Loan to buy an optician's: funding an optical practice purchase

An optical practice is a clinic and a shop under one roof, and the price reflects both.

• Goodwill. The value of the patient base, built on the recall system that brings patients back every one or two years. A well-kept recall database with accurate contact details is the practice's single most valuable asset.
• Dispensing income. Frames, lenses and the dispensing service generate most of the margin in many practices. Their value depends on the location, the range stocked and the skill of the dispensing team.
• Contact lens schemes. Patients paying monthly by direct debit for lenses and aftercare provide recurring income that lenders value.
• NHS and enhanced services income. NHS sight-test fees for eligible patients, optical voucher redemptions and, in some areas, locally commissioned services such as minor eye conditions or glaucoma referral schemes.
• Equipment. Test chart, slit lamp, tonometer, visual field analyser, retinal camera and often OCT. Some may be on lease and not the seller's to sell.
• Stock. Frames, ready readers, sunglasses, contact lenses and solutions, usually valued separately at completion.

Lenders fund mainly against the profit those streams produce, not against the assets. Equipment and stock have limited resale value, and goodwill has none if the practice fails.

In England, NHS sight tests are provided under a General Ophthalmic Services contract between the commissioner and the contractor. NHS England publishes the model GOS contracts and contract variations, and its Policy Book for Eye Health sets out how commissioners manage contract applications and changes.

How the purchase is structured matters:

• Buying the company. If the practice is a limited company holding the contract, buying its shares normally leaves the contract with that company. You also inherit its history, including any tax liabilities, supplier disputes or contract compliance issues.
• Buying the assets. If you buy the business from a sole trader, partnership or company without buying the company itself, you will normally need your own GOS contract in place for the premises. Build the application into the timetable, and expect lenders to make the contract position a condition of releasing funds.

Every optometrist carrying out NHS sight tests must also be on the ophthalmic performers list, and all clinicians must be registered with the General Optical Council. Scotland, Wales and Northern Ireland run their own eye care contracts, with Scotland's model weighted far more towards NHS-funded eye examinations, so check the arrangements in the nation you are buying in. Unlike a dental or pharmacy purchase, there is usually no change-of-ownership registration with a healthcare regulator such as the CQC holding up completion; the NHS contract and lease tend to set the pace instead.

Illustration only, with round hypothetical figures. An employed optometrist agrees to buy a two-testing-room independent practice on a high street for £300,000 plus stock at valuation, leasehold, as an asset purchase. The seller, also an optometrist, will work two clinic days a week for six months. The buyer has £60,000 of savings. The seller agrees to defer £30,000 over eighteen months. The practice's retinal camera is near the end of its life, so a new OCT is funded separately on hire purchase. A term loan funds the remaining goodwill, completion is timed for the buyer's own GOS contract to start the same day, and a stock count the day before completion settles the stock figure. The lender tests whether the practice's profit, after allowing for the buyer's living costs and for locum cover on the days the buyer is not testing, covers the loan, the OCT agreement and the deferred payments with room to spare.

The main risk is paying for patients who were loyal to the seller rather than the practice. A planned handover, a sensible deferred element and conservative projections all help. Competition from multiples and online retailers can squeeze dispensing margins, so a practice whose profit depends on unusually high spectacle prices carries more risk than one with strong clinical and contact lens income. Stacking a goodwill loan, equipment finance and a stock facility can leave little room for a slow quarter, and personal guarantees are normal; our guide to personal guarantees explains what you are signing.

There are other ways into ownership. Becoming a joint-venture partner in an optical franchise means sharing ownership with a larger group and needs less capital; see joint-venture partner finance. Opening a new practice avoids paying for goodwill but has no patient base on day one. For a broader view of whether to borrow at all, read should you take a loan to buy a business.