Opening A Private Optometry Practice Cold

 

This article is presented from the perspective of a financial institution to give the reader a real-life view of what to expect when applying for start-up financing and what to expect during the start-up phase of private practice based on decades of experience and oversight of start-up practices.

What do financial institutions look for when considering an applicant for start-up practice financing?

Most doctors require some form of financing from a financial institution to support the startup practice.

It is important to note that a financial institution’s decision to lend to any practice owner is primarily based on the financial strength of the practice to be acquired and the adequacy of cash flow to support a reasonable owner salary, repayment of the required financing, and provide an adequate ownership premium to the applicant. In the case of a start-up an assessment of the applicant’s management experience and knowledge base is critical.

Personal Qualifications

• Management/Industry Experience: A minimum of 3 years working in a practice as an associate doctor. Stronger candidates will have a background in working in a private practice versus a commercial setting as the pace and the expectations of the applicant will be skewed often lending to aggressive financial expectations during the practice’s start-up phase. Some prior personnel management and/or leadership experience are very helpful and should be required. It is worth taking the time to prepare a Curriculum Vitae or Management Resume as well as providing a written outline as to how your management/industry experience has prepared you for taking on management responsibility for a private practice. This process provides the additional benefit of an internal assessment as to whether or whether you feel that you are in the position to start up a practice.
• Secondary Income Sources: Does the applicant have secondary income sources available to offset the financial need from the practice required to support the individual’s household such as working outside of the practice as an associate doctor, co-applicant, or other recurring source of verifiable income during the start-up phase. Employment contracts are helpful in supporting secondary income.
• Personal Credit Score: Personal Credit Score of 720 or better with no derogatory payment history. Credit reports should demonstrate a conservative use of credit including minimal revolving debt. 
• Personal Liquidity: An accumulation of some personal liquidity for contingencies.
• Applicant Knowledge Assessment

Do you?

• Have management experience and how does that experience apply to the management of a private practice? 
• What is your philosophy on personnel management and employee retention?
• Understand the challenges and risks associated with private practice ownership as well as cold starts?
• Understand the market where your practice will be located?
• Have a fundamental understanding of a practice’s financial management and efficiency?
• Have reasonable financial expectations during the start-up phase of your practice?
• Are you willing to put the time into marketing their practice through community involvement?
• Are you willing to put the time and effort into being open longer hours or on Saturdays to grow the practice?
• Do you understand the evolving insurance policies and reimbursement rates?

Note: Strong practice consultants can offset weaknesses and often pay for themselves. We highly encourage doctors that do not have prior practice ownership or start-up experience to engage a reputable practice consultant during the start-up phase of a practice.

Why do start-up practices struggle?  

• Capitalization: Practices are inadequately capitalized meaning that project is underfunded. Inadequate working capital to support the practice during the start-up phase. Most start-up practices need a minimum of 18 to 24 months’ operating capital to support the practice.
• Equipment: Equipment that is not needed to support the practice financial projections. Purchase a want list versus a needs list. Not assessing the potential return of investment prior to purchase. Lack of understanding of the market or demographics.
• Risk Management: Owner’s unwillingness to work outside of the practice as an associate to supplement income during the start-up phase. Most of the time an owner will need to work outside of the start-up of the practice
• Management: Poor management practices to attract and retain quality employees.
• Financial Acumen: Poor financial knowledge leads to inability and poor financial efficiency.
• Advisors: Owners’ unwillingness to listen to advisors and consultants in developing the practice.
• Expectations: Unreasonable financial expectations. For example, an applicant who
• Work Ethic: Unwillingness to put in the time and effort to market the practice.

While doctors in general struggle with the development of a business plan this process cannot be overlooked as a part of the development process for the reasons listed above. An applicant should be required to conduct their own research not for the purposes of procuring financing but to ensure that they have a fully developed understanding of their market, financial plan, and the risks associated with a start-up practice. If an applicant does not understand the importance of this process or is unwilling to put in the effort, they are not a good candidate to start-up a practice cold.

Why do I need a Business Plan? 

Preparing a business plan takes time and effort. Often applicants view this process as onerous and too time-consuming; however, this is a critical component of assessing a significant investment into your personal and professional future. The business planning process is more important for the applicant than it is for a financial institution or investor.

Key Components of Business Planning

Applicants should conduct thorough research to understand the local market demand for optometry services. Analyze the competition, target demographics, and potential patient base to identify opportunities and assess the viability of the practice. It is important to assess the following areas. This is not comprehensive list as it assumes that a doctor stays abreast of developing industry trends and understands regulatory and licensing requirements.

Management Experience/Industry Knowledge

A new practice owner needs to have some level of management experience and or familiarity with private practice operations. The practice owner should research the optometry industry, including trends, growth rates, and competitive landscape as well as understand the current market dynamics, such as the increasing demand for vision correction, advancements in technology, and emerging trends like telemedicine in eye care.

Key Questions:

• In the absence of management experience, will the owner utilize a consultant?
• Does the owner have industry mentors to rely on for advice?
• Have you put together a support team including an accountant, attorney, family members with business experience, consultant, billing professional, etc. to rely on for advice? 

Target Market

A new practice owner needs to be able identify the target market by considering factors such as demographics (age, gender, income), location, and specific eye care needs. Determine the size and growth potential of the target market to assess the demand for optometry services in the defined market area.

Key Questions:

• What is the population size and growth rate in the area where the practice will be located?
• What is the age distribution of the population? Are there specific age groups that are more likely to require optometry services?
• What is the income level and socioeconomic status of the target market? Will they be able to afford optometry services and eyewear? How does this compare to the nearby cities and state averages?
• Are there any specific cultural or ethnic groups in the area that may have unique eye care needs or preferences?
• What is the current demand for optometry services in the area? Are there any gaps or underserved segments of the population?
• What are the commuting patterns and transportation options in the area? Will potential customers have easy access to the practice location?
• Are there any demographic trends or changes expected in the area that could impact the demand for optometry services in the future?
• What are the preferences and behaviors of the target market when it comes to eye care? Are they more likely to seek preventive care or only visit when they have specific issues?
• What are the predominate insurances accepted in the market?

Competition

A new practice owner needs to be able to identify and analyze their direct and indirect competitors in the local area. Evaluate their strengths, weaknesses, services offered, pricing strategies, and customer base. This analysis will help the practice differentiate its practice and identify areas of opportunity.

Key questions:

• Are there any local competitors in the area? How many other optometry practices are there and what services do they offer?
• What is the market radius of the defined market?
• How many private practices operate within the defined market area?
• How many commercial practices operate within this market?
• How does the defined operational model compare to these competitors? 
• How long are they open for business? Are they open on Saturdays? IS the applicant willing to work longer hours or open on Saturdays to compete.
• Has the applicant visited the competition to assess the practices?

Location Analysis

A new practice owner needs to target a practice location that is easily accessible, visible, and convenient for their target patients. Factors such as foot traffic, parking availability, and proximity to other healthcare providers or retail centers need to be considered.

Key Questions:

• Where will the practice be located, retail setting or medical office building, etc.?
• What will draw potential new patients to the location? Is there a predominate anchor tenant (such as a grocery store) or multiple businesses drawing patients to the area?
• What is the traffic count of cars passing the location daily?  Can potential patients see the practice from the road? Will there be any foot traffic?
• Can they get in and out of the location easily and is there adequate parking?
• What is the projected growth rate of the area? Is the location in a mature or upcoming community?

Equipment and Technology

A new practice owner needs to invest in high-quality optometry equipment and stay updated with the latest technological advancements. This will allow the practice to provide accurate diagnoses, efficient treatments, and a positive patient experience.

Key Questions:

• What are the equipment needs of the practice during the start-up phase of the practice?
• What are the financial or other triggers or milestones that will create the need for additional equipment?
• What is the return on investment on current and future equipment purchases given the practice’s patient base? 
• Will the equipment meet the needs of the targeted patient base?

Staffing

A new practice owner will need to hire skilled and qualified staff members, including optometrists, opticians, and administrative personnel. This has become critical to the success of start-up practice in today’s environment.

• How will the practice ensure that employees align with the practice's values and views on patient care?
• What appointment scheduling practices will be employed to create efficiency?
• Has the practice secured experience optometric staff? Are there skilled opticians/technicians in the market?
• Has the cost of attracting and retaining qualified staff been assessed?
• Does the applicant have existing contacts in the proposed market to attract quality employees?

Financial Management

A new practice owner will need to establish sound financial management practices to track expenses, manage cash flow, and plan for future growth. Consider factors such as insurance billing, fee structures, and budgeting to ensure the financial stability of the practice.

Key Questions:

• Has the applicant developed a team of advisors including an attorney, accountant, industry consultant, etc.?
• What financial reports will be used to manage the practice and track performance to budget? How often will these reports be reviewed?
• How with the practice handled billing activities? Who will perform the work? Who will the work be audited to prevent billing errors and prevent fraud?
• How will fees be determined? What is the process for keeping fees in line with the market?
• Has the applicant considered or been in contact with buying groups to reduce costs?

Marketing and Promotion

A new practice owner will need to develop a comprehensive marketing strategy to reach the target market effectively and create a strong brand identity. This may include online and offline advertising, social media presence, partnerships with local healthcare providers, and community outreach programs.

Key Questions:

• Do the financial projections include adequate funding of marketing initiatives?
• How will the marketing budget be managed?
• How will the owner determine what marketing practices are effective?
• Is the owner willing to put in the extra time required to be active in the community and cultivate relationships?
• Are there any local healthcare facilities, hospitals, or clinics that could serve as potential referral sources?

Unique Selling Proposition

A new practice owner should be able to identify the practice's unique selling propositions or competitive advantages. This could be specialized services, advanced technology, convenient location, personalized patient care, or a specific niche market. Assessing whether the owner understands how to highlight and promote these strengths will help attract and retain customers.

Conclusion

Opening a private optometry practice cold can be one of the most rewarding paths to practice ownership, but it should not be approached casually or based solely on professional ambition. A successful start-up requires more than clinical skill; it requires management readiness, adequate capitalization, realistic financial expectations, market knowledge, disciplined expense control, and a willingness to personally invest the time necessary to build patient volume and community trust. The business planning process is not simply a lender requirement. It is the doctor’s opportunity to test the strength of the concept, identify risks before they become expensive mistakes, and determine whether the proposed practice can support the owner, employees, patients, and debt obligations during the critical start-up period. Doctors who understand the market, surround themselves with qualified advisors, remain flexible, and approach ownership with both clinical excellence and business discipline are best positioned to build a sustainable private practice.

If you have any questions regarding this information or need assistance with review of your he valuation of your practice, please feel free to contact Ken Ferreira, President and CEO at Vision One Credit Union, kferreira@visionone.org. 

Important Disclosures and Information

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