Colony RX has counselled countless pharmacy owners about selling their pharmacies to family members (or managers). We are often brought in to negotiate these agreements.

Building Your Succession Plan

It is very rare to pass down a pharmacy as a gift (where there is no compensation). This may require the parent to keep their name on financial documents and could lead to long-lasting tax implications. Also, many parents need the money for retirement.

Most parents sell the business outright or through a structured buyout agreement where, for example, they provide a loan and pay in installments over five years or so. We can structure these in a manner that is fair for all parties.

Mentoring the Next Generation

Identify which family member, non-family member, or key employee you would like to name as your successor. When evaluating your options, assess your potential successor’s attributes. Do they have managerial skills? Are they fit for entrepreneurship? Someone may be adept at managing routine operations and employees but lack focus on overall long-term business strategy. In the end, you may decide that passing the business down to multiple successors is the right decision for you and your company. Begin mentoring your family’s future business owners and introduce them to the day-to-day operations of your company. To ensure a smooth and successful business transition, go over short-term and long-term business plans, marketing strategies, and record-keeping and financial practices.

Four Pitfalls to Avoid to Ensure a Successful Transition

As you begin preparing to pass down your family business, keep these four pitfalls in mind:

1. Failing to plan for long-term business goals strategically. This is not a process you want to go at aimlessly or at the last minute. Start talking to your family members about your plans was 20 years ago.
2. Not accepting that passing down the family business takes time. Start early by meeting with the next generation and a trusted team of advisors. Consider bringing the third generation of your family into the mix.
3. Lack of communication about the desires of potential successors, the future of the business, and more. It is more than likely that the future owner of the family business will have a different vision and will aim to evolve operations slightly and gain new business. Talk about these things and figure out who will shoulder the risk.
4. Dodging complicated family dynamics. Communication is key to a successful transition. If you have concerns about someone’s future performance, just structure the deal so you take minimal risk if they don’t perform.
5. Document things in writing. Just because it’s your family, you should still document the transaction and your expectations in writing just as if it was an unrelated person.

Exiting the business you’ve worked so hard to build is a huge deal. You want to ensure it ends up in the right hands. COLONY RX can ensure you have access to the right resources, advisors, and financial assistance to lead you to your desired outcome. Contact us today.