The Hidden Financial Compression Squeezing Optometry Practices in 2025, with Adam Cmejla

Summary

Power Hour Optometry: The Hidden Financial Compression Squeezing Optometry Practices in 2025 (with Adam Cmejla)

Podcast: Power Hour Optometry
Host: Eugene Shatsman (Power Practice)
Guest: Adam Cmejla, CFP, Founder of Integrated Planning & Wealth Management
Date: September 3, 2025

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Episode Overview

This episode tackles the central theme of financial compression in optometry practices as we head further into 2025. Host Eugene Shatsman and returning guest Adam Cmejla, a certified financial planner specializing in the optometric industry, discuss the day-to-day and big-picture economic pressures affecting eye care business owners. Topics include rising costs (goods, HR), how these trends impact practice value and transactions (OD-to-OD and PE deals), current valuation multiples, and actionable strategies—including the role of technology, AI scribes, and process optimization—to help practitioners thrive despite these compressive forces.

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Key Discussion Points & Insights

The Nature of Financial Compression in 2025

• Defining Compression:
  “Compression, I think that would be a word that a lot of practice owners have felt in a variety of different ways. Compression in the sense that labor costs have crept up, the cost of goods have crept up. Compression in schedule and availability.” — Adam [07:05]

• Double Squeeze:

  • Higher expenses from cost of goods and staff.
  • Difficulty increasing revenue without forcing prices higher.

• Strategic Implications:
  Owners must focus on margin protection: either by growing revenue or reducing costs. Notably, “we can't be accidentally successful in this business anymore.” — Adam [44:01]

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Market Trends & Transaction Activity

Volatility and “Change is the Only Constant”

• The macro environment is uncertain, but uncertainty is a constant in business ownership.
  “Try and find me a time in our past where there hasn’t been some sort of uncertainty.” — Adam [03:35]

• Micro vs. Macro:
  Owners should not “make tactical business decisions on your practice based off macroeconomic trends… use this as just more data points.” — Adam [06:03]

OD-to-OD vs. Private Equity Transactions

• PE Buyers:

  • Activity slowed due to interest rates affecting the cost of capital.
  • Previous years (2021-2023) saw a buying spree due to low rates.
  • Multiples have come down: “eight times is probably about the high that you’re going to see on the PE side… assuming you have a buttoned-up practice.” — Adam [10:14]

• OD-to-OD Transactions:

  • Multiples are more stable: “we’re still seeing multiples somewhere in that four to six times earnings range.” — Adam [10:14]
  • Seller’s Discretionary Earnings (SDE) deals: “somewhere in the one to three times SDE” [10:14]

Seller Psychology and Deal Nuance

• Multiples & Expectations:

  • Sellers often anchor on PE offers, which aren’t directly comparable to OD-to-OD deals.
  • PE offers often come with strings and contingencies; LOIs often get whittled down post due diligence.
    “It sounds really good on the front end, but they have a lot more power on the back end to say… ‘now this is what you’re going to do for me.’” — Eugene [12:48]

• Agency in OD-to-OD Deals:

  • Offers more say for the seller post-sale.
  • Flexibility on work agreements and transitional roles.
  • Key: “as a business owner listening, you will exit your business at some point, guaranteed… is it going to be on your terms or somebody else's?” — Adam [17:24]

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Practice Value: What Drives the Range of Multiples? [27:39–31:49]

• “The more valuable you are to your business, the less valuable the business is to you.”
  — [28:20]

• Predictability & Risk:

  • Practices heavily reliant on the owner are riskier for buyers and thus command lower multiples.
  • Well-systematized practices with tenured staff and diversified providers are more valuable.

• Ability to Service Debt:

  • If multiples and price are too high, buyers risk negative cash flow, pushing deals out of reach for many individual ODs.

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Operational Compression: Inside-the-Practice Trends [35:07–44:01]

Cost Drivers

• Top Expenses:

  • Cost of goods (COGs) now “25–27% of every dollar”
  • Non-OD staff compensation: “right around 25 to 26%,” possibly up to 30% in competitive markets
  • Associate OD compensation: “15–18% of production”

• Net Effect:

  • Up to 67% of revenue spent on these three line items [37:27]

• Urban vs. Rural:

  • Small-town (rural) practices face less salary compression due to less competition for talent.

Responding to Rising Costs

• COGs Increases:

  • Driven by tariffs, manufacturer price hikes, and higher input costs.
  • Critical to monitor vendor relationships (e.g., consolidate frame lines for better deals and faster inventory rotation).

• Pricing Levers & Insurance Constraints:

  • Ability to raise prices is influenced by vision plan contracts (Vision Benefit Managers).
  • Emphasis on secondary sales: annual supplies, second pair glasses, and internal process improvements (e.g., in-house edging).

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Strategies to Fight Compression

Embrace Technology & AI [45:18–51:03]

• AI Scribes & Virtual Staff:
  “We’re seeing more and more practices look at offshoring human capital and looking at virtual scribes and AI scribes.” — Adam [45:22]

  • Can reduce expenses, increase efficiency, and potentially reallocate staff to higher-value activities.

• Process Review:
  “All you got to do is just walk into your practice with a different set of eyeballs… as a practice critic… or maybe even as a patient and say, what’s up with this particular part of my process?” — Eugene [49:21]

• Phone and Scheduling Bottlenecks:

  • Many practices don’t answer up to 25% of calls.
  • “If there was an AI tool that answered the phone versus not answering the phone, at least we got a win.” — Eugene [49:21]
  • Online scheduling is “table stakes,” but data shows half of appointments are still booked by phone, often due to patients’ desire for clarity, especially on pricing and insurance [53:41].

• Patient Experience:

  • Need for hybrid approaches (AI + human) to address diverse patient needs and maximize capture rates.
  • “There is no substitute for human emotion or for human connection.” — Adam [54:32]

Practical Takeaways

• Use Data & Benchmarks Effectively:

  • Don’t get trapped comparing to benchmarks; “benchmark yourself against yourself.”

• Review Profit & Loss Regularly:

  • Your financials “are the lagging indicator in your business… if you’re not happy with the way the story has been written, now we have to go back and figure out what are the levers I can pull.” — Adam [43:31]

• Innovate with New Tools (AI, Automation):

  • Identify bottlenecks and leverage technology for efficiency and improved patient care.

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Notable Quotes & Memorable Moments

• “The only thing that is constant in our lives is change. The only thing that’s consistent about the inconsistency is the inconsistency.” — Adam [03:53]
• “The more valuable you are to your business, the less valuable the business is to you.” — [28:20]
• “We can’t be accidentally successful in this business anymore.” — Adam [44:01]
• “Ownership in private practice is still a good investment… don’t brush off ownership… because you think that it’s unattainable or unaffordable.” — Adam [33:08]

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Timestamps of Key Segments

• [00:00] – Introduction & overview of financial compression
• [07:05] – Defining “compression” and its forms
• [08:39] – Transaction trends: PE vs. OD
• [10:14] – Transaction multiples explained
• [17:24] – Exit options and importance of succession planning
• [27:39] – Valuation factors and business value
• [35:07] – Breaking down costs: COGs and HR
• [41:12] – Pricing, insurance constraints and strategies
• [45:18] – AI, technology, and internal efficiency
• [49:21] – Scheduling and patient experience innovations
• [53:41] – Data on phone vs. online bookings
• [54:32] – Maintaining the “human connection” in patient interactions

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Episode Tone & Style

The conversation is candid, practical, and solution-focused. Both Eugene and Adam bring in real-world anecdotes, both from their own experience and what they're seeing among clients, keeping the discussion grounded, yet forward-looking. They balance concern about industry headwinds with optimism about the capacity for practices to adapt and thrive.

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Final Thoughts

This episode provides a comprehensive look at the “squeeze” felt by optometric practices—covering economics, practice value, and operational realities—while equipping owners with an understanding of what’s driving these trends and how to proactively respond. Practitioners are encouraged to control what they can, embrace technological aids, and think both critically and creatively about business operations heading into the next wave of industry evolution.

Transcript

[A]

Foreign welcome to the Power Hour, Optometry's biggest and longest running show. I'm your host, Eugene Shotsman, and we've got a great conversation for you today. I'm joined by Adam Schmiele. He's a certified financial planner. He's the founder of integrated planning and wealth management, and he's also a repeat guest. And I brought Adam on because he has this awesome ability to make finance a little bit more fun and to when we talk numbers and when we talk trends, it's a really interesting conversation. So in this episode, we dive into what Adam calls the theme of compression that practices are feeling over the course of the last few months or even over the course of last year, talking about rising cost of goods, higher HR expenses, and the pressures that these things create on margins, which then allows us to talk about how this impacts practice value, like when practices change hands between ODs to ODs, those types of transactions. We also talk about private equity transactions, if you're curious, by the way, about what's the right multiple, which I definitely was in today's market. You get to hear Adam weigh in on that as well. We then zoom in inside the practice cogs, staffing, efficiency, and overall, like, even how little things like technology and AI scribes and scheduling tools might actually help doctors fight this theme that Adam calls compression while actually improving the patient experience. So this is a conversation that balances the big picture with the day to day. And if you're thinking about a future exit or if you're just trying to run a tighter, more profitable practice today, then this one's definitely for you. Before we dive in, quick reminder, make sure that you're subscribed on YouTube, Spotify, Apple Podcasts, or wherever you get your shows. And if you've got a question, an idea, or just want to connect, head over to Eugene Shotsman.com and drop me a note. I always love hearing from you. And now here's my conversation with Adam. All right, Adam Schmo, welcome back to the Power Hour.

[B]

Thank you for having me, Eugene. Appreciate it. And looking forward to the conversation as always.

[A]

Yeah. So I think where we should start is there are a lot of things going on and when I think about the economy sort of doing its, I guess we'd call it first uncertain, then more certain than less certain than this is happening. Just a lot of roller coaster y type of things over the course of the last six months. And we had tariffs again, also a roller coaster. Then we have a variety of other things from a consumer confidence standpoint that impact how consumers shop, which then ultimately impact what, what happens inside the practices. And all of this impacts the day to day picture from a financial standpoint that practices feel. And then it also impacts the strategic big picture, which is that if I'm thinking of how the, the practice plays, what role the practice plays in my big picture of life, you know, whether there's an exit or not, but like really just, you know, I can track my stocks and see what they're worth, but, you know, I can't always look behind the scenes and see what my practice is worth every day. So I was hoping where we'd start is maybe you could summarize some of the trends that you're seeing on all fronts and then we'll dig into some of them.

[B]

Sounds good. So I will preface this with what would a financial conversation be without some disclosures and disclosures and disclaimers.

[A]

Right.

[B]

But I will preface this with two things. Number one is, and I, and I try to say this without a lot of snark, though it's going to, hopefully I can communicate it effectively. Try and find me a time in our past where there hasn't been some sort of uncertainty.

[A]

Right.

[B]

The only thing that seems to be now with that being said, are there seasons of ebbs and flows where the level of uncertainty seems like it is more and less? Yes. But I would say from a business owner's perspective, I think we can all collectively agree that the only thing that is constant in our lives is change. And the only thing that's consistent. The only thing that's consistent about. Or what's the way to say it, The. The only thing that's consistent about the inconsistency is the inconsistency. I think that made sense.

[A]

Yeah.

[B]

My point is.

[A]

Right.

[B]

I get it. I know that there have been a lot of question marks and uncertainty that has been around, let's call it the last 12 to 18 months for a variety of reasons. But again, I would put pause to say, has there been a period of time where there hasn't been some level of uncertainty with that being said, the other disclosure, and maybe it's not really a disclosure, but it's a preamble to think about what I'm about to say next. The challenge with listening to what Canada you and I are going to be talking about here and talking about trends at the macro scale is as a practice owner, listening, don't discount the specificity of where you are located as you look to make decisions. I don't know if I explained that correctly. But where I'm going with this is don't make microeconomic decisions, don't make tactical business decisions on your practice based off of macroeconomic trends. I'm not telling you to ignore them and not pay attention to them at all. I would just say use this as a complementary source of information and just more data points. Exactly. And the reason that I bring that up is that I see these conversations happen in variety of different forms, whether it's at optometry conferences or online, in variety of forums and threads where people are talking about what is happening at the national level. And that can be through multiple different lenses. Right? That can be through the national level.

[A]

Of.

[B]

What tariffs have meant. It can be where interest rates are. It can mean where layoffs are happening. It can be where real estate prices are going up and down. The denominator or, excuse me, the numerator of uncertainty can always be changing, assuming that the denominator is uncertainty. But I just, I want to encourage OD's listening and practice owners listening specifically as we're talking about the trends and I'll share some of these trends that I'm, that I'm, that that we've observed in our firm is we serve clients in 35 states. And so I'm trying to answer this question in, in, in as a specifically generic way as possible. Take the specificity, specificity of the question, but make it generic enough that that's applicable. So we with that albeit long disclosure and setting the table.

[A]

And I'm happy, you know, happy to sign over the deed to my house or give you a blood sample or something just to get your answer. Adam.

[B]

So in a word, compression, I think that would be a word that, that, that a lot of practice owners have felt in a variety of different ways. Compression in the sense that labor costs have crept up, the cost of goods have crept up. Compression in schedule and availability. So indirectly as, as labor costs have gone up and practices try and do the same with less team members. Now we have compression of patient experience. So there's a lot of different ways in which compression has shown up in practice owners lives, whether it be financially or otherwise. But at the same time now they're also fighting the how do I drive more revenue if I'm tr. If the goal is to protect my margin and the goal is to protect the income that I'm making as a practice owner both and on the practice and I'm seeing compression in my expenses now I have one of two choices. I can either figure out ways to increase my revenue and or decrease my expenses if my goal is to protect margin. So those are the, that is the one headwind. Or I should say, if I could summarize a lot of the headwinds that practice owners are feeling. It is, it is compression. That would be the word that I would use.

[A]

Okay, so we're going to come back to that momentarily. And, and I'm curious, what has that done to the transaction volume? Because I know your team does a lot to help practices buy, sell, whatever. Are there fewer transactions happening? Are there more transactions happening? Are there people out there looking for good deals? And more importantly, you know, valuation. So you know, how, how, how is, what's the trend from a practice valuation standpoint?

[B]

Trends I think have. So I'll, I'll dissect that into two different buyers, the OD buyer and the quote unquote corporate buyer or the PE buyer. The PE buyer has slowed in part because interest rates dictate the cost of capital and thus the return on invested capital that a PE firm can get on practices that they are buying. I think somewhat independent of that. If we just look at where private equity is at in the overall scheme of this capital raise and this capital deployment that they've had, they've been on, they were on a buying spree like they couldn't buy them fast enough 20, 21 ish through maybe 2024, 23, when interest rates were, dare I say, excessively low. So we had an incredible amount of volume during that time period. And they were, for lack of a better word, gobbling up the best practices that they could that was going to provide the best ROI and ROI to the firm as well as thus to the OD that sold the best ROA from a sales standpoint to their perspective. So on the corporate, the way private.

[A]

Equity works is that you have to deploy the capital, right? Like you lose money, you lose more money by not deploying the capital. So you have to deploy the capital. So sometimes you have to make it questionable, maybe not such a questionable, but sometimes you have to overpay a little bit in order to make sure that that capital is deployed. So what were multiples before and what are multiples now when you think about private equity? And I know there's a million things in that, in that, in that answer. So I just, I'm worried about the disclosures. You're going to give me time.

[B]

No, it's, it's so on the, on the high end. So we had a relationship that was entertaining an offer from a couple of different firms for 10 times earnings, 10 times EBITDA, that is. Excuse me. No, they were. Sorry, I got ahead of myself. They were wanting 10 times pe, came back with eight. And so eight times is probably about the high that you're going to see on the PE side of things, assuming that you have a buttoned up practice. And from PE's perspective, they can see the ROI on paying that multiple that is on the high end. On the OD to OD transaction side, we're still seeing multiples somewhere in that four to six times earnings range. Or if we look at it through a different lens from a seller's discretionary earnings, which in a brief definition, SDE or seller's discretionary earnings is for every dollar of revenue that the business brings in, how many cents of that dollar am I, the owner, able to put into my personal pocket, whether it be through Salary or through 401k contributions or through fringe benefits, profitability, you know, profit distributions. Add all that up and you're seeing transactions somewhere in the one to three times seller's discretionary earnings, or the way the numbers shake out somewhere in that four to six times EBITDA or four to six times earnings pe, to your point, and I'm really glad that you brought that up, has a mandate to deploy capital. And you said something that I really want to emphasize. I think you said like, even if it's not the best investment or even if it's not what they should pay for it. I'm not a. I don't remember your exact words, but I'm paraphrased. I'll own it if I'm not.

[A]

I don't know. Yeah, I would say questionable or slight overpayment.

[B]

Yes. And I'm really glad that you brought that up because we are, as advisors still having to normalize conversations with ODs that are looking to sell because they will take what an OD is looking to offer them or what an OD thinks that the business is worth and what private equity is worth. And if private equity comes out, like if anchor bias is very real in transactions. And so if a seller first, whether it was solicited or not, has an offer from a private equity buyer and they take that offer and try and compare it to what an OD would pay. Those are not that. That's not a fair comparison. There's, there's a delta that exists there. To what extent the delta exists, I can't give a benchmark number. It's between X and Y, so there are guardrails around that. But again, we're still having to normalize those conversations with potential sellers.

[A]

And there's a lot of benefits to selling to an od because the reality is that the offer may look really, really attractive on the front end from a pe when just. And oftentimes those offers aren't even offers. They're just a loi that shot across. Wow, that looks really, really nice. And then when they start digging in and they're like, oh, well, that's thing. It's kind of like, you know, in the old days of real estate when you, you know, you make an offer on a house and then, you know, you whittle the value away. You inspect this and then this is broken. And then we found this and we found that. Oh, and then the neighbor is, you know, kind of a jerk. And then all of a sudden you like, you just whittle the thing down by 20, 20, 30%. And then, you know, to stick with that. And, and then you buy the house at a discount if you're a savvy real estate investor back in the day. And then you still make the owner come back and mow the grass and, you know, fix a whole lot of things and whatever. And that's the equivalent of some of the actions that I've been seeing lately. It's that they have a lot more. It sounds really good on the front end, but they have a lot more power on the back end to say, okay, now that I got you kind of pulled in, now this is what you're going to do for me in order to take advantage of this offer, which on the other side, what I guess I've, I've seen is that when you're selling OD to od, you have a lot more say in how the back end of that transaction goes and how the tail end of. Because you're, you know, you're. It's much more of a collaborative process. You're not, you're not instituting a whole new system and a whole new process in the practice. You're kind of keeping the practice as is. And the OD gets to. And the person selling gets to make more of the rules correct.

[B]

And it's an interesting juxtaposition for. Let's call them a seasoned owner, right? Somebody that is exploring an exit at the end of their practicing career and wanting to transition into that next phase. Because on one hand, they look at the offer and for conversation's sake, while you are absolutely correct, the offer that usually comes, the first offer that is slid across the desk is, let's Just I'll be polite here. Not always the offer that actually is on the purchase agreement once PE does their full due diligence on the practice, financial and otherwise. But for conversation's sake, let's say that it's close. When you look at that number, it's a big number and it's a number that a practice owner that didn't really anticipate selling to a, to an institutional or an, to an investment buyer like that, they never really thought that number was possible. But then when they look at to your point, the strings that are attached to that and the workload that's required to get every cent of that dollar which by the way roughly 10% on average is going to be in this fund that you're now the investment in the fund, which is a weird mind trickery of in itself to be the investment in this fund which needs to be sold at some point to a future buyer in order for you to cash out that last 10%. So that's a whole nother conversation in and of itself. My point with that is as you look at the exit strategy from your practice in what are supposed to be the best years of practice ownership and the most profitable and ones where you're looking, how do I exit stage right from my practice used to be it was a two year commitment. Now they're more along that three years of commitment post sale where you're having to maintain essentially the same number of doctor Days days in the practice, whether it be you and or your associates in, in the practice. Because at the end of the day this is an investment for them. I mean there is no truer definition of a return on investment than having institutional money come in and buy the practice. So they have a certain, they have a certain target return that they have to meet to their investors. And I can promise you that a, they're going to insert every piece of language that they can into the purchase agreement that is in their favor, not yours. Side note, don't go it alone. Hire your own attorney that has been experienced in these transactions to review the purchase agreement and make sure that you are getting things in there that are in your best interest. Shoot. Where I was going to that.

[A]

Well, so that's the, that's the private equity side.

[B]

Yes.

[A]

And on the OD side I think the picture is a little bit different.

[B]

Yes, the picture is a little bit different and that's where owners have a lot of, or I should say a lot, but more agency and flexibility over the terms of the deal.

[A]

Right.

[B]

There's There's a couple of different ways in which an existing owner that's listening could think about exiting their practice. And before you think that, oh, I'm not ready to exit.

[A]

Right.

[B]

Just realize that as a business owner listening, you will exit your business at some point, guaranteed. The question is, is it going to be on your terms or somebody else's? So assuming that we're in agreement with that and that a, that it's prudent for business owners to have some type of contingency plan, some type of succession plan in place, and the closer that you get to retirement, the more important. And the more. Yeah, the more important it is. We have to figure out just what that transaction is going to look like and how I want to be involved in the practice post sale. So we've seen everything from bring in a 50%, you know, bring in the associate that's been in the practice for a long time as a 50% partner, to I want to dive into that word partner a little bit here. I want to kind of put a pin in that conversation and make sure we circle back around because we've heard some interesting conversations that I think get people thinking differently about having business quote, unquote, partners. But 50 partners, we've seen it where there is a 100 sale and the owner exit stage left, like, hey, I'll stick around for 60, 90 days, something along those lines. And then I'm essentially done with. One of the more common approaches is I'm going to sell 100% to my associate and they're going to be 100% owner. I just want some type of work agreement to essentially work in my practice now as the employee. I think that type of approach, if both parties are on board with that, allows for reducing the amount of risk that exists in a transaction. Because not only does the team see that the former owner is still there, the patients see it. It makes it easier to hand off the patient load from the, the selling OD to either the existing associate or a new provider that's going to be brought in. So the longer the Runway you have in the transaction, the easier it can be to deal with the unknown variables that are going to inevitably pop up in any transaction. Last thought that I want to come back to that I mentioned earlier around this concept of partnerships, and this is very recent, this was brought up in a conversation last week with a friend of mine. Not even in the optometry or the financial space. He's in a completely different profession and his business does. They do about 30 million a year. In revenue and they're in the process of transitioning the ownership from one generation to the next. And he said something very interesting and I just want to cast this out there and get your thoughts on it. Eugene. Early on in the, in the way in which they're selling the business is kind of through tranches, through, through different levels of, of, of, of, of sales, of sales stock. Early on they would say that they're selling and they're all minority stakes, right? They're 5% ownership. So it's by all stretch it's a minority stake. The mistake that they said that they made early on was talking about bringing on minority partners. And what they found in that language is that when somebody bought in as a minority partner, they didn't hear the word minority, they just heard partner. And so there became a little bit of friction in the decision making conversations within the practice because in their mind they're a partner. But from an ownership point of view and from a percentage standpoint, they don't have a voting, they don't have a voting say. So my friends start. What they said that they learned is they started calling them shareholders. So bringing on a minority shareholder was an interesting way to reframe how they are, how they are proceeding with succession plans. And I share that again, it's recent in my mind, so it really resonated with me. I don't know that there are a lot of transactions where that is the case, but if a list, if an owner listening right now is in that situation where they are offering minority shares of their practice to associates, any non controlling interest, words matter. And I would encourage you to just think, you know, think about how you're communicating that transaction to your succession plan and just make sure that everybody's on the same page with the definitions of the words that we're using.

[A]

Well, does that make sense? Well, it's funny, it's funny you bring that up because I was just listening to a couple of my team members talk about how we're doing a. This is the silliest example, but we're doing a website refresh for a client and was wondering why the website refresh is taking so long. And it turns out that there are five partners in the practice and anytime there is a change, the other four partners have to one partner makes a suggestion, then the change happens and the other four partners have to re review. Now, the partners get together infrequently. So some of this happens by email, but if not everybody is on the email string or not everyone weighs into the Email string, the change can't be approved and they've even gone as far as to settle disputes amongst themselves. They've created a communication guideline that they've shared with my team that, you know, you can only email these people about this and you can only email those people about this. But when a decision impacts the practice and relatively vague definition, then you must email all the people together. And if you don't get a response, you must email them again. And if you don't get a response, you must escalate it to this partner, but only if that, if that partner is not available, then you like. It really is like a massive mess of like, holy wow, nothing gets done at this. I can only imagine if this is what a website change looks like on the business. Like, what. How do you make any decision in a business like that? And I think that particular practice, they did a great job recruiting their associates, however, and they got some super talented individuals. However, in order to get those talented individuals excited about being there, I think that they kind of went on the other side. They said, well, you're a partner now, Adam, and because you're a partner, you're going to be integral to the operations of this practice. And then I think ensues, a web of endless frustration ensues.

[B]

Yeah, yeah, I appreciate you bringing that up. It is interesting how that can sometimes manifest itself inside the culture of ownership within a practice. So, yeah, maybe a slight digression there and an addendum to the overall conversation, but I do think it is an example of being intentional with the words that you're using and how you're thinking about the inevitable succession of your practice as an owner. And that doesn't mean that, that shareholders can't have ownership responsibilities, but it, at some point there needs to be. All right, I'm the majority ownership. I, I'm the controlling interest. And these are the decisions that I'm going to make as the controlling owner. And again, every, every ownership group, if there is assuming more than one owner, certainly has different personalities and it's hard to give a blanket recommendation on that. But words matter.

[A]

Yeah, I totally agree. So let's kind of zoom back out.

[B]

And then took us pretty deep there. Sorry about that.

[A]

Zoom back out and like, let's talk about trends. So you had mentioned your high end, your high end numbers, you know, four to six for EBITDA and eight for EBITDA multiplier for, for private equity. And I'm assuming those numbers have gone down over time. And again, these are kind of the Higher ones. But they've gone down over last few years, right?

[B]

Not as, not as much as you'd think. Not on the OD side of things. On the private equity side, yes. Because there, I think there's more, there's more fluctuation or more influence in debt service from a, from an OD to OD transfer, the numbers tend to remain fairly steady. That four to six is still. There's not a lot looking at, looking historically there's not, there hasn't been a whole lot of vacillation in those numbers. At the end of the day, if the practice produces cash flow on a four to six times valuation, that number relative to the income that the business is producing and the debt that would be required to buy that business, the amount of debt service required to buy a practice even at six times earnings in today's interest rate environment is still able to be accomplished with a. It's tight, don't get me wrong, it's tight, but it's still able to be accomplished, able to be accomplished with a buyer. The biggest challenge with OD's as these practices or with an OD to OD transaction as these practices continue to grow, which is why private equity has seen an investment cash cow opportunity here is eventually the dollars get big enough and the numbers get big enough where the multiple that's being commanded is high enough. Where nod doesn't have the opportunity to bring enough cash to the table. Like the value of the practice is such that the amount of debt that they would have to take out to buy the practice that they would be cash flow negative after taxes, after debt service as an owner. And most ODs that are buying a practice like this just don't have that float. They don't have the ability to make that business cash flow positive for them as an owner. The solution to that is growth, right? That's where these companies, when you look at a pro forma on a purchase agreement, one of the spreadsheets that we provide buyers is a 10 year projection based off of varying different growth rates. What can I expect as the buyer of this practice? What can I expect to make as an owner of this practice? After expenses, after debt service and after taxes, right? What's the, the net net net, if you will, kind of a variation of triple net, right? Not to be confused with triple net leases in real estate. And eventually if the practice is big enough and the multiple is big enough, that buyer is cash flow negative in the first couple of years of ownership. And the only solution out of that is to Grow the practice for single owners. That is just that. That's a big pill to swallow. And that's why finding those practices or buying those practices, I should say, is harder for an OD to buy or for a single OD to buy.

[A]

That. The other question I wanted to ask you with that in mind is, you know when we say a range like 4 to 6 or even 1 to 3. Yep. Those numbers, that's a pretty big range. I mean, one to three is a pretty substantial range. Yep. You could either make what you make in one year or you could make what you make in three years. And I was curious, from your vantage point, let's just do a quick rundown of all of the factors that impact whether you're closer to the one or closer to three. Oh.

[B]

So I think this is. I heard, gosh. And I'm huge on attribution because I'm not, certainly not smart enough to come up with these really what I consider to be impactful quotes. So let me just say it's not my quote. Okay. But a phrase I heard a couple weeks ago was the more valuable you are to your business, the less valuable the business is to you. And so when we look at what will a future buyer pay for a business, it is basically the predictability of future cash flow out of that business and the risk associated with that predictability. So if I'm not necessarily sure that the predictability is going to be there because all of the goodwill, all of the. There aren't any systems. There isn't an institutionalized process. There's an incredible level of loyalty from like the. The owner is the only producer in the practice or the only provider in the practice, there is a certain level of risk associated with that transaction for a buyer to come in. So what we have to do is think about the risk and return on invested capital. So if, going back to what I said earlier, if everything in that business was predicated upon the owner being in the business, as an investor in that business, I'm assuming a lot of risk. I hope that things transfer, but there's no guarantee. And so because there is a higher perceived amount of risk that I, as an investor, if I'm looking at your practice as an investment, because newsflash, for owners, your business is an investment. There should be a return on invested capital for the money that the business is generating. And as a buyer looking for that return, I should be thinking about, geez, for every dollar that I'm going to invest in this, in buying this business. And I'm going to use debt to do that. Most people don't have a big pile of cash on the sidelines for them to deploy and to buy into practice. So if I'm going to take out debt and have an interest or have an interest expense, I'm going to have a cost of capital expense for this money. I need to get a pretty darn good return on that investment. And so that's the relationship that we look at when we think of, well, how many multiples am I willing to pay for earnings? It's directly related, related to the multi, it's directly related to the expected return that I want to get on my invested capital. On the other end of the spectrum, show me a practice that is, you know, an owner that's working maybe two clinic days a week and they have two other full time providers seeing patients. The schedule's full, long tenured team, a great website. You know, 18% of new, 18% of patients seen are new patients. Right. Checking all those boxes of wow, this is a well oiled machine. How valuable is that owner to that business?

[A]

And not that, not that much.

[B]

It's a fraction of what my previous example was. And so now when we look at the, that relationship, well, that owner isn't that valuable to the practice but interestingly enough that makes that practice extremely valuable to the owner. And so that's when, when we look at that range, this is where the negotiations come in and the valuations on income and asset and market based on approaches and kind of looking at a blended ratio of all of those different factors that put a statement of value on a practice. Those are the quantitative and qualitative factors that ultimately influence what level of multiple a potential buyer is willing to, well, pay for a practice. Does that make sense?

[A]

Yeah, and of course, and I think the other part of it is as a buyer you have to be cognizant of, you know, what kind of deal you're willing to get. You know, saying thing is, if you're somebody who is mechanically inclined, you might buy a car on Facebook Marketplace and know that you're underpaying the value of the car. But you're, but something is likely to go wrong and you just have the confidence to fix it. And if you're not mechanically inclined at all, you might want to buy a new car at a dealership and get the warranty and you know, enjoy, enjoy the fact that you don't have to worry about it, but it's still going to get you to where you need to be. So I think that there's this, and at least from what I'm hearing in the marketplace is that there are definitely still buyers out there, but the buyers that are jumping in are the ones who have a little bit more of a risk tolerance. And as a result, they're willing to pay a little bit less because they have a higher risk tolerance. And so they tend to shop deals. And even if your practice is perfectly well oiled, if you want to attract a buyer like that, you got to give them a good deal. Because even if that guy who is mechanically inclined is shopping for a car and the only car that's available right now is at the dealership, he's still going to want a deal because he doesn't really, you know, he doesn't really like paying full price for cars.

[B]

Yep. Yep. And, and that's where I hope that through shows like this and conversations that you and I are having and other platforms, that we can continue to inspire the next generation of ownership, that ownership in private practice is still a good investment. Are things going to change? Yes. Have they changed in the past? Yes. Again, the only thing that's constant in the entrepreneurial journey is change. But if you're willing to understand that and accept that and know that there is a return on that investment and that there are resources out there to help now more than ever to help you with that ownership journey, that's where, again, I, I, this is turning into the PSA that I have for the next generation of ODs to not brush off ownership in private practice because you think that it's unattainable or that it's on, that it's unaffordable. At the end of the day, the fundamental question that any potential buyer has when it comes to or three fundamental questions that any potential buyer has is, how much is this business worth? What should I pay for it? And how much money am I going to make after I own it? Every transaction can be boiled down into those three fundamental questions. And the more clarity that a buyer can have on those questions, the more comfortable they are in engaging in a conversation and a potential transaction.

[A]

Yeah. All right, when we come back, we're gonna zoom into the other side of compression, which is the what are we feeling in our practices and what can we do about it? We'll be right back on the Power Hour. All right, we're back in the Power Hour. I've got Adam Schmail in the studio with me, and I, we're talking financial trends for practices. And I know how on your show you love to get into the numbers. So I'm going to try to do that here with you as well. So what are some of the things when you talked earlier, you said the word is compression. And so explain that in terms of what I'm experiencing every day in my practice and what numbers are going up, what numbers are going down.

[B]

So the two biggest expenses that practice owners are likely focused on is cost of goods and HR talent.

[A]

Right.

[B]

Human capital in the business. Just with those two line items alone, you're likely talking about at least 50% of every dollar revenue that comes in. So being very mindful of just those two areas is going to add a significant amount of value in the overall. Like literally value in the business. Because every dollar that we don't spend, spend in expense goes to the bottom line and builds enterprise value in the business. But it's also right. Going to be valuable to you from a cash flow standpoint as well. So focused on those two numbers. And I'll be a little bit of a, a mouthpiece here too. Good friend of mine and good friend of, of our show 2020 Money, Nathan Hayes, who's the leader of the Books and Benchmarks Bookkeeping Service as, as a, as a, as an offshoot if you will, of idoc. And I had a conversation with him on our show which is basically if you want a deeper dive into what we'll talk about here, Eugene, I'll send you the link to the episode or.

[A]

I'm sure there's on the show notes.

[B]

For sure listeners of both shows. So you can go back and, and dive into that episode. But cost of goods have gone up relative in 2024 and here in 2025 relative to what they were in years prior. The average cost of goods, kind of like that, that normal distribution, that kind of, that that median number was 27% of every dollar of revenue was spent on cost of goods. So kind of reverse engineering that they're operating, most practices are operating at a 73% gross, gross profit margin. And then on the staff side of things, when we look at the total compensation, non OD staff, you were spending roughly right around 25 to 26% non OD staff. But then if you throw an associate in there as well, which normal compensation there can be somewhere between 15 to 18% of production that they are bringing in right between those two things. Now you have 25% non OD staff, you have 15%, there's 40%. And then we add on another 25 to 27% in cost of goods. We're at 60, 65 to 67% of every dollar of revenue that's being brought in is being spent on those three factors alone.

[A]

So, so how is that trending, Adam? So how. What was it a year ago? What was it two years ago?

[B]

HR stat. So listeners right now are like filling in my answer before I can even say it, it's gone up. Specifically on the HR side of things. Not as much as what I think a lot of people may think it is. And this is a specific area. Well, let me rephrase it this way. This is one area where geography matters. If you're in a developing and highly populated area where the challenge and competition for talent is fierce, you are likely going to be on the high end of that 20. You might even be hitting 30% just because of what it takes to hire talent in your practice. And this is a perfect example on where small town practices, otherwise known as rural. I'm trying to change that stigma. Right. Small town practices have somewhat of a competitive moat around their practices because in smaller towns they are likely one of like, there's just not as much competition for talent. And so what that does is it keeps a, it keeps occupancy cost lower and it also reduce. I shouldn't say it reduces, but it limits the amount of compression that practices that practice owners are feeling on their staff expense. Because it's not that they, it's not that they're not giving raises and that they're not increasing their compensation, but they're not having to compete with more employers that are moving into the area as inflation has gone up over the past 36 months.

[A]

So you're saying if you're not a small town practice you have had, you're likely feeling.

[B]

Yeah, you're feeling the pinch.

[A]

Then go back to cost of goods. So where was it and where is it now again?

[B]

So right now it's the average is probably around that 25 to 27% range. I don't think that has changed as much as what people think it has. I also think it is dependent upon the practice that you have. But again, I don't think that it is. Look, this is a perfect example of where practice owners can get themselves in trouble comparing themselves to benchmarks. And every practice is different in that sense. I don't think it's not like we went from 18% up to 25%. I think the compression that I mentioned earlier, is it there? Yes. Is it maybe as significant as what practice owners think? I think that's debatable.

[A]

Well, and it's, I mean that that number, cost of goods is so dependent on what percentage of your practice is contact lens practice, what percentage, how many medical patients are you seeing? Yep. I. And so it's not, you know, you, you benchmark yourself against yourself. But I still think that there's this interesting trend and it seems like tariffs or not. Pretty much every frame company out there has implemented or is planning on implementing a price increase this year, and it's more significant than it was last year. And, you know, lenses seem to be increasing as well in terms of cost. So you kind of look at the, the price packages that practices have, and it's almost like you got no choice. We have to sell product to be profitable. In order to sell product, we have to spend more. And so the question becomes, and I don't know how much of this you're seeing in your practices is how are people doing on just absorbing those, or are they raising price and by how much? And, you know, what's the, what are they seeing in the marketplace when they do that?

[B]

Yeah, and that's the, that's the. This will open the whole can of worms of the relative autonomy and agency that practice owners have to raise prices when part of their business model is the VBM relationship that they have.

[A]

Right.

[B]

The Vision Benefit Manager, otherwise known as vcps, otherwise known as insurance.

[A]

Right.

[B]

We're kind of. All those words are the same. All those acronyms are the same.

[A]

Right.

[B]

So you have to. And this is the challenging part of you and I having this conversation because there are so many different plans out there with so many different components of the contract language. I think the overall advice that I would give if I'm. If a practice owner is listening and they're thinking about what is their next best step. Here it is going back to the relationship and contract that you have with the VBM, that you're working with, with the Vision Bennett's, with the Vision Benefits Manager that you signed a contract with and understanding what that pricing model looks like and then determining where are you able to either increase your fees and. Or look at secondary sales. Right. Is that. I think we all know that selling an annual supply of contact lenses reaps a better margin than selling monthlies. I think we all know that second pair sales can increase the profitability on a patient than doing a single sale. I think I've had conversations with owners where they look at their lab fees and how much they're paying to their lab, and so they'll use that as the opportunity to determine, gosh, maybe I should bring an Edger in house and I should do my finishing in house because look at how much I'm paying in my lab fees. So this is a perfect example of where your financials are telling you a story and it's up to you as the business owner to figure out what's going on. Story is it telling you because your financials are the lagging indicator in your business. They're simply telling the story of the inputs that you made at the inputs and the decisions that you made at some point in the past. And if you're not happy with the way the story has been written, now we have to go back to the drawing board and figure out what are the levers that I can pull in the business that can directly affect this line item on my profit loss. Like I mentioned, case in point, cost of goods. If your cost of goods have gone up and you trace that back to my lab fees have continued to go up, look at the volume in which you're doing, look at the, the relationships with the labs that you have and make the decision. Does it make sense to spend the money up front on make the capital investment in an edger? Do I have the space in my office? Do I have the team members in office to be able to do that? And what would that ROI be? I can't answer that. That, that is not a blanket answer. And I don't think that you or any listener is expecting me to give a blanket answer. But it's one example of many in which practice owners need to take a little bit more agency and ownership of we can't be accidentally successful in this business anymore.

[A]

Yeah, and I think you're right. And I think there's also that there's some, we'll call them simpler, although they may seem kind of complicated to implement. But there are some simpler techniques as well when you're looking at. Because I totally agree with your advice of let's go, let's look at what's driving cost of goods. But let's say it's your frame cost of goods that's driving part of it. Well, what you might do and what we've seen some practices do really successfully is take a look at the number of frame vendors on your board and start scaling that back so that you can do more business with fewer companies. And when you do more business, you make more money because you're more important to them. So they'll give you better deals and they'll make sure that you have the winners on your board and that kind of thing and that your Turn rate begins to move in the right direction. So all of this is like, to your point, let's not be accidentally successful. Let's take the. If you're noticing that your cost of goods is creeping up, you can do something about it for sure. It's just not, you know, it's just not going to fix itself. Yep. So what, what other things from a in internal trends inside of practices? What other things are you seeing this year? Or what other patterns are you guys detecting when you're advising your practices?

[B]

Oh, what would a conversation in 2025 be without mentioning AI? Eugene.

[A]

Right.

[B]

We're seeing more and more practices. Look at offshoring, human capital and looking at virtual scribes and AI scribes.

[A]

Right.

[B]

If we know that time is our most limiting commodity in business and how we spend our time and how our team spends our time, if that's directly influencing the revenue per hour that the business is producing. And I need to figure out ways in which I can get efficient with that. As technology has continued to improve, we're starting to see the ability for people to have virtual scribes in offices. And the cost of that labor can be fractions of what it is here stateside. And so not to get political, but I do find it interesting and almost kind of ironic that where the country is zigging on the tariff side of things, we're figuring out how to zag and offshore some of the responsibilities that used to be done in house in a practice. So there's always going to be innovation, there's always going to be adaptation inside of practice. That's one area that practice owners can look at, trimming some of their costs. And look, I'm not saying that you can use that opportunity to lay people off. I'm looking at is there a better return on investment for your team that you have in the practice in a revenue producing capacity or separately to that, could you as the provider generate more revenue per hour if you had somebody taking the roles and responsibilities that you were otherwise absorbing, like scribing and charting and offload that to somebody at fraction, you know, at. To say it an extreme way, pennies on the dollar. And now with that extra time, could you see one more patient an hour? What does that mean for the, for the revenue per hour in the practice?

[A]

That's exactly it. And that's what I was headed as you said it, I was like, so if we can increase revenue per od hour or refractions per od hour, and the way that we can do that is by improving the Patient experience. And this is where I see a lot of technology based solutions headed is that you can decrease cost, possibly improve the patient experience and make more money. Why wouldn't we do that? This is where the great, I think technology enablement and this is me pointing, foreshadowing a little bit based off of what you just said. I that a lot of the innovations that I look at from an AI standpoint and from a technology enablement standpoint inside of practices, they're going to do just that, Adam, is that we're going to respond to the fact that we have to sell stuff and that stuff is more expensive, but we have to operate more efficiently. But when we operate more efficiently, how can we revisit that sort of given in our practice that really well, this is the way we've always done it. But how can we revisit that given and turn it into a. Well, now that I'm looking at it with fresh eyes, I think I can deliver a better patient experience. I think I can use technology here and I think it'll cost me less dollars to deliver that service than it would have with a human or with a previous input that I had.

[B]

Yep, yep, that's exactly it. And so as I think about that as a listener, it's like, okay, so what's my, what's my next step? I would ask. So there's a couple things that come to my mind of what you could do as a next best step. There are a variety of platforms out there. I would talk to your local organized optometry, you know, your local state association to see if there are any vendors that are supporting your organization that can help with this type of solution. There are a variety of online platforms that are already able to institutionalize some of this work for you and give you the platform that, that, that we're talking about here.

[A]

So well, and I think that there are some EHRs that have integrated or are planning to integrate AI scribes, so ambient scribes, as they're called.

[B]

Yeah.

[A]

And. But then you can start looking at all the different bottlenecks in your practice. In my opinion, if you're looking to make more money, be more efficient and have a better patient experience, all you got to do is just walk into your practice with a different set of eyeballs. Right. Like you just got to walk in and start looking for the opportunity as not necessarily the practice owner, but as a practice critic or as a practice consultant or maybe even as a patient and say, what's up with this particular part of my process? And look One of the easiest places to start, and I won't get on this soapbox for too long. Listeners have heard me do it for far too often. But now one of the easiest places to start is on the phone, right? Like, it really sucks that we still don't answer 25% of calls during business hours. Those patients are having a subpar experience. Mind you, we still don't schedule more than 40% of the patients who are calling and asking for an appointment. We still find a way not to schedule them as an industry. But even the patients who we don't answer their call, like if there was an AI tool that answered the phone versus not answer the phone, at least we got a win. It's a better patient experience and we didn't have to pay anybody for it. And if that patient schedules an appointment, well, heck, we made more money. So that's the kind of stuff I'm talking about. Like find the bottlenecks in your practice. And these tools are available, they exist. People are willing to help your practice with this kind of stuff. And I think that this is one response to the financial compression that you're discussing, Adam, is that identifying the bottlenecks in your practice that truly could use a little bit of a rework, leveraging the modern technology that's now available, that's super exciting to implement.

[B]

Yeah. I mean, you mentioned scheduling. Look, I'm 42, so if as a 42 year old, if I can't book my appointment online, I'm moving on to somebody that can.

[A]

Right.

[B]

I should be able to book my appointment online. Everything, almost. I mean, every restaurant that you want to go out to, every hairdresser that you want to work with, everybody seemingly that we would want to work with on an appointment based basis allows for, at very best, online scheduling. I. My personal opinion, I'm curious to hear what you think my personal opinion is. In today's world, that's table stakes. You absolutely need to be doing that. If you're not doing that, I should be able to at least text with your, with your office and be able to have that, dare I say, instant back and forth conversation because I might not be in the position to have a phone call. I can just send a text. And I want that kind of asynchronous conversation to be able to happen. So curious.

[A]

So the way I look at it, the way I look at it is that you want to have all of the information that you need as efficiently as you possibly can for the practice, for the thing that you're trying to Do. Here's the problem, and this is the data that we, we have now is that over the course of last year, year and a half, we've seen that more people are actually calling practices to schedule an appointment. Is that because people are not like you, Adam, and they don't like scheduling online? No, it's because they have concerns, they have worries, they don't want to waste their time, they don't want to waste their resources, and they're a little bit more conscientious with how they spend the dollar. So they want to know how much is an eye exam? Or are you sure you take my insurance? You're 100% sure you take my insurance. Those are the kinds of things that we're hearing on the phone. And the reality is that if your scheduler was able to answer those questions, maybe that would be fine. But some cases, people just want to talk, just want to get the extra reassurance that they're not going to be in for a financial surprise that they weren't prepared for, because we are seeing that consumers are more cash conscious. And so it's actually really interesting. The stat is. I don't have the exact stat for, for this month, but when we looked it up for the first half of the year for 2025, what we saw is that about 51% of phone call or about 51% of appointments were booked on the phone and 49% were booked on online schedulers. Interesting. I'm. And the practices we track for our clients, so they generally have online schedulers.

[B]

Very interesting.

[A]

Okay, so that's. But that's an interesting. You know that the interesting to do for that is to go figure out what your capture rate is on your phone.

[B]

Yeah.

[A]

You know, because that is that the capture rate on your Online scheduler is 100% because if, if the person actually tried to use the scheduler and got to the end, they scheduled the appointment at the end. Not telling you Your show rate's 100%, but the phone call, just the fact that they reached a human 100% of the time is not true for most practices.

[B]

Yeah. Well, and to lean into that, just one more thought that comes to my mind, as you mentioned, the patient experience, I think we would both agree that the connectivity that a patient has to the practice when talking to another human being is higher than interacting with an online scheduler.

[A]

Yeah.

[B]

Because there's no, like, there's. I don't feel like there's a substitute for human emotion or for human connection. Excuse me, I.

[A]

So this is where I'll be really curious to see what the data looks like from these. We'll call them AI scheduling. AI voice scheduling platforms. Because I'm calling so that I can ask a question. And to be honest, Adam, I had an experience just recently with my cable company. My cable or my. The Internet of my house went out and listen, I am so grateful that when I called, there was an AI thing that was like, hey, are you. Most callers call because you know, something's wrong with the Internet. Is something wrong with your Internet? And I was like, yes. It's like, would you like me to try to fix it digitally? And I was like, oh, this is a crop of crock of crap. Like, sure, try to fix it digitally. And then like, I'll try to do it in 30 seconds or less. And then it was like, I can't fix it. Would you like me to send you a technician? And I was like, actually, yeah, like, that sounds good. Would you like to schedule that technician appointment? Now we have availability 2, 3, and 4. And I was like, that sounds great. Like, this is awesome. Like, I didn't. I only had to be on the phone for like three minutes. I didn't have to talk to a person. And I got my problem solved. Because I know that me talking to a person would be like, okay, what's your account number? And can we look this up and can you hold while I figure that?

[B]

By the way, are you happy with your day with your cable subscription? And would you like a free iPad if you switch? Because there's always a cross sell opportunity support, conversation.

[A]

Well, exactly, exactly. And so this is one of those things where I was like, I was blown away with how efficient and smooth it was, but I didn't know how to do it online. Like, I didn't have, like, maybe there is a smart way to do it online. I just didn't know how to do it online. So I'll be curious to see what the data looks like once the technology becomes more commonplace. But I do think that you need safeguards to be able. In any new adoption of AI technology, you need to have, like, what I call the human ripcord. I like, if I'm, if I'm getting frustrated, I don't want the patient yelling operator into the hand representative. Right, exactly, exactly. So anyway, I think that we've covered a variety of topics and I do think that it's always a pleasure to have you on the show because you bring such an interesting and unique perspective. Adam, thank you so much for joining me. And I look forward to your future appearances, too, on the Power Hour.

[B]

I appreciate it, Eugene. Thank you so much for the ask to come back. I thoroughly enjoyed the conversation as well. And we'll talk again soon.

[A]

Take care.