practice debt needs to be subtracted from the equity amount.
Nolan also noted he is seeing more people outright selling their practices and walking away without taking on an associate. – by Nancy Hemphill, ELS
Disclosure: Nolan is a partner at the Williams Group.