October 4, 2023
You’ve done the hard work. You got a firm valuation for your pharmacy. You figured out what it could be worth if you made some operational and accounting changes, and then you made those changes to maximize its value. You enlisted experienced and knowledgeable advisors. You put up your pharmacy for sale, found the right buyer, negotiated well and eventually accepted an offer that meets or maybe exceeds your expectations. Finally, the sale of your pharmacy is done and dusted, and you have a tidy nest egg that you are confident will provide for you and your family for a long time.
Good for you! But one question remains, and it’s a big one: Now what?
As transaction advisors with decades of experience helping pharmacist-owners successfully complete the biggest transition of their professional lives, we have seen firsthand all the changes that exiting a pharmacy business involves. Leaving behind an enterprise that you have spent years building, caring for and relying upon for your income inevitably leads to a raft of complex and sometimes difficult emotional and psychological questions: How are you going to spend your time? What is your sense of purpose? What is your self-identity now? Those are, obviously, important issues. In this article, however, we are going to focus on the real impact of exiting a pharmacy, and it can be hugely significant – not only because selling a business represents a huge liquidity event, but also because it leads to a fundamental shift in the way you should think about money.
Here’s the reality: After you sell your pharmacy, you are no longer an entrepreneur. You are an investor. And the mindset of an investor needs to be far different from the mindset of a business-builder. You need, in short, to change your perspective from earner to learner.
How can you make the shift successfully? Here are eight things to think about.
Maybe you ran the best pharmacy in the country, but that doesn’t mean you will be a good investor. In short, the skills needed to create value and live off the family business are very different from the skills required to protect your wealth, earn a risk-adjusted return and live off the proceeds in retirement.
A well-run pharmacy will provide its owner with a reliable income stream year after year after year. As you transition from pharmacist-owner to investor, however, you are leaving behind that steady source of income for the less predictable, aperiodic returns provided by financial assets. The volatility of returns on your investments will move up and down in contrast to the value of pharmacy. Have you developed a strategic wealth plan to help you navigate the ups and downs?
This relationship is paramount to investing. The higher the expected return, the greater the risk associated with attaining those returns. The converse also holds: the lower the expected return, the lower the volatility. (We note, however, that we are currently experiencing the third consecutive negative annual return in the bond market in 2023.) Balancing risk and expected return according to your financial goals, your willingness to accept risk, need for liquidity and investment time horizon, is vital to long-term wealth preservation and growth.
As we noted above, returns from financial assets can be volatile. In our view, too many investors get carried away emotionally by these vicissitudes. They will double down when markets are up and run for the hills when markets are down. Too often, they exit or enter at precisely the wrong time. That’s a great strategy for destroying wealth.
Over the past decade or so, information associated with financial markets has become democratized – you don’t need to call your advisor to find out if your stocks are up or down on a particular day. It has also become more profuse. Market-focused channels on our TVs, newsletters to our inboxes, stock updates to our smartphones, countless websites to browse on our laptops – today’s investors are inundated with market information. Don’t let information overload distract you from your long-term goals and strategy.
Sound asset allocation is key to successful investing. Stocks and bonds are familiar vehicles, but as the past few years have proven, their performance can be highly volatile and very correlated. Investment alternatives like credit are worthy of some consideration.
Work with a fiduciary advisor who is mandated to place your interests before theirs.
Sometimes, investing successfully means admitting to yourself that you may not have the skills required to invest successfully. If you do not possess the financial acumen or are unable to put in the time for investing, a discretionary financial advisor can free you from the day-to-day decision-making and energy needed to manage your investment portfolio and attain your financial goals.
In our next article, we’ll talk about some of the emotional and psychological implications of exiting a pharmacy business, with a few thoughts on how to successfully navigate them.