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We published this article in the April 2014 edition of Insight, Australia's leading ophthalmic newsletter. You can see the original here (it's on page 29).

You may have spent years working long hours, developing relationships and building your practice. But what happens when you want to sell?

Planning your way out can be one of the most critical things you will do in the life your practice. The reason is simple - when the time comes to sell or retire, your practice will only be worth as much as someone is willing to pay for it. It doesn’t matter how much hard work and money goes into setting up and operating a business. If you can’t find common ground with a willing buyer, your business will be worthless. What you do therefore to plan your exit will go a long way towards helping you achieve the outcome you want, on your terms.

We see many cases where business owners have no exit strategy at all. The general plan seems to be that bridges will be crossed when the time comes, at which point the business will be sold at a healthy EBIT multiple and everyone will walk away happy. In reality, what they often find is that at this point there is no bridge to cross and it’s too late to do anything about it.

Incidentally, EBIT stands for Earnings Before Interest and Taxes. A multiple of EBIT (e.g. 2x, 3x, 4x etc.) is often used to measure the value of a business. Unfortunately, many business owners expect there to be certain EBIT multiple ‘standards’ within their particular industry, and that when the time to get out finally is at hand it’s a simple case of applying that multiple and making a clean break through a sale of the business.

The optometric industry is no exception. Many practitioners expect that an EBIT multiple of 4-5 times is more than reasonable for the amount of work that has been put in. This view may be further enhanced when looking at the value of the net assets of the practice. In reality, a straight sale of a practice often results in a multiple closer to 2 or 2.5 times, and sometimes even less. In addition, some practitioners are finding that there are very limited buyers out there to begin with.

The value of a practice can however, be significantly improved by putting a little work into developing an effective succession plan. There are a number of barriers that can get in the way of finding willing and attractive buyers. Within the practice, things like poor internal systems, a lack of documentation, having the wrong staff and other obvious weaknesses can put prospective purchasers off or reduce the price they are willing to pay. Just like selling your house or car, an important component of any succession plan is detailing – making your business look its best so that it makes a great first impression.

But that still doesn’t bring buyers to your door. One of the realities of the optometric industry is that often your largest pool of potential buyers is the next generation of optometrists, and that means negotiating with the dreaded ‘Generation Y’!

We’ve all heard the clichés about Gen Y. They’re lazy, they don’t want to commit to anything, they won’t listen and demand too much in return. In our experience, we’ve found most of these stereotypes to be untrue for young optometrists. Instead, many young practitioners are hard workers eager for an opportunity to step out into private practice. However they are often averse to long term debt and may want more immediate returns if they are to make an investment.

Ironically, despite their enthusiasm, many young optometrists are already working in practices that have no plan for succession. They are wary though of discussing a possible transition because they perceive that the current owner will want too much for the practice. In many cases, they’re right. So how can buyer and seller find common ground?

This is where the science of succession planning becomes an art form. There is no one-size-fits-all approach, but there are many different options that can reduce the gradient between buyer and seller and achieve an outstanding result for both. A gradual transition is one method.  This can be vendor financed, so neither side needs necessarily to go out and borrow any money. Rather than looking for a buyer who is willing to pay a lump sum sale price, which presents a much steeper gradient to a potential purchaser, a plan is put in place for the practice to be gradually passed on, over a period of years. Payment is made through future dividends (or other share of profit). The senior optometrist is able to wind back slowly, achieving a greater work/life balance by working less hours while still maintaining an interest in the practice. At the same time, the reputation of the business is better protected by having a familiar face around to preserve relationships, educating regular customers about the changes that are coming and ensuring that everything transitions smoothly. In the eyes of a prospective buyer, this can greatly enhance the perceived value of the practice. In the meantime, the owner continues to draw both a salary and dividends which amount to far more than the original sale price would have been. There are many other benefits for both sides too.

But perhaps the best part about a plan like this is that potential buyers may be working in the practice right now. No advertising is required, no long and painful searching is necessary, and both buyer and seller are spared the awkwardness of dealing with people with whom they otherwise have no relationship.

A deliberate and creative succession plan can maximise your chances of finding willing buyers. It can also enhance the probability that buyer and seller achieve an outcome that is mutually satisfactory. Sadly the alternative is often that practice owners must work for much longer (and/or at longer hours) than they would like. In some cases they even end up closing their doors and walking away, abandoning decades of investment for lack of a willing buyer. It doesn’t have to be that way.

In our most recent issue, we look at how you can take best advantage of your business structures to grow your wealth, we highlight changes to the superannuation contribution caps coming in the next financial year, and also congratulate Emma on her big walk for Coastrek in NSW.

Click here to read it.

Dewings directors Kathy Allen and John Manning were recently in Kuala Lumpur with the Australian Chinese Medical Association SA (ACMA-SA), presenting at their Annual Scientific Meeting.

We're sponsors of ACMA-SA and thoroughly enjoy our involvement with such a wonderful group of medical professionals. Every ACMA-SA event usually involves plenty of laughs and a lot of good food, and the recent scientific meeting held over Easter in Malaysia's capital was no exception!

But it was also a time for professional development, and we were asked to present on "Strategies to Improve and Protect Doctors' Financial Wealth", in conjunction with lawyers Piper Alderman.

We summed up our thoughts in five 'Tips and Traps' for preserving and enhancing doctors' financial well-being. Depending on whether it was a tip or a trap, these are things that we often see as either financial best practice, or actions that can undermine optimum wealth creation, from a tax and business perspective.

Issues covered included the need to use business structures better (also in our latest newsletter), the additional responsibilities in managing risk for more sophisticated arrangements, providing securely and responsibly for children, adapting estate planning to the more complex needs of higher wealth individuals, and knowing what is in your documents (such as trust deeds, partnership agreements, etc.).

These tips and traps are relevant for anyone in business looking to grow and protect their wealth, and we'll touch on a few of them in more detail in the upcoming weeks and months.

The formal presentation was followed by a panel discussion where both the Dewings and Piper Alderman teams threw themselves and the mercy of questions from the floor. The brief was simple - ask anything relating to the business and legal affairs of doctors in practice.

We're proud of our association with ACMA-SA, and thank them for putting on another great conference. We're also pleased to have had the opportunity to share our expertise and demonstrate the difference that great business advice can make.

The Tax Office has announced that it will commence a global crackdown on unreported foreign income.  This includes those taking advantage of international 'tax havens'.

It has, however, also declared an amnesty until 19th December 2014 for voluntary disclosure. As long as they don't detect the activity themselves, those who come forward and voluntarily declare any offshore income can do so without fear of steep penalties and possible criminal prosecution.

The Tax Office is using increasingly complex data matching techniques to track undisclosed foreign income, and enlists the cooperation of many overseas jurisdictions, including some that were previously considered to be safe havens, like Switzerland for example.

Income being targeted includes:

• foreign income or a transaction with an offshore structure
• deductions relating to foreign income that have been claimed incorrectly
• capital gains in respect of foreign assets or Australian assets transferred offshore
• income from an offshore entity that is taxable in your hands.

Called Project DO IT (caps not ours), the disclosure process requires the completion of a form which then must be lodged with the Tax Office.

If you think you may be affected, you can find more information, and a link to the disclosure statement, here.

The so-called 'log book method' is a popular way of claiming car expenses for tax purposes. Taxpayers are required to keep a log book for a minimum continuous period of 12 weeks, recording every business journey during that time. For each trip, certain details are required, such as the date of the trip, the odometer reading at the beginning and end of the journey, how many kilometres were travelled and what the journey was for. Once this is completed, the business kilometres are then calculated as a percentage of the total distance travelled over that time, and that percentage is then applied to all expenses related to the motor vehicle. So for example, if your business use percentage is 65% and you buy $100 worth of petrol, you can claim $65 for tax purposes.

For many taxpayers this is where it ends. They now have their business use percentage and this is applied every year into the indefinite future.

What is often missed though is that it is a requirement of the log provisions that a new log book be kept at least every five years.

This is not a recommendation but rather is mandated for a log book to be valid. Once five years has passed, the original log book can no longer be used and the log book method is therefore unavailable for claiming motor vehicle expenses unless a new log book is kept. A taxpayer would then have to revert to one of the other available methods for claiming, which may produce a less favourable result.

So it's essential that you keep a new log book at least every five years, and in fact we recommend completing a new one any time you believe that your usage is likely to vary by 10% or more.

The good news though is that that your log book only needs to be commenced during a financial year in order for it to be valid for the current period. That is, the 12 week period does not need to end by 30th June to make a claim using it for that year, as long as you start keeping the log book any time before 30th June.

With the end of the financial year fast approaching, it's probably a good idea to think about when you last kept a log book. If you think it may have been more than five years ago, and you want to continue using the log book method to make a claim this year, you can start keeping a new log book now (or any time before 30th June) and it will still be valid for this financial year.

It’s also important to remember if you are using the log book method that you must record your odometer reading at 30th June every year. Why not put a reminder in your diary now?

You can read more about the specific requirements for keeping a log book here.