Selling your pharmacy? Avoid these five mistakes.
September 5, 2023
When you put up your pharmacy for sale and begin negotiating with potential buyers, you can count on plenty of twists and turns along the way. There will be unforeseen hitches. Difficulties will pop up unexpectedly. Roadblocks will get in your way, and you will have to find a way around them. The path to a successful business sale transaction rarely runs in a straight line.
And sometimes, the challenges that arise are of the pharmacist-owner’s own making.
People make mistakes. Most of the time, these are benign and easily fixed, assuming that both the buyer and the seller are acting in good faith. Sometimes, however, mistakes can undermine the process and result in the pharmacist-owner getting less out of the transaction – emotionally and financially – than they otherwise would have. In the worst cases, they can scupper a deal altogether.
As transaction advisors, we have certainly seen plenty of mistakes made on the long and twisty road to a sale. Here are five of the most common – and most potentially damaging to a successful deal.
LETTING EMOTION GET IN THE WAY
For most independent pharmacist-owners, business isn’t just business – it’s personal. After all, their pharmacy has put food on the family table. It has defined their place in the community and, to a certain extent, their identity. They have worked hard to nurture it, keep it and grow it. It’s their baby.
But during the back-and-forth of a negotation, it’s easy for these feelings to get hurt. A potential buyer might come in with an offer that’s perfectly reasonable but lower than the owner was hoping. The bidder might point out operational weaknesses and the pharmacist takes it as an insult. Frank feedback about staffing or questions about accounting practices can come off like criticism. For pharmacist-owners dedicated to their businesses, some of the things said during negotiations can be tough to hear.
And that’s OK. It’s perfectly natural to get emotional about the business you have dedicated so much of your time, money and effort towards. The problem arises when that emotion gets in the way of closing a good deal.
As much as you might be tied emotionally to your business, at the end of the day selling it is just another business transaction. You will have feelings – there’s no getting around them – but you also must know where and when to draw the line on your emotions about the transaction. They cannot be allowed to interfere with pragmatic decision-making.
The one possible exception, where emotion does have a place, is on legacy issues. That is, are you comfortable with the person or organization you are selling to? If you feel that they might prove to be an embarrassment to you, or might let down your customers or staff, then sure – let emotions guide your decision-making.
Otherwise, try to keep them in check. Business is business.
RETAINING ADVISORS UNFAMILIAR WITH PHARMACY
We have seen far too many deals fall apart because the advisors retained by the pharmacist-owner don’t know the pharmacy industry. It’s a complex business, with significant regulatory, market and human resources issues to take into account. Involving a “newbie” in sale negotiations can undermine the process of getting to “yes.” And even short of that, it will undoubtedly suck up valuable hours and resources, ultimately increasing your closing costs.
Do you really want to spend your money and your time “training” your advisor about pharmacy?
FORGETTING THAT TIME KILLS DEALS
Time’s lethal effect on closing a business deal is conventional wisdom. It also happens to be accurate. The longer a negotiation takes, the more that gets negotiated away. And in the pharmacy industry in particular, conditions can change over time that have nothing to do with your pharmacy per se – a new government funding framework or revised tax regulations, for instance – but can undermine its value or turn a buyer away.
So, do everything you can to keep things moving along. Make sure your accounts are in good order and provide the info the buyer asks for without undue delay. And try to be decisive. Cold feet can kill a deal or change the price.
NOT DOING A VALUATION
When beginning a negotiation, the first rule is to have more information than the other party. That’s because the side with most information usually wins. Military powers know this – that’s why they spend so much money on spies!
Business owners looking to sell should appreciate the value of information, too, and they don’t need espionage to get it. They just need a solid business valuation.
A valuation performed by an experienced, knowledgeable valuator before entering negotiations with a buyer gives you confidence about getting to your price and an objective yardstick for assessing offers. It can help you understand and articulate what is creating value in your business. It can also identify opportunities for the buyer to grow the business, which might not increase the purchase price but can certainly lubricate the deal.
DEAL FATIGUE
Deal fatigue happens. During the seemingly unending negotiation process, parties on either side can start to feel frustrated, helpless and/or exhausted. Eventually, some members of the negotiating teams may feel like giving up, as reaching a consensus starts to look like an impossible task.
But remember this: The first side to get tired usually loses. When you suffer from deal fatigue, you tend to take your eye off the ball. Or you can get so frustrated that you just pack it all in – and all that time and money you have spent on negotiations will be wasted.
So, you need to be realistic before and during negotiations. Deals simply take time to complete. Some deals take longer than others. “Deal” with it.
If you’re not a skilled negotiator and find yourself at an impasse, assign an experienced advisor to take over. Ensure there are regular status update calls, and never finish a negotiation meeting without defining next steps and scheduling the next meeting. Set realistic goals and allow yourself to celebrate tangible signs of progress, no matter how much they look like baby steps.
