Why To Sell Your Pharmacy After Your Best Year Ever
Why To Sell Your Pharmacy After Your Best Year Ever
Business owners come to me to sell their pharmacies. I’m a pharmacy buy/sell advisor, so owners ask about the exits I help other pharmacy owners achieve and ask me about how to achieve their own.
Most of these owners I can help; they have a transferable business producing significant cash flow. Others I can’t. They may have had a great business, but now they are trending downwards, and fast. Unfortunately for some of these owners, they may have more of a problem than an opportunity.
In this post I will discuss what many business owners may never think of: selling a business after the best year ever.
But first a quick story.
A client sold his pharmacy. She started from scratch in the 1980’s. The year she sold it, a new clinic opened and she was booming. At the same time, she was positioning for her exit and she called us. We structured the deal and got her a blockbuster price. One of our best deals of the year.
But this story is the opposite of many owner’s stories. Too often I hear about “the good old days of pharmacy” when “we did millions” and “we made more money than we know what to do with…” But the times changed, the owner aged, and the competition got more nimble. Now the pharmacy is more of a challenge to sell.
When considering when to sell a privately held small business, consider the following:
It Takes A Long Time To Recover From A Bad Year
Following a best year ever means the stakes are high to raise the bar for next year… Following your best year ever with even a “normal” year is a downward trend. A common “look back” period is three years. And in our recasting exercises with owners we put 60-70% of the weight on the cash flow of the most recent year. Buyers are extremely suspect of firms that are trending downwards; it’s considered risk and risk is always expressed in a lower multiple of earnings/revenue or less favorable terms such as an earn out or seller financing. Furthermore, banks are very conservative and have similar concerns about down years. Limited financing options sends a signal that a business isn’t “worth it” and further weakens the owners position for getting an aggressive purchase price.
Last Year Could Have Been Your Best Year Ever Due To Factors You Can’t Control
Even if you just had your best year ever, and you’ve executing a long term strategy to take your business to the next level in the next years to come, you can’t control all factors such as changes in technology (seen any movie rental stores lately?), or macro-economic factors. You could have your margins eroded by tax increases or changes in interest rates… Business ownership is all about predicting and protecting, but some threats are unavoidable and unforeseeable.
Motivating Factors Tend To Get Stronger
When an owner comes to my office there is a mitigating factor which drove them to book an appointment, and carve out the time to learn what their options are. The ones with the most options start early, and the ones with the super motivating reasons for sale may not have planned ahead far enough. But for the vast majority of those with a need to sell, that reason doesn’t go away.
Whether it’s family pressure, illness, burnout, or the death/disability of a critical business owner, those reasons for sale tend to get worse, not better. Sooner or later, the “pain” that drives them to consider selling the business outweighs the desire to get more money for the business. Imagining that business will keep getting better as life’s demands also get more distracting is an illogical frame of mind.
It Might Be Time To Play With The House’s Money
Some owners come to me in a great position; they just had their best year ever, but they are also aware that to bring on more people, to take on more products and services, to take the business to the next level… is more than they are capable of or willing to do. This self awareness is a valuable asset, because taking some money off the table when an owner has taken the business to the peak of their personal capacity, and handing the reins over to another with a different set of skills and resources may just be the best option. Starting something new with lessons learned, an open calendar, and a pocket full of cash is a great position to be in.
After Your Best Year Ever
There’s nothing wrong with getting out while the getting is good. And there is no guarantee that the good times will last. A unique skill set is recognizing where you are in the journey. And if you feel like you may be at the apex of your business, now might be the best time to sell. It never hurts to find out what it’s worth…
About The Author
If you are considering the sale of your pharmacy, reach out to COLONY RX to talk with us. Our conversation will be confidential and free. Together we can explore your options for exit. Call us today.
