Top 10 Questions An Owner Should Ask When Considering Selling Their Pharmacy
1. What is my pharmacy worth? This should be one of the first steps to consider selling your pharmacy. When you get a valuation, ensure that the person/company providing the valuation does not have ulterior motives. Some resources that provide valuations may have a biased opinion not to sell to a specific buyer who may not provide you with comprehensive information. Be sure to get a valuation considering both Independent AND Chain buyer options, as there can be a sizeable difference. When you receive a value, remember that the ultimate value is determined by what someone is willing to pay and has the resources to pay for it. If there is low demand to purchase a pharmacy like yours, the value might be slightly lower than expected, but if the demand is higher, you might expect to get paid a little more.
2. What are some of the things that affect the value of my pharmacy? It will depend on the type of buyer. An Independent buyer will place a higher value on your pharmacy the higher the net profit is. Pharmacies with higher volume are not as common, and the demand for these pharmacies may increase, driving up the incremental value.
A chain will place a higher value on your pharmacy the closer in proximity it is to one of their stores. The value will also be higher if fewer competitors are in the area, reducing the number of transfer options for patients. Things that decrease the value of a purchase by a chain are higher delivery percentages, a high percentage of controls, and prescriptions in special packaging (blister and multi-dose packs).
3. What happens to my Account Receivables (A/R’s) when I sell? In most pharmacy sale transactions, the owner will keep the A/R’s processed prior to the close date. If the sale transaction is a Stock Purchase, carefully review the offer and the purchase contract, as the A/R’s are sometimes included in the purchase price.
4. Is now a good time to sell? How is your pharmacy positioned with the DIR increases on the horizon? Do you still like being a pharmacist and owner? Are you still investing energy to drive your pharmacy business? Are you financially able to retire? It is a good time if you are not actively trying to build your business and don’t have the drive and desire. Industry Experts do not see the value of pharmacies increasing in the near future, and most values continue to erode year over year. Be careful not to get caught up in the “One-More-Year-Syndrome” as your value will most likely continue to decline.
5. How long will it take me to sell my pharmacy? It depends…., on many different things. Selling to an independent buyer can take up to 4 to 6 months or even longer. Some factors that could affect the time to sell your pharmacy are your respective state regulations and the type of purchase (asset or stock). If you are considering selling to a chain, it could take as little as 8 to 12 weeks.
6. How do I keep it confidential when trying to sell my pharmacy? Tough question! It IS very important to keep it confidential to prevent losing business before you sell. Try to find a third-party expert that can market the high-level financials of your pharmacy to quality buyers without releasing the name and your exact location. It is important to have any potential buyers sign an NDA before any specific information is shared with them.
7. How do I find buyers and know whether they are qualified buyers or “tire kickers”? It is challenging to find qualified buyers unless you are working with a third-party to market the high-level information of your pharmacy confidentially. Reach out to your trusted colleagues – be careful approaching your competition as it may come back to bite you. Pharmacy brokers are a great resource as they typically have the largest pool of qualified buyers. Your wholesaler can introduce you to current customers who are interested in buying more stores. Sometimes your GPO may have a program to identify potential buyers as well.
8. Other than the selling price, what other things are important to consider? While the selling price is obviously important, several other important items need to be considered when selling your pharmacy. What is your lease obligation? How will your inventory be valued? What are your non-compete conditions? What is the purchase agreement terms precedent to closing? How do you minimize your tax liability? Are there earnout conditions contingent on payment? What are the regulatory requirements of the Board of Pharmacy? These are just a few of the many things to consider.
9. Are there things I can do in advance to increase the value of my pharmacy? ABSOLUTELY! The most important consideration is to clean up your financials up two to three years before you plan to sell. Improve the aesthetics of your store, and look for ways to decrease your COGS (Cost of Goods Sold) and your operating expenses.
10. What are the advantages of using a Pharmacy Consultant/Broker? - Unless you have personally been involved in the sale of multiple pharmacies, you will not have the experience to navigate the process, work through barriers and challenges, and know what pitfalls to avoid. This is one of the most important business decisions you will ever make. You will want a very experienced advocate looking out for your best interest and optimizing the sale of your pharmacy. You only have one chance to sell your pharmacy, there are no do-overs. “You don’t know, what you don’t know, until it’s too late!”