April 24, 2023
As business transaction advisors, we often find ourselves telling people who want to sell a pharmacy that “failing to prepare is preparing to fail.”
You might have heard that pearl of wisdom before. It’s often credited to Benjamin Franklin (who might or might not have actually said it). It’s been used at the beginning of countless articles like this one, usually as a way to urge readers to take planning seriously.
Overused? Yup. But it’s still true. And the need to prepare is still important to point out, especially to anyone who hopes to sell their business someday.
The fact is, most business owners end up dissatisfied with the sale of their company, emotionally and financially. In our experience helping pharmacist-owners sell, the No. 1 reason for this dissatisfaction is that the owner has not adequately planned their exit from the business.
Sometimes they take this failure to extremes. In one particularly sad case, we advised a pharmacist-owner who had not done anything to plan the sale of his business until two weeks before he died of a terminal illness. Needless to say, the outcome was less than optimal for the pharmacist-owner and his family.
In our view, exit planning for your business is essential.
The textbook definition of exit planning is that it is the process of developing a strategy to sell your ownership in your company to investors or to another company.
The real-world definition is that it is a vital step towards maximizing your pharmacy valuation and ensuring a smooth transition for yourself and your family.
What makes for an effective exit plan? At minimum, it involves assessing the current market, identifying prospective buyers, crafting marketing strategies that will help put your business in its best light, and establishing timelines as far out as five years ahead from when you anticipate selling.
Having this strategy early on allows plenty of time to prepare all necessary documents prior to closing negotiations with potential investors or companies interested in taking over ownership. And the process will further help you figure out whether your finances will adequately support you throughout retirement, as well as how you are going to use all the extra time you will have available when you leave your business behind.
An exit plan also helps immeasurably when it comes time to negotiate the sale of your pharmacy. It gives you goals for the process and guardrails for the negotiations. And it can give you a strategic advantage when trying to secure the maximum price for your pharmacy.
Selling a pharmacy can be a time-consuming process. So can planning to sell a pharmacy. The earlier you start, the better.
When beginning to exit plan, give yourself enough time to prepare and execute a strategy. We recommend that pharmacist-owners begin exit planning at least five years before their anticipated sale date. That gives them time to ensure documentation is in order, the business and ownership is structured to maximize tax efficiencies, and steps to improve profitability or lower business risk can be taken. Allowing extra time will pay off when it comes to maximizing proceeds from a sale down the road.
Pharmacist-owners are adept at running a pharmacy. They might not be so adept at selling it. It is, in fact, a whole new ballgame for most of them. That reality only makes it even more important that they plan their exit carefully, comprehensively, and with a view to what might go wrong.
A sound exit plan can help you avoid these common mistakes:
Not planning early enough – Implementing a plan too late can be costly. There might not be enough time to properly evaluate potential buyers or negotiate an optimal deal. And you might not be sufficiently prepared for life after the sale.
Assuming a purchase price that’s too low or too high – Starting a sale process with a firm idea of what your pharmacy is worth is essential to a successful outcome. If you don’t, it can lead you down a path of accepting a bad offer; on the other hand, if you overestimate value, you might not only come away disappointed in the ultimate price, but also unable to realize the retirement plans that depended on your pharmacy’s estimated value. Do not make the mistake of underestimating and selling yourself short – it could cost you far more than you had ever considered!
Relying on rules-of-thumb to put a value on their pharmacy – There are plenty of rules-of-thumb that owners commonly use to figure out a price. Most of them are unreliable. Before the sale process begins, there is absolutely no substitute for a comprehensive, evidence-based valuation developed by a professional business valuator.
Retaining advisors who don’t understand the nuances of pharmacy ownership – We could write an entire book about assembling your advisory group, but let’s just say that you will need a seasoned team comprising legal, accounting, insurance, tax and wealth advisors, including (or in addition to) an individual who can coordinate the team and support you through the sale. The right team will have intimate knowledge of industry trends and regulations, which helps ensure that all parties involved come out on top in any negotiations. If they don’t understand your business, they don’t understand you, and they won’t be able to give you the support you need.
Not planning for life after selling your pharmacy – How will you fill your days when you are no longer running the business? How will you feel about leaving behind staff and customers with whom you have worked perhaps for decades? How will you spend your money after you leave? Do you have enough to live a fulfilling retirement? The time to answer those questions – and the many others that arise from exiting a business – is before you sell, not after. Failing to plan for life after selling is a recipe for regret and even depression later in life. By taking the time to think about these issues early on, pharmacist-owners can not only maximize the value of their businesses, but also ensure a smooth transition into retirement.
When we talk to pharmacist-owners about getting prepared to sell, we often emphasize the process of planning over the plan itself. At the end of the day, it’s important to remember that your exit plan should be an ever-evolving document. It’s a reflection of who you are and what your goals are for the future, and it needs to change as those things change. By committing to exit planning – and getting started well before you hope to sell your pharmacy – you can make sure that the transition to the next stage of your life is financially and emotionally rewarding. So, contact us right away for more info and details!