Optometry Practices. Byron L. Mangis, J.D. The Practice Brokers, Inc. SIC: NAICS: Number of Businesses / Units: 37,729.

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1 Byron L. Mangis, J.D. The Practice Brokers, Inc., Optometry Practices SIC: NAICS: Number of Businesses / Units: 37,729 Rule Of Thumb 55% to 65% percent of annual revenues includes inventory 2 times SDE includes inventory 2.5 times EBIT 2 to 3 times EBITDA Pricing Tips "Smaller practices under $400K in gross revenue will have more emphasis on asset values. Large practices over $1MM gross revenue and those with multiple doctors may have different value methods." "Another benchmark is 1 x SDE, plus tangible assets." "Adjust price up or down depending on how updated the equipment is." "How many days do they perform exams? For whom?" "Professional fee only offices have lower multiples" "Up-to-date equipment, increasing revenue, diverse patient base." "Smaller offices are more asset based." "1 times SDE plus inventory" "Offices without a dispensary typically have a lower multiple." "SDE + hard assets" "The intangible assets are difficult to value. Goodwill is 'the expectations of future profits under the ownership of someone other than the present owner.' According to the Internal Revenue Service, 'Goodwill is based upon earning capacity and its value, therefore it rests upon the excess of net earning over and above a fair return on net tangible assets...such factors as prestige and renown of successful operation over a prolonged period in a locality may be included in tangible value.' The American Medical Association simply defines goodwill as, 'the opportunity to take over the health care of a seller's patient base.'

2 "There are 3 recognized formulas for determining the value of goodwill in an optometric practice. The first is simply calculating 25% of the last year's gross sales. The second method is calculating 25% of the average of the last 3 years' gross sales. The third method is a qualitative analysis. This is a series of value comparisons for the practice being appraised as it relates to the current market. [Such comparisons could include the factors listed below plus quality of records, office staff, etc.]" Source: "Optometric Practice Appraisals" by Michael Bacigalupi, OD, Assistant Professor, "Sales prices range from 50% to 80% of gross or times SDE. Variations are based on whether the office is professional fees only, specialty office or more retail oriented." "Optometry offices will typically sell for a multiple based on the SDE. This ranges from 1.5 to 2.25 times the SDE. This range is determined by the percentage of professional fees vs. dispensary (retail) revenue. If the practice grosses less than $300,000, then the cash flow method is not appropriate and may be valued based on assets." Expert Ratings Amount of Risk : 2.00 (1=Lot of : 4= Not Much) Historical Profit Trend : 2.00 (1=Lot of : 4= Not Much) Location & Facilities : 2.20 (1=Lot of : 4= Not Much) Marketability : 1.90 (1=Lot of : 4= Not Much) Ease of Replication : 2.20 (1=Lot of : 4= Not Much) Experts Comments "Very limited buyer pool; must have OD degree and state license." "The aging population will increase the demand for eyecare." "National chains seem to be weaker. Mom and pops seem to be hanging in there, so they may be keeping optometrists busy." "The chains are continuing to provide increased competition." "Additional scope of licensing. General ophthalmic profession." "Mom and pops may be coming back due to franchise failures." "Depending on state, regulations may require OD or MD to own business." "Years of experience in working with offices and in operating our own office." "For optometry practice, must be licensed by state licensing board. Many states also require license for optical shop owners." Benchmark Data Statistics (Optometrists) Number of Establishments 37,729 Average Profit Margin 27.5% Revenue per Employee $108,700 Average Number of Employees 3.5 Average Wages per Employee $28,783 Source: IBISWorld, October 2012

3 Products and Services Segmentation Patient care from visits and consultations 47% Sale of optical goods 43% Patient care from non-surgical interventions 5% Patient care from other services 2% Laboratory services and tests 1.5% Patient care from surgical interventions 1.5% Source: IBISWorld, October 2012 Industry Costs Profit 27.5% Wages 26.7% Purchases 29.0% Depreciation 2.0% Marketing 2.0% Rent & Utilities 7.0% Other 5.8% Source: IBISWorld, October 2012 "Average optometry practice gross revenue nationwide is about $600K. Typically office show 30% adjusted net (owner benefit) before any debt service." "Net 30% of sales, $600,000 gross per OD." "Adjusted profit should be 30% with gross revenues in excess of $500,000." "Average revenue runs from $200 to $500 per patient. Offices focused on more retail high-end frames are higher." "$350 per patient" "Optometrists work mainly as solo practitioners or in small group practices. A typical group practice has less than $500,000 in annual revenue and four employees. About 1,000 practices have annual revenue over $1 million. Many optometrist practices include retail sales." Source: "SDE is the biggest driver for buyers today." "Three to four staff per OD" "Typical benchmark for an average size office is 32% adjusted profit." "Incomes vary greatly, depending upon the geographic area, specialization, number of years in practice, professional reputation, and other factors. Earnings of new optometry graduates without experience range from $22,000 to $52,000 annually, while those with four to five years of experience range from $30,000 to $85,000 annually. Earnings of optometrists in private practice in major metropolitan areas can sometimes exceed $125,000 annually. Salary surveys show the average earnings for all optometrists range from $67,000 to $88,000, depending upon location and practice size. Optometrists who are employed by the state earn between $32,800 and $40,000 per year." "Average doctors may see a $250/per patient fee. Offices with premium eyewear selections will see a significantly higher per-patient revenue." Expenses as a Percentage of Annual Sales Cost Of Goods :30% to 35% Payroll :10% to 20% Occupancy :10% to 15%

4 Profit (pretax): 20% to 25% General Information "Excellent financing for buyer of up to 100% based on cash flow" "Ophthalmologists are medical doctors (MDs) who specialize in performing surgery on diseased eyes. Optometrists (ODs) mainly deal with healthy eyes, prescribing glasses and contact lenses. Opticians dispense glasses and contact lenses, fitting and measuring optics." Source: Boston Globe, Special Supplement, August 5, 2007 "Generally, you should expect to receive a return in gross dollars of 10 times what you spend on marketing. For example, if you want to increase the practice by $100,000, expect to spend $10,000." Source: "Promote Your Practice More Effectively" Review of Optometry Advantages "Balances medical and retail/ product sale." "Helping people, friendly, not complicated from a business standpoint." "High income without sacrificing lifestyle. Excellent working conditions." "Flexible schedule, great balance of work and play. Control how you practice/see patients." "Build equity, ability to own real estate if you buy building, control hours, control patient decision making." "Licensed professional creates barrier to entry. Ability to sell eyewear as well as practice eye health care." "Flexible hours. Little marketing efforts required" "Build equity; maintain control and direction of patient experience." "It's 'clean' health care. Ability to be a health care provider AND a business owner." "Health service provided to predominantly healthy patients. Small business, often sole professional, so much independence." Disadvantages "Online and commodity of glasses and contacts. Competition from opticals, Potential changes in health care reform and insurance reimbursement." "Healthcare reform, managed care reimbursement." "Difficult to achieve high net, some areas have too many practices for the population." "Somewhat impacted by the economy more than other forms of medicine" "Pricing competition from the chains." "Dealing with insurance contracts and handling medical regulations" "Very service oriented. Doctor usually drives exams/sales" "Health care industry, and all that goes with that. "Managing staff/employees. Reductions in insurance reimbursements/ managed care." "Depending on local competition and future of third-party plans, profitability can be hard to sustain." "Graduates leaving school with higher student loans create a demand for higher immediate starting salaries. This may create difficult situations for buyers seeking smaller practices that offer less immediate cash flow." Industry Trend "Trend to multi-doctor practices." "Flat growth" "Mom and Pops may be coming back."

5 Excellent, increased licensure for doctors, added medical billings." "Continued stable growth" "Margins are diminishing, managed care." "The need for eye care services is expected to grow through 2012 in response to the vision care needs of a growing and aging population. Baby boomers will be more likely to visit optometrists because of the onset of vision trouble in middle age, including problems resulting from extensive computer use, according to the Bureau of Labor Statistics." Source: "Stable" "Over the long term, fewer single-doctor practices will be financially viable." "Additional revenue sources for optometrists as the scope of licensing is expanded (can perform more medical treatments of the eye)." Seller Financing "10 years" "Partially seller financed with amortizations of 10 years and balloons in 3 to 5 years" Questions "Contact lens sales? Do they keep the profits from optician?" "Probability of staff retention. Number of active patient records?" "Days they have exams? If only one or two, could be tough to generate sales." "What kind of equipment? Leased? Referral sources? Insurances accepted?" "How many days they have exams. Referral sources? Insurances accepted?" "Who are your insurance providers? Amount of frame inventory? Frame suppliers? What are your recall procedures? Number of active patient records? Type of practice management software?" "Get copies of fee schedule and insurance provider reports (revenue by provider)." "Typically this is straightforward, as both seller and buyer are doctors." Resources: Associations: American Optometric Association - Disclaimer: This publication is not to be considered tax or legal advice. This information is a compilation of results provided by Business Review Guide and industry experts. Consult your tax or legal professional as well as your financial advisor if you have tax, legal or financial questions or concerns. This report has been provided by Byron L. Mangis, J.D....Byron's contact information is as follows: Phone or text cellular; fax; or you may him at Byron@sellingpractices.com.

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