Selling Your Pharmacy Is A Major Business And Life Decision
Selling your Pharmacy?
Selling your pharmacy is complicated due to state and federal regulations. Making a mistake when you sell can cost you time and money. You only get one chance to sell your business and using a trusted partner like Independent Rx gives you experience you need.
Most pharmacies are owned by pharmacists who have poured their heart and soul into creating a business. Maximizing that value when you sell is crucial, which means you should have a trusted advisor working with you to ensure that you unwind your ownership in the correct manner. Selling your pharmacy is a process with a lot of moving parts and, unfortunately, many times steps may be missed, or wrong steps may be taken, which leads to a seller leaving money on the table.
As the seller, it’s important to understand your role and what will be expected of you throughout the selling process. Knowing how to approach this process will determine how successful the outcome is for you. Every buyer will perform a certain level of due diligence, and you will be expected to act in good faith to provide them with the necessary information. The seller is expected to be transparent with their financial and store information, so that a buyer can make an informed decision of whether or not to pursue the pharmacy for purchase.
Independent Rx will help you understand the process, learn how to get started, gather the necessary documents, and position your pharmacy for sale to potential buyers.
Have you considered the following?
This may be the most important financial transaction of your life
For many pharmacy owners, their pharmacy is their largest asset. It makes up the majority of their retirement savings, may be an inheritance to their children, and is potentially the difference between retiring now or working 5 more years.
As such, you, the business owner, should put as much effort and care into selling your pharmacy as you have put into growing it over your many years of ownership. Hire advisors, an attorney, a broker, an accountant, and talk to other pharmacy owners who have sold their businesses before. It’s important to plan this out and maximize the work you have put into the business over the years.
How can the value of the pharmacy be maximized
Many small business owners, not just pharmacy owners, think they should receive the maximum value for their business because of all the work they have put in and because the business has been around for a long time. This is somewhat true but you do have to put work in to truly maximize the value of your pharmacy. You can take many actions to increase or maintain your business’s value. Examples of these actions include cleaning, painting, creating a strong financial package and using experienced advisors to help plan for the sale.
What kind of partner do you want to have assist you with the selling process
Most of the people you know have never sold a business or sold a pharmacy business, more specifically. If you sell your house, you hire a realtor. If you buy or sell securities, you speak to a financial advisor. So, when you sell your pharmacy, why wouldn’t you partner with experienced advisors who have both helped owners sell their pharmacies and who have sold pharmacies of their own as well. Only someone who has sold their own business can give you the insights you need to understand the surprises to be expected during the selling process, what it’s like to tell the employees about the sale, how much wind-down costs are going to be, etc.
Key Steps to Selling Your Pharmacy
Selling your business is a big decision and you personally need to be prepared.
- What are you going to do after the sale?
- Are you prepared to tell your employees and customers that you are leaving the business or retiring?
- How much do you need to sell the business for in order to meet your retirement goal?
Prepare the Business
- Financials past and current
- Create a list of expenses, currently run through the business, that the next owner of the business would not be paying (automobile lease, country club membership, personal meal and travel expenses, entertainment expenses, etc.)
- Fix or be able to explain major costs or problems
- Continue to train your employees for the day that you aren’t there to help them anymore
- Manage your inventory
- Improve the look of your pharmacy
Obtain a market driven valuation from an industry professional
Independent Rx along with your major wholesaler and buying group can assist with this process.
You have completed the initial steps in the selling process, now it’s time to put together a selling package for a buyer to review.
Similar to selling a house, your pharmacy needs to have a good story in order to convince a buyer to invest in it. Be organized, and have pictures and stories to explain why your store is a great pharmacy.
- Know your business and have the answers to common questions that a buyer may have. If a buyer is interested but has to wait for answers, then they may think there are undisclosed problems with the pharmacy.
- Time kills more deals than bad stores do. When someone is interested, now is the time to be engaged.
Find a Buyer!
- Create a picture for yourself of what a good buyer for your pharmacy looks like.
- Many pharmacists are unhappy with their jobs and giving them an alternative option for their career is an exciting prospect.
- Wholesalers and buying groups are more than willing to assist you in this search for a buyer for your store because they want to keep your pharmacy’s business.
- Differentiate between strategic buyers and individuals. It can make a big difference.
Letter of Intent
This is a written, non-binding agreement, which generally outlines the terms of the sale. Typically, it contains the purchase price, a description of what is and isn’t included in the purchase price (e.g., inventory, accounts receivable, real estate, pharmacy automation, vehicles), and the type of sale (i.e., a stock or asset sale).
This stage in the process can be used as a good faith period for you and the buyer to complete due diligence in order to pull together a potential sale.
Buyer Due Diligence
The buyer is considering purchasing your business, so it’s reasonable that they would first want to complete a certain level of due diligence. They need ensure themselves that what has been presented to them thus far has been accurate with regards to the business. Also, in many cases (especially if the sale is to an individual or another independent pharmacy) the buyer will have to obtain additional financing from a bank, and that bank will be completing their own due diligence on the purchase to ensure that they are making a financially sound lending decision.
Be prepared to share a great deal of information about the pharmacy with the buyer in the form of documents, reports, and answers to their questions. Common items that may be requested include bank statements, accounting system files (e.g., QuickBooks), pharmacy system reports, vendor agreements, contracts, etc.
Once the buyer has completed their due diligence and secured additional financing (if necessary), they should be able to communicate to you whether they are ready to move forward with the sale or not. It’s at this point that a purchase agreement needs to be drafted. A purchase agreement is a formal document that outlines the terms of the sale and will be used to execute the transaction.
It‘s customary for the buyer to draft the initial purchase agreement and then you as the seller, along with your lawyer, can make changes as you see fit. This process will require your participation as the seller to disclose certain information such as past audits, vendors, pharmacy contact information, disclosures, licenses, etc.
Once a purchase agreement is in place, it’s time for the closing to take place, which typically involves the following:
- An inventory and controlled substance count
- A wire transfer of funds from the bank and the buyer
- A signing of the purchase agreement & related exhibits
- A notification to the DEA (and in some states, the state board) of the sale
- A delivery of the closing balance sheet
Post - Transition
Typically, the buyer will require your assistance in facilitating the transition of ownership. The transition period usually takes around four weeks, but can vary widely depending on the experience of the buyer, needs of the seller, and the complexity of the business. The new owner may need to be familiarized with the pharmacy’s processes for ordering, marketing, closing the register, etc. Additionally, they will need your help transitioning employees and customers, and may have you introduce them to key contacts at doctors’ offices, healthcare facilities, and other partners that the pharmacy does business with. There is also a great deal of work to be done related to licensing, paperwork, and third-party billing that the new owner may need your assistance with. It may even be necessary to work the counter in the store with them for a little while as things are transitioned over.
Other administrative items that you as the seller will need to complete include turning over DEA and state licenses, dissolving or transferring contracts, making final payments for payroll and wholesale bills, and paying off outstanding debt. You will also need to file the final tax return for the pharmacy and close out the business for legal purposes.