For others, they will remain and take on the challenges facing pharmacy. These pharmacies are strong, robust, and viable. They will be able to grow and withstand the changes which will inevitably come!
Selling Your Pharmacy
FRANK SIRIANNI, Management Consultant, MEDICI CAPITAL (www.medici.com.au)
While I am optimistic about the future of pharmacy, the 3 fundamental economic laws of pharmacy remain:
- no such thing as an "average" pharmacy - all pharmacies are different!
- gross margins will continue to decline; and
- pharmacy is losing retail market share and is increasingly reliant on prescription (scheduled medicine) sales.
These facts have been a fundamental part of the pharmacy financial landscape for many years. My previous columns have graphically and mathematically illustrated these facts.
However, regardless of the economic climate and circumstances of pharmacy all things have their season and a time will come for all business owners to consider selling their business. Pharmacy is no different.
Eventually, all pharmacy owners will sell. The key questions are when, how, and who chooses the time?
Selling your pharmacy will often be a daunting prospect for many owners. The decision is complicated by other worrying issues such as: If I did sell, which business broker would I choose? How can I work out the price? What is the best method of selling?
Others are concerned about the timing. Should I wait until prices improve? Should I wait until I have my new financial reports? (In reality timing is less important especially if you are buying again in the same market).
The decision to sell should be based on personal circumstances - when you decide the time is right for you? It may be that your needs have changed and you decide to buy a bigger business, or perhaps it's time to slow down and you want to downsize; or you may just want a change of scenery.
Whatever the reason, the decisions you make as a vendor are the key to achieving the best possible price when you decide to sell. This article sets out the steps to a successful sale.
Is it the right time for you to consider selling?
Take a quick self-assessment.
| Your business issue | Yes OK No | ||
|---|---|---|---|
| Increasing competition | 0 Yes | 0 OK | 0 No |
| Reduced growth | 0 Yes | 0 OK | 0 No |
| Declining margins | 0 Yes | 0 OK | 0 No |
| Profit pressures | 0 Yes | 0 OK | 0 No |
| Increasing debt | 0 Yes | 0 OK | 0 No |
| Negative business outlook | 0 Yes | 0 OK | 0 No |
| Need more work/life balance | 0 Yes | 0 OK | 0 No |
| Health issues increasing to crop up | 0 Yes | 0 OK | 0 No |
| Staff performance & retention becoming more difficult | 0 Yes | 0 OK | 0 No |
| Regulation and compliance takes more and more time | 0 Yes | 0 OK | 0 No |
| Deregulation is a threat | 0 Yes | 0 OK | 0 No |
If your answer to the above questions is 'Yes' for 6 or more of the above business issues confronting most pharmacy owners, then maybe now is the time to consider selling or making a change.
I am aware that a number of pharmacy owners have these issues in control and their business is relatively bullet proof. Good planning, a great location, and underlying growth as well as robust business performance make these businesses a very viable long-term investment.
Selling not for all!
While some may be threatened by likely developments and the uncertainty, many pharmacies are well placed to face competitive pressures.
Such businesses will continue to be viable and provide an excellent return on investment (refer to previous PharmacyNews columns for data on effective rate of return). Indeed, even if you plan to slow down, as a passive investment, these businesses will continue to deliver good to great returns to owners!
Selling your pharmacy
If selling your pharmacy is a good strategic option for you, you will need to plan the process carefully. For many, you only get one shot at it!
If your pharmacy has been a success, you've probably put a lot of effort in to get it to where it is now. Many owners see their pharmacy as an extension of themselves and their patients, staff, and community as a key part of their lives.
Even if the pharmacy may not have been a great financial success, it's provided a satisfying and rewarding professional career.
Regardless, good planning, even in selling the business, will ensure the best outcome and meet your personal objectives. Clear and concise specification of your objectives will also help you and your advisers negotiate a true win-win outcome.
Key issues to consider in planning to sell
1. Preliminaries
- When (timing)?
- Who should you go to for advice? Who can you trust and/or rely on?
- How to sell?
- How long will it take? How much time do you have?
- What other options or alternatives do you have?
2. What are your priorities?
It is important you know why you are selling and the reason the pharmacy is on the market?
- What is most important to you?
- How much effort are you willing to put in?
- If you are planning to retire, do you have a minimum amount you need to retire? Have you sought financial planning advice on this?
- What are the critical elements of the sale? (the items you are not prepared to negotiate on)
- Have you obtained independent professional advice to work out your key objectives?
3. Timing
While some sales are quick, allow reasonable time for marketing and to negotiate the right deal. Some pharmacy sales may take 18 months or more. Others will be sold within weeks.
Timing is a function of:
- Market sentiment and conditions
- Your priorities and personal time constraints
- The quality and historical performance of your pharmacy
- The security of tenure for the pharmacy (lease) and local market conditions
- A fair amount of luck - the right (and qualified ) buyer, the right price, and the right climate (economic and pharmacy)
4. Value and Price
Focus on today's market. Have your business independently valued and assessed. You should also exercise caution when dealing with business brokers.
The price you set is critical to achieving a sale. While rumours may abound on the golf course, the price in today's market is often less than those rumours would suggest. Price your pharmacy too high and it may give your business a "lemon tag" by spending too much time on the market.
- What is the value and fair asking price for your pharmacy?
- What can you do to maximise or improve the asking price for your pharmacy?
- How much do you need to achieve to be able to get to the next stage of your life?
- What will you do if you don't achieve your desired price?
5. Prepare the business for sale
Like selling any major asset, you need to prepare the business for sale. First impressions are lasting. Before putting your business on the market, be sure to have everything in order.
If you were selling your car, you'd have it detailed. If you are selling your house, you'd have the garden tidied up and spruce up the house. Pharmacy is no different.
Prepare your business for sale by:
- Having your accountant bring all financial information up-to-date.
- Making sure your pharmacy is well presented.
6. Where are the buyers?
A professional and qualified business broker is critical to matching your business with suitable buyers. Choose a broker you can trust. Never choose a broker on their fees alone. Sometimes a cheap broker or free service can cost you more.
When choosing a broker, do your research:
- Ask them how they screen their buyers.
- What are their negotiation skills like? Test them.
- Ask them to produce evidence of past successes.
- How do you attract buyers?
- What do you need to know about working with a business broker? Should you work with a broker? What are the alternatives?
- Are there any potential buyers you could approach? What about staff or local competitors?
- How do you market the pharmacy?
Brokers will want to market their 'preferred list'. However, when you decide to sell, you are on the market, so advertise on www.practice4sale.com.au. Like marketing your pharmacy, getting your pharmacy to the right and qualified buyers is important. The identity of your pharmacy is not revealed and all enquires are directed to your broker.
How to structure the deal?
Yes, most pharmacists sell their pharmacy outright. But consider your options, and get professional advice, as to terms, timing, and tax impact? Is partnership an option? Partnership may provide you with the solution you require.
8. Should you offer vendor finance or terms? What is the impact of bank finance?
Vendor finance might be a major factor or tipping point in clinching the deal. It can and has worked in the past, but ensure you protect yourself.
Bank finance is increasingly more difficult to obtain. As such, you might have the buyer who ticks all the right boxes but can't get finance. Considering that most sale of business contracts are "subject to finance", you may need to ensure the buyer is not wasting your time with unrealistic expectations of finance. Vendor finance may help you get the deal across the line.
9. Disclosure and Due Diligence
- What level of disclosure is required?
- What information should you have available?
- A buyer will more than likely seek verifiable evidence supporting financial information. So have it available so as not to delay the process.
10. What happens then?
- What happens after you accept the offer and sign the contract?
- What will be your required input?
- What will you do now!
Steps to a Successful Sale
Success requires definition. For some, success means the transition of the business which ensures staff and the community continue to get the services of their pharmacy. For others it is price - the higher the price the more successful the sale. Yet for others, terms are also critical. Is the timing right?
If you would like a copy of "Thinking of selling - the essential guide", contact me.
Frank Sirianni, Managing Director and Senior Consultant at Medici Capital has over 29 years of pharmacy experience. He can be contacted at fsirianni@medici.com.au or 03 9853 7933.Medici Capital: pharmacy specialists in finance, management consulting and valuations."Our aim is simple. To provide you with a range of integrated financial and business services that help you achieve your goals and build a rewarding and prosperous future."
The take-away
- Know why and when to sell. Set the timing to suit your personal objectives rather than be driven by the market.
- Have the business independently appraised. Get a second opinion of what will be an achievable price in today's market.
- Work to a plan. Be prepared and have the business prepared for sale.
- Consider all options including partnership and a staged succession plan.
- If you decide to sell, then act decisively. Advertise on www.practice4sale.com.au and set an agreed 'selling strategy' with your broker.
- Know what success is for you.
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