Ensure the health of your business with a succession plan

August 21, 2020 by Smart Retailing Rx
succession-planning

Why your pharmacy needs a succession plan

Owning an independent pharmacy business can be extremely rewarding, however down the road there may come a time when you find yourself in the position of wanting or needing to sell your business. Whether it is because of retirement or the wish to pursue other endeavors, it is never too early to start planning your exit strategy. A good succession plan helps maximize the value of your pharmacy and translate your goals into actionable steps you can begin to implement immediately even if you don’t plan on leaving your business for years.

Succession planning will help you prepare for the unexpected

Without a succession plan, you may miss opportunities, get waylaid by unexpected complexities, or fail to maximize the return on your investment. The sooner you can build the plan, the more peace of mind you’ll have through the transition. Not only will you be able to maximize your store’s value, but you’ll be able to take the time to thoroughly understand the process, assemble a team of trusted advisors, and prepare all your financials in order. Besides, who likes an unexpected fire sale?

Focus on the financials first

While each pharmacy and acquisition is unique in its own way, the resale value of your pharmacy is based on the adjusted net profit. Therefore, you’ll want to start focusing on your expenses, payroll, and inventory turns to ensure they are in line with or better than industry norms. Keeping your pharmacy’s financial records up to date is critical to all stages of pharmacy ownership. It is important to understand your pharmacy’s current performance so that you can address opportunities to reduce expenses, in order to increase the profitability of your business moving forward. If you are considering selling your pharmacy, you will be required to provide financial statements for the last three years from both the buyer and buyer’s lender. This is even more relevant during the current COVID-19 pandemic.

Here are some key considerations in timing the sale of your pharmacy:

10 years out

1. Understand your corporate structure and the effect it could have on the sale of your store (LLC, S Corp, C Corp) to best manage and track your business performance
2. Manage accounting — get your financials in order
3. Review your tax returns, P+L statements, dispensing reports, etc. on a monthly basis
4. Understand the legal and tax consequences when selling your business entity
5. Partner with an advisor and complete an estimated valuation

  • Is the value in line with what you thought?
  • Is the value in line with what you need?
6. Speak with an accountant

  • Determine what you are going to do with the proceeds from the sale of your store
  • Discuss the creation of an IRA/retirement account

 

5 years out

1. Rationalize your financial profits

  • Are your P+L and tax returns showing the true financial value of your business?
2. Ensure your store profitability is being maximized
3. Ensure you thoroughly understand discretionary income

  • Remember that “add backs” can/will add additional value to your store (ex: adjustments to owner’s compensation, as well as personal expenses)
4. Consider candidates for your ownership transfer

  • Determine who will maintain the legacy of your pharmacy (ex: Family members or a local chain PIC with ownership aspirations)
  • NCPA reports that 32% of current independent pharmacy owners have ownership in more than two locations

 

3 years out

1. Optimize your store’s performance during the “evaluation period”

  • Review your pharmacy’s value based on adjusted net income
  • Evaluate your expenses, inventory turns, workflow, payroll, and store hours
  • Make the necessary changes, if needed
2. Build your team of trusted associates to assist with the transition

  • RxOwnership advisors – who provide no-fee, confidential advisory services
  • Accountants
  • Lawyers
  • Financial advisors

 

1 year out

1. Record information that highlights the success of your store

  • Be prepared to discuss the positives of your business and location (ex: What sets your business apart from competition? What is your niche opportunity? Do you have exclusive contractual deals?)
2. Maximize your curb appeal

  • Analyze your store appeal through your customer’s eyes (ex: Are you in stock (especially on the OTC side)? Is your store neat and clean? Does your store look attractive from a “curb-side” view?)
3. Have “your house” in order

  • Ensure all your financials, script counts and other reports are up-to-date and readily accessible
4. Start working with your RxOwnership advisor to market your store if you don’t already have a buyer lined up

  • Keep in mind an ownership transition can take at least 2-3 months from the time you identify a buyer
  • Serious buyers will submit a Letter of Intent (LOI)
  • Ensure that both parties are performing their due diligence by drafting and executing a purchase agreement
  • The buyer should work with the board of pharmacy and DEA to issue new licenses.

 

Planning your exit strategy can seem daunting, no matter how much time you allow yourself to prepare. That’s why partnering with RxOwnership® advisors is a critical component in ensuring a smooth transition. Too many independent pharmacists lose out on great selling opportunities because they’re insistent on doing it alone. Would you try to sell or buy a house without the help of a qualified, experienced real estate agent? Often times, when you play too big of a role in the selling price, it can be easy to lose objectivity.

The RxOwnership team provides you with the tools and resources you need to plan for the successful sale and transfer of your pharmacy, such as:

  • Individualized matching services:
    • Match buyers with prospective sellers
    • Introduce compatible buyers to sellers
  • Financing resources
    • Estimated pharmacy valuations
    • Financing assistance*McKesson does not guarantee financing
  • Step-by-step guidance throughout the transition
  • Market intelligence
  • Connections to expert resources
  • Business plan guidance

Not sure where to start? RxOwnership can help.

Visit RxOwnership’s website to learn how you can contact an advisor today to start planning for your pharmacy’s future. You can also contact the team at RxOwnership@McKesson.com or by calling 800.266.6781.