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When a Buyer Comes Calling: Six Questions to Ask Before You Say Yes

July 8, 2023

pharmacy for sale Ontario

If you have been reading the articles on this site, you’ve seen plenty of advice for getting ready to put up a pharmacy for sale as part of a long-term plan. Typically, selling a pharmacy requires preparation – sometimes a lot of it – before the pharmacist-owner can confidently start marketing their shop and negotiating with qualified buyers. The process can often take two years or more. 

Selling a pharmacy is a journey, not a one-off event. And in our experience as transaction advisors, it usually benefits pharmacist-owners to spend a good deal of time getting ready for it.

In the real world, however, that doesn’t always happen. Sometimes, a potential buyer comes along with an unsolicited offer for a pharmacy. 

Now, this can occur at any stage of a pharmacist-owner’s business exit journey. They might already be planning to sell; they might have the notion of selling in the back of their mind but haven’t really formulated it yet; or they might not have considered selling at all – until, that is, a potential buyer comes calling.

For some pharmacist-owners, unsolicited interest in their pharmacy is like manna from heaven. After all, it saves them the time and resources they would otherwise have devoted to preparing and marketing their business, and many feel kind of flattered.

Yet, just like in the world of dating, a transaction with even the best-looking suitor can turn ugly fast if you are not sure what you want and if you are not adequately prepared. Selling a pharmacy is a major commitment. As probably the biggest liquidity event of a pharmacist-owner’s life, it is not a decision to make lightly.

So, if a buyer comes calling one day, give yourself some time to let the first flush of emotion subside. And then ask yourself some hard questions.

1. Do you know what your pharmacy is really worth?

Most pharmacist-owners don’t. We have found that some underestimate their pharmacy’s value, while others (more) overestimate it. Either way, you are on a much firmer footing to enter negotiations if you have at hand an evidence- and experience-based idea of how much your business is worth. Only with a solid valuation can you adequately assess any offer that comes your way. 

Just as important, you should have a firm idea of what business-selling guru John Warrillow has called “your number.” That’s the price at which, taking into account your personal and financial goals, you would be comfortable selling your business. At the very least, we would recommend you reach out to a qualified business valuator to get a fairness opinion, which is a professional evaluation by a third party as to whether the terms of an acquisition are equitable. 

2. Are you motivated by FOMO?

Some pharmacists worry that if they turn down an offer – any offer – they will end up missing the boat and not be able to sell later. Of course this can happen, but fear of missing out should not be a prime motivation for accepting a bid. In our experience as advisors, we have not seen a general scarcity of buyers or of capital in the pharmacy transaction marketplace. Rather, the biggest hurdle to getting a deal done is a shortage of pharmacists – a challenge that you, as a pharmacist-owner can take steps to address.

3. Is your tax position clear?

This is important. If you hope to take advantage of the lifetime capital gains exemption – and you should – then your business needs to be prepared properly. That includes ensuring that non-active assets (not directly linked to operations) comprise less than 50% of all assets within the company for two years before a sale and less than 90% of assets at the time of sale. Not meeting the requirements of a qualified small business corporation (QSBC) can result in paying hundreds of thousands of dollars more in taxes than you otherwise would have to.

4. Are you selling at maximum value?

You can rest assured that any buyer offering to take over your business has a good idea not just of its present value, but also of its future value. Do you know what that value might be? Are there investments in time, money or operations that you can make to enhance profitability and/or lower risk in your pharmacy? If so, or if you don’t know, you may end up selling for a price that doesn’t reflect your business’s potential – potential that you might well be able to harvest for yourself rather than allowing a new owner to do it.

5. Are you getting the right advice?

As with any kind of business, selling a pharmacy can be a complex process. Big corporate buyers know this, which is why they will usually come armed with a team of lawyers, accountants, valuators and negotiators when they make an offer. But if you start the sale process on your own, who do you have in your corner? Most buyers we know genuinely want the transaction to be a win-win for both sides. But at the end of the day, they will settle for just a win on their side. 

In our view, you will do much better in a sale if you have a team of your own qualified experts – an accountant, tax advisor, lawyer and team lead or quarterback – backing you up. Some pharmacist-owners think they will save money by going it alone. But the expense of hiring good advisors typically pales in comparison to the money you can leave on the table (and the headaches you can incur) by accepting a bad offer.

One other note: if the potential buyer objects to your seeking independent advice at any stage of the process, that’s a serious red flag.

6. Are you financially and emotionally ready for life after pharmacy?

Selling your business is a significant step that will have a profound impact on you professionally, personally and financially, as well as on your family. Ideally, a sale transaction should be integrated into your long-term exit plan and strategic wealth plan to ensure not just that it aligns with your goals, but also that you are prepared for life after selling. Living off the proceeds of a business sale is a lot different from running the business, and the way you manage your money, your time and your emotions will undoubtedly change. The transition will go a lot more smoothly if you have planned ahead.

We are not, of course, suggesting that a pharmacist-owner reject any unsolicited offer out of hand. But we are suggesting that they consider that offer in the context of their own planning and preparedness, as well as a firm estimate of their pharmacy’s value. If the offer looks generous and the terms look good, you may well decide to negotiate on your own. But even then, it is still a good idea to acquire a fairness opinion to get the input of a disinterested party.

So, however appealing an offer looks on the surface, make sure the timing and the price are right for you and for your family. And if you need help, get it – before you say yes.

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