Secrets When Selling a Pharmacy

Secrets When Selling a Pharmacy

Competitor Calling

If your most fierce competitor wants to buy your store, it may be a blessing or may be a curse. It really depends on your past relationship with that person. Don’t necessarily run away, just proceed with caution.

Legacy vs. Cash

Selling to a third party compared to a family member almost always results in a higher price and better terms, but if you decide to sell to your family, I both respect and applaud you. Remember to set clear expectations about the family relationship if the business goes south.

Owners vs. Employees

Former employees may be a good candidate to buy your pharmacy, but set a strict timeline. We have heard of negotiations with employees dragging on for over 5 years or more. Employee deals can take longer, but if a deal with an employee doesn’t close within 6 months, it is unlikely ever to close.

Customer Concentration

Customer concentration is a deal killer. If you have one LTC home that is 40% of your pharmacy, you are going to have a problem selling it. Same if you have one doctor or clinic that is 80% of your scripts.

Asking vs. Selling

If you heard what your friend was asking for his pharmacy and it sold, remember that his asking price was unlikely his final selling price. So don’t set false pricing expectations for your pharmacy based on someone else’s false expectations that never materialized.

Family on the Payroll

Non-working family members on the payroll can be counted as cash on the bottom line. Just be sure that you can prove to your potential buyer that they truly don’t work in the business or add any value to the business whatsoever.

Pharmacy Sale Price

The buyer will pay a multiple of the pharmacies earnings. The multiple will be based on: 1) the buyers perception of the risks and opportunities of the pharmacy; and 2) the amount of cash left over for the buyer after debt servicing. Because of the second factor, pharmacies with higher net profit trade for higher multiples.

Pricing Strategy

Your debts or your retirement income needs are not a buyer’s concern and should not be a significant factor when determining your pricing strategy.

Growth is Good

Declining revenue is a deal killer! Buyers like flat or growing sales.

Landlords

Landlords are deal killers, too! Many business owners don’t want to advise the landlord that they are selling the business which is a major mistake. The statement “approval will not unreasonably be withheld” is written into 99 percent of all of the commercial leases. Be brave; notify the landlord of your intentions early so at least you can deal with any potential roadblocks before they become insurmountable.

Brokers

You don’t need a broker if you have already found a buyer. Don’t risk an offer from a willing buyer because you may get a marginally better offer.

Multiple Offers

Unlike buyers for a house, it is very unlikely that you will have multiple offers for your business unless it is very profitable with very clean books in a growing community with restricted competition.

Growth Potential

Buyers will not pay for “growth potential.” Buyers pay for past performance and buy for future potential. After all, if your business has so much growth potential, a buyer will wonder why you aren’t doing those tasks yourself.

First Offer, Best Offer

Your first offer is often your best offer. You are crazy to leave a great offer on the table because of what may happen in the future.

Win-Win

The best offers must be win-win for both parties. If both parties are not happy, something is eventually going to blow up.

Business Skeletons

Due diligence is not a time for surprises. Every business has a skeleton or two, so share any problems with your broker and the buyer early. If you reveal your concerns early in the process, you will hopefully have time to resolve the issues. However, if you wait until due diligence, that small little skeleton may suddenly become frightening enough to scare your buyer away.

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