The last thing on your mind when you open or take ownership of a pharmacy is, “What do I do when I want to get out of ownership?” This doesn’t have to be your first thought, but it shouldn’t be your last! This thought process is known as succession planning. Let’s explore this…
A large number of pharmacists never put much thought into their succession plan. Most of them run their pharmacy on a day-to-day, year-to-year basis. This is fine, but not thinking about your exit strategy can lead to a lot of frustration and headaches down the road.
To get started with your own succession plan, simply about where you want to be this time next year. Now, what about five years? Do you still see yourself owning and running your pharmacy in ten years? What happens not if, but when, things change? More competition changes in regulation/ reimbursements, your health? As you think through your potential timeline, consider those unexpected changes. Once you find a time where you don’t see yourself as an owner, you can start planning backward from there.
Now that you have an idea of when you want to get out of the ownership, how do you see this happening? Do you want a complete sale or did you picture it as a slow earn-in arrangement or buy-out situation?
Most pharmacists end up doing a complete sale. The pharmacists that don’t thoughtfully plan their exit usually end up getting underpaid for their business. Those who do not have a succession can fall victim to a quick and or emotional, situational decision, and they want out now! This leads to making hasty and often ill-informed decisions. As we have all heard before, it usually is better to do it the right way, instead of right now.
When it comes to a buy-out arrangement, this is often done by a partner or family member that also works for the pharmacy. These arrangements are usually drawn out over several years. Keep this in mind when planning your future – especially in the case of junior partnerships. Also, keep in mind that these deals can change or fall through at any moment. Don’t let this frustrate you and make you jump at the first sight of freedom and make a business decision. You will need to build this possibility into your succession plan. If things change and your plan falls through, what options remain?
Next, of course, you want to make sure you have the correct value of your pharmacy. There is no “one size fits all” formula when it comes to the valuation of your pharmacy. Many different factors can affect the price of your pharmacy, some don’t even directly pertain to your business.
- How are the community and population trending?
- Does your area see growth?
- How many pharmacies are in the area?
If you do decide to cash-out and sell your pharmacy, get perspective from industry advisors. There are many groups that can help with the process and valuations: banks who know pharmacy, wholesaler transition groups, CPAS, etc. These groups will take these mentioned factors, and many others, and give you an average market price on your pharmacy.
Another time-consuming aspect that needs to be taken into consideration when selling is finding a buyer. Do you want to sell your business to another independent pharmacist or do you want to go with the big-name chain pharmacy? What does that choice mean for you, your employees, your community? Depending on your choice, it can take as little as a couple of weeks to find a buyer, or it can take years. This long stretch of searching, when you want out, can lead business owners to sell when the first offer comes their way. Make sure to give yourself adequate time to find a buyer that is willing to transfer ownership the way you’d like, while paying a competitive price for the business.
At this point, you should have a rough idea of how and when to start planning your exit strategy. Succession plans can be as flexible as you need them to be. If you change your mind, or things change and you want to move on sooner, you simply take your end plan and move the time frame forward. The same can be done if you want to remain an owner longer than you originally thought you would.
As long as you have a plan, don’t get emotional or rush the process, and communicate well-you can set yourself, your staff, and patients up for a smooth transition.
If you or someone you know is interested in expanding, buying into, or opening their own private pharmacy, please contact First Financial Bank Pharmacy Lending team. With 80 years of combined pharmacy experience and a staff of current and former pharmacy owners, we know what it takes to run a pharmacy. You can Like/Follow us on social media @PharmacyLender or visit our website, www.ffb1.com/loans/pharmacy-loans/ to find more info resources.