No doubt you’ve heard of an independent pharmacy owner colleague who, all of a sudden, sold his or her pharmacy. Neither you nor anyone else knew the owner was looking to sell the business.
Chances are that it was a “fire sale” — the owner hadn’t done any succession planning and wasn’t prepared when something forced him to sell. He hadn’t planned on having a serious medical condition; he hadn’t planned on a chain moving into town; he hadn’t planned on the largest employer in town mandating mail order.
Chances also are good that he wasn’t happy about the impending sale. Even if the owner received top dollar from a chain, he was heartsick to see his life’s work being sold for the script value and long-time employees facing a new boss or unemployment.
According to NCPA, 10,000 independent pharmacies will change hands in the next 10 years. That is nearly half of all independents, so it is never too early to start planning for the sale of your pharmacy.
Why you need to plan, not just sell your pharmacy
There are long-term implications for not planning that can affect not only you but also your heirs. Without proper preparation, it is unlikely that you will realize the full value for your lifetime’s work. You also won’t be able to ensure the continuation of the pharmacy in a manner that reflects your commitment to both customers and employees.
There are many reasons why you may want to approach this as a two-part process — succession planning and ownership transfer:
- To maximize the value of the business that you have built, helping to create funds for your retirement and estate
- To continue the legacy that you have built
- To determine how you want to be involved in the pharmacy during and after your transfer of ownership
- To find the right new owner who will be able to continue the business and your legacy
- To structure the ownership transfer so that the new owner succeeds, and you can continue to be proud of the business you have built in your community
- To help maintain an independent pharmacy presence in your community and provide your patients with ongoing personalized care
It is likely that you will sell only one or two pharmacies during your career. By preparing and using the best possible counsel and advice, you can transfer the ownership of your pharmacy at the best price, and with the fewest headaches and regrets.
Start your list with these important considerations
There can be several issues that you may need to consider as you plan for the eventual sale of your pharmacy. Here are some of the more important issues:
Taxes: Pharmacy owners should fully understand the tax consequences of the sale of the business. You would be wise to work with an accountant who handles the sale of businesses on a regular basis. Identify this professional help before the sale contract is structured, not afterward. A key issue to discuss with your accountant is reserving liquid funds from the sale of the business to cover any tax liability and other expenses.
Health insurance: How will you and your family receive health insurance after the sale of the pharmacy? Continuing to work part-time may be a good option for keeping health benefits.
Building ownership: If you own the building in which the pharmacy is located, you will need to decide how to handle the lease or sale of the building and incorporate that into the pharmacy sale documents, if appropriate.
Penalties: If you are financing a portion of the sale, discuss with your accountant and attorney any ongoing contingencies of the sale agreement, which can address things such as providing annual financial statements and the consequences of these contingencies not being met.
Additional stores: If you are financing the new owner, discuss with your attorney the feasibility of requiring that you have veto power over the purchase of any additional pharmacy until you are fully paid off.
Monthly payments: Having all monthly payments handled via electronic funds transfers is advisable in many circumstances.
Employment contract: If you are going to be working in the pharmacy, get an employment contract. It doesn’t have to be binding but it should clarify the hours worked, paid time off, time off without pay, hourly wage/retainer, vacation time, insurance and so forth.
The new owner: It is advantageous in many cases to know the person to whom you are selling and have them work in your store prior to the sale, if possible.