Do you have a succession plan for your pharmacy?

As the American population is aging, so are retail pharmacy owners.

In light of this reality, it is in the best interest of pharmacists and pharmacy owners to have a succession plan in place when they retire or prepare to sell their businesses, said Robert Wilbur, PharmD, pharmacy specialist with The Healthcare Acquisitions Group, Coral Gables, Fla.

“You want to be able to control events; you don’t want events to control you,” Wilbur told attendees at the recent McKesson’s Pharmacy Strategies Conference in Orlando, Fla. “The one thing I have noticed in dealing with pharmacists is they tend to be focused on their day-to-day business.”

Wilbur said pharmacy owners should start to work a few years in advance on a succession plan for selling the business or leaving it to family members and/or partners, so they can navigate through the process “slowly and effectively.” Planning the best time to sell, to whom to sell the business, and the method of transition will also help pharmacy owners get the most value out of their businesses.

To set up an effective succession plan, Wilbur suggested that the owner first determine the future role he or she will play in the business. “Where do you see yourself in 1, 5, and 10 years - filling prescriptions and managing the business? Or do you see yourself somewhere else?” Wilbur asked.

For example, some pharmacists want to sell their businesses, free themselves from the day-to-day managerial duties, and continue working as a pharmacist in the business. Some would like to move to part-time pharmacy, and some no longer want to be involved in the business at all.

One of the sale options for pharmacists who want to continue being involved in the business is an “earn-in arrangement.” In this scenario, a junior partner, family member, or someone else buys out the owner over a period of time. “It can be done through cash equity. It allows for the transition of ownership while maintaining the pharmacy as a business and providing the level of service they have always had,” Wilbur said.

One of the questions owners should ask themselves when preparing a plan is “Are you looking for more of a cash-out or a buy-out that would transition over a period of time?” Wilbur said.

In fact, determining the time frame for transitioning or selling a business is one of the most important issues involved in a succession plan. The other essential issues to consider are projected sale price, terms of the sale, the potential buyers, what happens after the sale, and how to prepare the business for sale.

Many times, retail pharmacy businesses are sold for less than their true value because owners did not properly determine the sale price, said Wilbur.

“They may grossly underestimate their businesses’ true value or may settle for a lower offer, because of fatigue or frustration,” Wilbur said.

The sale price of a pharmacy business is based on several different factors, including the operation’s assets - which vary from pharmacy to pharmacy - and its net revenues. “There is no one right formula. There are numerous formulas and each highlights a specific portion of the business,” Wilbur said.

When The Healthcare Acquisitions Group helps pharmacy owners determine the sales price, they consider several factors, including comparable sales in the area and market conditions. “Is your community a growing, vibrant community? What is the density of other pharmacies in the area?” Wilbur said.

A pharmacy’s unique features and assets also are taken into consideration. “You may have a robotic pharmacy, which adds a lot of value. You may have a new pharmacy software suite, or updated the business,” Wilbur said.

Finding the right buyer is another important factor to consider in a succession plan. “Is it important to you that your business is going to continue on, or not? Will you sell only to an independent chain, or are you willing to sell to a national or regional chain?” he asked.