Early Valuation of the Optometry Practice to Acquire

I ended a previous post about sourcing for prospect Optometry practice sellers, with the importance of identifying serious sellers early in the search process. A serious seller usually makes the initiative to offer help in providing information. He tells compelling stories that help you feel more comfortable to ask more and to allow him to explain more. This should be reflected in every aspect and feature of the business you inquire about. If he cannot answer promptly he usually puts you in contact with the person who can (his partners, wife, lawyer, maintenance company, equipment company representative). A seller that is not actively involved in the process is not a serious seller.
The first things you will talk about on the phone, by email, or face to face is the value of the practice. The seller knows he will be asked about it. Therefore, he should be prepared to actively give you the information you are expecting.
It may put both the buyer and seller in an uncomfortable situation asking about “what” the value is, early in the process of negotiation. However, serious buyers and sellers should negotiate “how” valuation is being made. You may not look professional asking what the valuation is, but a serious seller should provide you “how” he is valuating. Therefore, if you ask how the valuation is being made and he does not give a detailed answer you should know he’s not a serious seller.

How should the prospect seller value the Optometry Practice for acquisition?
The seller will tell you how he values his business and you should be able to determine whether and why it is reasonably priced, overpriced, or underpriced. In all three possibilities, the seller will provide you with the reasons for his valuation. If you are convinced in his valuation arguments and all three cases, you may want to proceed with the process. In all cases you should look at the way he made the valuation:
Relying on inputs and information from the accountant;
Relying on inputs and information from the broker;
Relying on the practice’s financials based on the balance-sheet items, fixed assets, revenues, cash flow from products and services, or income statements and utilities;
Relying on the recommendations of a valuation expert;
Relying on instinct or how he expects his retirement will be or what he deserves for the equity he built during the long years working in the practice;
He may rely on any of the above types of valuation as well as a combination of more than one type. Whatever his way of valuation is you should be able to determine it early during the process of search. It gives you a lot of information on how serious is the seller and gives you insights on the person who built this practice and the person you will be negotiating with.