INSIGHTS: First Person Building Blocks to Succession: Passing on the Leadership Reins of Your Practice By Michael Gorman Monday, January 19, 2015 12:00 AM Dictators have no succession plans—they know that someday their people will rise up and replace them with another dictator. There’s a lesson here for optometrists—don’t be a dictator in your office. It’s bad for office morale and won’t help you find a successor. History has shown that theocracies and democracies have succession rules, but their procedures may not help identify a new leader who is as good or better than the last leader. The lesson here is that succession plans should not be based on who is the most pious person or the most popular, but who is the most qualified and has the potential to ensure the practice will continue to grow. Here’s what worked for me when I began to contemplate retirement and the future of my practice, Family Vision Center, without me at the helm. My building blocks to succession have the following five components. Age No one can predict the ideal age when you should begin to develop a succession plan. Common sense and my own experience says the average optometrist should begin around age 50, but it becomes more pressing to have a plan in place around age 65. Never start this endeavor without the advice of a lawyer, accountant and/or financial advisor. Those who begin a succession plan early, approximately 5 to 10 years before retirement, stand a better chance of passing the business on to their optometrist(s) /non-optometrist(s) / family member. I suggest purchasing life insurance, especially between 45 to 50 years of age, to protect your practice debt and family obligations. Term insurance is the cheapest form of coverage. Also try to have a disability policy with a short waiting period to receive benefits. Gross Practice Income Different practice incomes command different priorities on how to spend that income. Which one is more important—gross vs. net— is usually presented as the chicken vs. egg question. I will always take gross over net. Net profits have too many options that can be manipulated by a good accountant while fewer options can be applied to gross income. The larger the practice income the greater the number of priorities you have to make. A practice grossing $1 million doesn’t have as many priorities on spending as an office grossing $4 million. Remodeling, equipment purchases, hiring techs and even buying the building are priorities of larger grossing practices. Larger practices are faced with implementing more delegated duties—marketing officer, human resource manager, CFO, sales manager. Also, I have observed that larger practices offer more services than smaller practices. Many have on-premises optical services, including surfacing and edging. Dry eye treatment, low vision evaluation, vision therapy and special testing ( ie. OCT imaging) are more frequently found in larger practices. These services not only provide outstanding value to patients, they also result in increased practice revenue. Annual budgets are critical. It often takes three to four annual budgets to get a handle on what you spend your money on. There are many off-the-shelf software programs (QuickBooks) that will help you develop your practice analysis. Based on your practice size and gross income you can be aggressive in your practice priorities to make the practice grow through improvements in advance medical technologies or optical machinery. Finally, create a reserve fund, with after tax dollars to bankroll future needs as well as unexpected changes such as purchasing the building you are in or moving to a larger one. Number of ODs and Employees When you complete your succession plan, everyone in the practice needs a clear understanding of the transition you have made and what role all of them play with the new owner or owners. I recommend meeting with managers and office techs monthly and meeting with optometrists and opticians on a quarterly basis. These meetings will give you feedback on what employees see as to what could improve the practice. Listen carefully to everyone as it will reduce stress on you in the future. Remember, employees give you short-term priority needs while owners provide the practice with long-term priorities. Trying to balance these priorities is what can make your office succeed or fail. As your practice grows from a few people to dozens, you must develop a team approach to management. Teams have a two-fold nature— “group think” and “group homogeneity” which can give you the innovation and creativity your practice needs to grow. From the numerous practices I have seen over the years, very few grow because of a single person. The vast majority had rapid prosperity via the team approach. Develop Leadership You should prepare successors over several years by letting them work in different areas of the practice, such as the dispensing, imaging, edging and product purchase departments. Over time, put them in areas where they excel and then gradually relinquish responsibilities to them. In smaller practices, that responsibility is given to the younger optometrist. In larger practices optometrists and non-optometrists may show outstanding abilities, knowledge and desire to run your practice. So keep your options open. In our succession plan, we decided optometrists and non-optometrists would have ownership shares. Percentages of ownership do not have to be equal. It is very possible low percentage owners can have a higher salaries due to their significant importance to the practice. Remember no one is indispensable. The caveat here is that the true value of practice ownership really matters when one decides to sell to another person or be bought out. And that value can vary over 20 to 30 years depending on the practice assets and liabilities at any one time. Create a Legal Entity Prior to 1977, all professions were highly regulated by state boards. They regulated promoting, advertising and marketing of practices. Many considered their local regulations as anti-competitive. In 1977, the U.S. Supreme Court ruled that all professions could advertise. In 1978, a FTC regulation allowed all professions to use trade names, advertise and open multiple offices without State Board approval. Professional competition now flourishes. We decided to become a Limited Liability Corporation (L.L.C.). Other entities such as Professional Corporations and S-Corporations are acceptable. The purpose of these entities is to protect your personal assets from being subject to inclusion in a legal case involving your practice. Dr. Michael Gorman, with over 50 years of service, retired from Family Vision Center in 2013 and is a consulting optometrist at the practice which has locations in Stratford and Bridgeport, Conn. In 2013, Dr. Gorman sold the practice to Family Vision Center’s Shawn Burns, OD and opticians Kathy Raucci and Kristine Heslin, while retaining a small stake in the practice. He can be reached at FamVision@aol.com.