Owning and operating an independent pharmacy can be challenging for a pharmacist in today’s highly competitive retail pharmacy market. For many pharmacists, the response is selling their pharmacy. When done right, selling creates benefits for the pharmacist, the new pharmacy owner and the community in which the pharmacy operates.
In general, there are three types of pharmacists who decide that they want to sell their pharmacy:
- The frustrated. This is the pharmacist who is feeling burned out. There is so much going on outside of the pharmacist’s control, whether that’s reimbursement rates, direct and indirect remuneration (DIR) fees, regulatory compliance requirements or new technologies. This pharmacist is saying “Enough is enough,” and he or she is seeking to escape the growing business pressures.
- The reluctant. This is the pharmacist who doesn’t want to change the pharmacy’s traditional business model to cope with the growing business pressures. Historically, the pharmacy has generated most of its revenue from filling prescriptions. The changing retail pharmacy market requires the pharmacy to create new revenue opportunities, whether that’s moving into specialty drugs or adding clinical programs like immunizations. This pharmacist would rather sell than shift to a new business model.
- The retiree. Of the three types of pharmacists who are interested in selling their pharmacy, the retiree is by far the most common. It’s simply a matter of demographics. Many pharmacy owners are in their 60s, 70s or even 80s. They are saying, “It’s time.” They are ready to go and enjoy their retirement, or do something else completely. Unfortunately, in some cases, it’s for health reasons, whether that’s the pharmacist, a spouse or a close family member.
Know when it’s the right time to sell a pharmacy
Although the three types of pharmacists have different motivations for selling their pharmacies, they do have one thing in common: each waits too long before they sell. They hold on to their pharmacies after business has started to slide due to many of the reasons the owners decided to sell. Then, the pharmacists are surprised when the valuation of their pharmacy comes in far lower than expected.
Pharmacy owners should sell when their pharmacies are operating at their peak financial performance. Prospective buyers will look at several years of financials to see what direction the business is headed before the valuation and before they make an offer. As soon as a pharmacy owner starts considering selling, the pharmacist should start looking at financial trends to understand the point at which the owner can get the best price and the biggest return on investment.
Too often, an owner waits three or four years after that first inkling, and by then, sales have dropped 10 percent a year. No one is going to pay a premium price for a business that’s struggling.
Another sign that tells a pharmacist it’s the right time to sell the pharmacy is a foreseeable change in the local market that could have a material effect on the pharmacy’s business. For example:
- The loss or significant reduction in revenue from a preferred pharmacy network contract with a health plan
- The pending retirement of a local doctor, like an oncologist whose prescriptions for specialty cancer medications represent a large share of prescription revenue for the pharmacy
Anticipating changes like these lets the owner pursue new revenue sources or sell before the changes have a negative impact on the business.
Getting the owner and the pharmacy ready for sale
Like selling any small business, a pharmacist must prepare personally, professionally and financially for the sale of the pharmacy. Here are five important considerations a pharmacy owner should make after deciding it’s time to sell:
- Tax consequences. The owner should understand the tax consequences of the sale of the pharmacy. The owners should work with an accountant who handles the sale of businesses on a regular basis. An important issue to discuss is whether to hold any proceeds from the sale to cover any tax liability and other expenses.
- Access to financial records. For most pharmacy owners, this is not a problem. But for some, it’s a challenge. The owner should have three to four years of audited financial statements, profit and loss statements, balance sheets, corporate tax returns and prescription sales logs. Some buyers also may ask for payer mix, or a breakdown of prescriptions filled and reimbursed by public and private health plans. Ideally, all financial records should be in a format that allows them to be shared electronically with prospective buyers.
- Physical appearance of pharmacy. No different from preparing a home for sale, the owners should prepare the pharmacy for sale. The pharmacy should be clean and perhaps freshened and brightened up with a coat of paint. There should be no clutter. All the windows should be fixed and working. The parking lot should be clean and well lit. All shelves should be full of up-to-date inventory with no products missing. And all products should be priced appropriately.
- Contracts and licenses. All reimbursement contracts with third-party payers should be up to date and available. The same should be true for all local business licenses, building permits and state pharmacy licenses. The owner also must make sure that all contracts and licenses are transferable to a new owner.
- Prospective buyers. The owner should decide to whom he or she would prefer to sell the pharmacy based on the type of owner, price or other criteria. The buyer could be a national pharmacy chain, a regional or local pharmacy chain, or another independent pharmacy owner. Most sales involve another independent pharmacy owner who seeks to own multiple stores. These consolidators, as they’re called, often own 15 or more independent pharmacies. Consolidators have a proven business model, and they’re looking to convert a decent pharmacy into a great pharmacy. To maintain customer loyalty, consolidators often hire pharmacists who no longer want to own their own pharmacy but want to continue working.
Seven steps to executing the sale of the pharmacy
The five preliminary considerations are a prelude to actually selling the pharmacy. The sales process should include the following seven steps:
- The seller documents that the buyer has been approved by a lender and has a letter of credit.
- The seller completes a valuation of the pharmacy and shares the valuation with the buyer.
- The seller and buyer sign a letter of intent after negotiating and agreeing upon a price.
- The lender performs its due diligence for the transaction.
- The lender, seller and buyer set a close date for the transaction.
- The buyer sets up a bank account to begin receiving store revenue after the sale is final.
- At the close, the seller and buyer sign and notarize all documents, complete the sale and transfer the sales proceeds to the appropriate fund.
By knowing when to sell, the important considerations to make before a sale and the key steps to completing the sale, an independent pharmacy owner—whether frustrated, reluctant or retiring—benefits not only himself or herself but the local community as well. The independent pharmacy stays open and continues to provide personalized service to patients and customers. And the community hangs on to a local business that supports many community activities and generates needed tax revenue.
Related: Read more about Web2pro’s services to buy, start or sell an independent pharmacy