If you approach the process of selling your pharmacy in a step-by-step manner, it won’t be overwhelming. By giving yourself sufficient time, you can carefully consider and refine what is best for you, your family, your employees and your community. You will have time to consult with colleagues who are several years ahead of you in the process, and to build a team of specialists around you.

As you think about the ownership transfer of your pharmacy, jot down what you want the pharmacy to be like in 3, 5, or 10 years. This can help you understand how you want to sell your pharmacy — and to whom.

What are your goals for the future of your pharmacy?

Is keeping the pharmacy operating as an independently owned business important to you? Would selling to an individual pharmacist meet your goals? How do you feel about having your pharmacy become part of a regional or national chain? How do you feel about selling to a national chain?

The question of how you want to be involved with your pharmacy after the sale is also extremely important. Before you begin negotiating with a new owner, you should know if you want to work part-time to help with the transition and maintain some income and benefits, or if you want to hand over the keys and begin enjoying your retirement immediately.

There are important financial considerations in your ongoing involvement with the pharmacy. If you sell the pharmacy for a lump sum, there are tax implications — as opposed to gradually transferring ownership of the pharmacy. You should discuss these implications with your accountant and attorney.

Deciding on your long-term involvement with the pharmacy will influence the type of new owner you are looking for. If you want a junior partner, you will need to understand not only how to go about finding that junior partner, but also what type of ownership-transfer methods there are and their tax implications. Making sure that you are working with accountants and attorneys who are familiar with these types of sales is critical. You also might want to consider working with an organization that specializes in pharmacy sales.

Contact one of our Ownership Advisors.

How do you go about setting a realistic timeline?

Conventional wisdom says that it is never too early to begin planning for the sale of your pharmacy. What conventional wisdom neglects to add is that this planning isn’t a full-time requirement. It really means that you need to understand what will be involved when you do decide to sell the business so that you can have the long-term requirements in place. Some changes to legal corporate structure can take up to 10 years to take effect prior to the sale of your business.

What if you don’t have 10 years before you want to sell? Follow the same conventional wisdom and begin planning now. Gather a team of specialists to help you understand the decisions you need to make and the potential changes to your business so that you can maximize the value of the business when you do sell. Even if you have very little time, planning and obtaining good counsel can help you.

Regardless of where you are in the process, it’s never too late to start your exit strategy.

Here is an example of a timeline for selling an independent pharmacy:

10 years before transferring ownership

With the aid of your attorney and/or accountant, determine the correct corporate structure. Some of the choices include:

  • Limited Liability Corporation (LLC)
  • S-Corporation
  • C-Corporation
  • Sole proprietorship
  • Partnership

Develop accounting and legal structures that enable you to manage and track your business.

5 years before transferring ownership

  • Begin rationalizing financial statements and balance sheets to provide you and the next owner with a clear, accurate understanding of the business
  • Fully understand ratios and other financial benchmarks in order to maximize margins
  • Begin considering candidates to succeed you and evaluating ownership-transfer and financial models

3 years before transferring ownership

  • Understand the best way(s) to place a valuation on your business and ways to enhance that valuation, including evaluating business and personal expenses charged to the company, inventory dating, specialty businesses, equipment amortization, accounts receivable, and so on
  • Settle on the most advantageous ownership-transfer model and, if appropriate, begin implementing with your designated successor
  • Ensure that your pharmacy has curb appeal and is visually competitive to attract customers and a potential buyer
  • Confidentially alert one of our Ownership Advisors or your McKesson sales manager that you are preparing to transfer ownership in the next three years so he or she can support your efforts by identifying potential buyers and providing resources and programs such as Health Mart® to help enhance the value of the pharmacy

1 year before transferring ownership

  • Work confidentially with an Ownership Advisor or your McKesson sales manager to prepare for the transfer. We can provide you with a non-disclosure agreement (NDA) to protect your information.
  • Create a marketing strategy if selling to an outside party.
  • Ensure that your financial statements best reflect the profitability of the pharmacy.
  • Maximize the curb appeal of your store.

Chances are that you will sell only one, maybe two pharmacies during your career. Ensuring that you have the best counsel and advice can’t be overstated. While the accountant and attorney you work with on the day-to-day business of running your pharmacy may be excellent, you need to objectively evaluate if they are your best resources and counsel in the event of a sale. There are nuances that specialized professionals can bring you as you sell a retail business. Your decision could impact your financial future.

You also need to recognize that some of the decisions that you will be making during the ownership-transfer process are going to be emotional ones. For this reason, having a good team of trusted specialists to support and guide you can be important. While the opinions of family members and friends are valuable, at the end of the day, you will want to rely on the professional judgment of experts to guide you in one of the most important decisions you will ever make.

While you don’t want to be a pessimist, you will want your team of specialists to have the experience of knowing what can go wrong with the transaction and exactly how to protect you from those pitfalls. You need attorneys, accountants and other ownership specialists who have the experience to ensure that you and your family are safe, no matter what happens to the pharmacy once you no longer are in control.

Use care in choosing your ownership specialists

Understanding the best time to sell your pharmacy also is important. You never want to sell because you have to sell — a fire sale may not bring you the best price or the best new owner. Nor will it help to set your pharmacy off on good footing under new ownership. Like anything, there are tricks of the trade that experts can help you with, such as don’t sell near a holiday.

As you prepare for the eventual sale of your pharmacy, well-documented financial records are essential. You’ll need to demonstrate to prospective buyers how the pharmacy has performed operationally in the recent past — through income statements, balance sheets and tax returns. Beyond the numbers, work closely with your accountant and attorney to help effectively manage your business affairs.

Get your financial house in order before you sell

It’s never too late to organize your finances.

10 years before transferring ownership

  • With the aid of your attorney and/or accountant, develop accounting and legal structures that enable you to manage and track your business

5 years before transferring ownership

  • Begin rationalizing financial statements and balance sheets to provide you and the next owner with a clear, accurate understanding of the business
  • Fully understand ratios and other financial benchmarks in order to maximize margins
  • Begin evaluating financial models

3 years before transferring ownership

  • Understand the best way(s) to place a valuation on your business and ways to enhance that valuation, including evaluating business and personal expenses charged to the company, inventory dating, specialty businesses, equipment amortization, accounts receivable, and so on

1 year before transferring ownership

  • Ensure financial statements best reflect the profitability of the pharmacy

Part 1: Determining your pharmacy’s valuation

Valuation is establishing the value or price of the pharmacy and is central to the financing and selling process. Determining the value of your pharmacy is a process in itself. Unlike determining the value of your stock portfolio, there isn’t a market that can quickly and reliably determine the value of your pharmacy.

To understand the valuation of your pharmacy, you need to understand the various valuation methods. There are approximately 10 formulas used to calculate pharmacy valuation. Here are some of the most common:

  • Annual sales times a % plus inventory
  • Multiplier times EBITDA plus inventory
  • Dollars per prescription plus inventory

Clearly, many factors impact pharmacy valuation, including script volume, past performance, market share, existing debt and more. Market factors can also be a critical element in valuation.

Performing a valuation calculation is a necessary step, but it is only a benchmark used to determine the approximate range of the value of the business. The true value of the business cannot be determined until potential buyers enter bids for the business.

Click here to access the RxOwnership interactive valuation tool.

Part 2: Documenting your pharmacy’s valuation

You should work with your accountant or a financial specialist so that your financial statements truly reflect the value of your business.

For many pharmacies, relatively small adjustments can result in large benefits to the financial picture, such as moving excess inventory, retiring debt, cleaning up accounts receivables, and updating the brand and appearance of the pharmacy. These adjustments take time, so you will want to plan accordingly.

When you are ready to sell or seek financing, you will need to provide the lender, potential buyers or partners with:

  • A minimum of three years of historical financial and interim statements
  • Detailed historical information on dispensing data, including the mix of business and inventory purchase data
  • Tax returns

Things to remember before signing on the dotted line

What you want the pharmacy to continue to be (or to become) will impact the type of buyer you are looking for. If you envision a regional or national chain taking over the pharmacy, you will look for those qualifications and business background. If you want a junior partner, you will be looking for a very different type of buyer.

Regardless of the type of new owner, there are three basic questions you need to ask when considering selling your pharmacy:

  1. Who is a qualified buyer for my business?
  2. How do I determine if the buyer is qualified?
  3. How do I find that qualified buyer?

There are good buyers for your pharmacy and there are not-so-good buyers for your pharmacy. Simply stated, you need to make sure that you find a buyer who can maintain and grow the business. This is absolutely critical if you are financing the new owner. If you don’t select the right new owner and don’t have the deal structured with an eye to what will go right and what can possibly go wrong, you could put your future in jeopardy. It is important to understand that you aren’t looking just for a buyer. You are looking for the right buyer. The new owner can impact your financial future, the legacy of your pharmacy, and the well-being of your long-time employees.

You will be able to tell if a potential buyer has the necessary qualifications and skills to run the pharmacy based on your pharmacy skill set. However, you also may want to rely on the specialized knowledge of your banker or accountant to evaluate the buyer’s business plan and pro forma financial statements. How will you know when you have found the right buyer or junior partner? Many tangible and intangible elements will go into this decision, but there are several key ones:

  • Does the buyer/junior partner have a workable business plan?
  • Can the pharmacy financially support the new owner/partner’s salary, service the debt, earn an acceptable return on investment, as well as weather the inevitable bumps of ownership transfer?
  • Does he or she have the knowledge and experience to properly operate a pharmacy?

It is recommended that you have the potential buyer work in your pharmacy for a period of time, if at all possible. This will give you, the potential buyer, and your employees an evaluation period.

Depending on when in the planning and selling process you tell your employees that changes are in store, you should consider getting feedback from long-time employees on the potential buyer. Your employees will hopefully be working with and for this new buyer for a long time. Your employees may see qualities or deficiencies that you don’t. And above all, trust your intuition, especially when you don’t wholeheartedly believe that the potential new owner is the right person.

Click here for an example of a timeline to help prepare your pharmacy for transfer.