How Practices Are Valued

  • May 6, 2024

How optometric practices are valued in Australia.

Identifying what your business is really worth is an essential part of preparation for a sale.

There are several ways a business can be valued. The most widely used method across the optometric industry uses a process based on a multiple of your adjusted net profit. When arriving at the multiple, careful consideration is taken into account around the return-on-investment opportunity for a purchaser along with a number of industry specific factors such as:
  • The growth trend and future earning potential of your practice
  • The age of the practice fit out and equipment
  • Comparisons of specific business performance in relation to industry benchmarks. Some examples are, the percentage of your consult income to retail sales, along with wage costs
  • Location of your practice and surrounding competition
  • Business systems, marketing and digital presence of your practice
  • The ability of the owner to transition out of the practice over a period of time
How do you arrive at an accurate adjusted net profit?

In small businesses, the accounting net profit from your profit & loss statement is almost never the same as the business profit for valuation purposes. This is because of things like depreciation, which legally reduces your tax bill but doesn’t result in cash leaving your bank account.

You also need to add back the cost of any non-business-related expenses that the business paid. Typically, this might include the owner’s car, mobile phone expenses and travel.

Accurately depicting your wages is another important component that requires attention. Use benchmarked wages to adjust your wage line to normalize to what a new owner would be paying themselves and the staff.

Finally, you need to remove any income that wasn’t generated by the business operations, things like insurance recoveries, sale of assets or COVID subsidies.

To save time if you’ve got an accountant just send them an email and ask for your “normalised EBITDA”.

Below is a list of what prospective buyers typically look for as a minimum when they complete their own valuation:
Below is a list of what prospective buyers typically look for as a minimum when they complete their own valuation:
  1. Profit & Loss Statement for the last 3 financial years
  2. Financial separation of your consultation and retail income for the last 3 financial years. This may be reflected in your Profit & Loss (if so please disregard)
  3.  A summary by employee of the practice wages and superannuation, including any optometry locums for the previous financial year
  4. Management Summary Reports revealing your consultation numbers, consultation income and retail income for the last 3 financial years
  5. A list of optometric equipment including age and summary of the age and condition of your practice fit out
  6. A copy of your current lease and recent invoice
Who can help?
Your accountant is the perfect place to start. While accountants often arrive at a number that is different to what might meet the market, the key is to provide them with as much information as possible about your practice and the market itself.

Another option is a broker who specialises in the optometric industry. They offer an ‘appraisal’ as compared to a sworn valuation. They’re expertise in the industry and understanding of the landscape can be of benefit when presenting a price of your practice to the market.

Finally, an accountant that specialises in the optometric or broader health industry can provide you with an accredited, or sworn valuation. This valuation is more involved from a process and cost perspective but is recommended for more complicated sales, or partnership changes.