So, you’ve decided it’s time to sell your pharmacy. Take a few deep breaths and remember selling your pharmacy can be a stressful process and you need to be as prepared as possible going in. Missing one of the critical steps or small details could cost you and the buyer money and time. Today we are going to go over the ten basic steps in the selling process to give you an idea of what to expect. By no means is this meant to be a comprehensive guide to selling a pharmacy. It would be impossible to address a complete list of the many details involved in selling a pharmacy in one article so we’ll just focus on an overview of what you can expect in the process to give you an idea of how long it might take, what you should prepare for and steps you can take now.
Valuation Process: 2 weeks
The first step in the selling process is accurately determining the value of the pharmacy. A valuation is just another word for appraisal. Additionally, valuations can assist with estate planning, discovering where you can improve profitability and justifying the selling price to a buyer. A valuation takes the purchase price from a level of personal opinion to rational analysis.If you want to try a valuation yourself (keep in mind this is NOT recommended) do not forget to normalize the net income to get the true value for a new owner. Simply put, normalization is removing the expenses a new owner will not have and adding them to net income. Then, decide on a multiplier to use, which will vary depending on the net profit percentage, the higher the percentage, the higher the multiple.Accurate financials are critical to completing the process. If yours are not up to par, change that today! You will have a difficult time selling the pharmacy without accurate and verifiable financials and the buyer will have a difficult time getting financing if the lending institutions find the financials sloppy and/or suspect.
Gather documents and prepare to market: 2-4 weeks
Unless you have a buyer already, you will need to attract one. Careful preparation of the material used to market the pharmacy is essential. This initial material should answer the following: What are the positive highlights about the area and city in which your pharmacy is located? You need this to attract buyers from outside the local area. What makes your community a nice place to live and raise a family? What services do you not currently provide but that the new owner can add that could produce a new revenue stream, such as a vaccine program? The initial material should include just basic financial information since this is for general marketing. Do not give full financials or tax returns at this step.
Begin soliciting and screening buyers: 2-8 weeks
You are going to get many false inquiries from buyers who really are not interested or do not have the necessary capital. “Tire kickers” if you will, and there are a lot of them. People are just curious about who is selling and how much a pharmacy actually costs. You can expect to eliminate 70-80% of the inquiries right away. That is why your first step in the qualifying process is to get a signed Non-Disclosure and Confidentiality Agreement (NDA). No signed agreement means no further discussion…period. After signing the NDA, you can provide a little more financial information to entice the buyer.
Schedule store visits for qualified buyers: 2-4 weeks
The next qualifying step is to schedule a visit when the pharmacy is closed so you can meet the prospective buyer face to face and give him or her a tour of the pharmacy. If traveling is not an option you may have to do this virtually, but remember if a buyer is not willing to “visit” the location can they really be that serious. Now, with Covid-19 this is a little bit trickier and harder to determine but make certain you know WHY they cannot travel so it just isn’t someone “kicking the tires”. Eliminate anyone not willing to take the time to make a “visit” unless there is an actual travel restriction. Would you buy a business you have not visited? Of course not. After the “visit”, you can provide more details and answer questions so the buyer can prepare for the next step.
Request and review Letters of Intent from interested buyers: 2-4 weeks
If after a potential buyer(s) has visited, and provided both of you are interested in moving forward, the next step is to ask for a Letter of Intent (LOI). A Letter of Intent is a non-binding contract signed by both parties that essentially takes the pharmacy off the market for a period of time and allows the buyer to do the due diligence process to confirm all the financials and information about the pharmacy prior to entering into a purchase agreement, which is a legally binding contract. After you have secured Letters of Intent from interested buyers, it is time to evaluate each and determine your interest. Once you select your potential buyer in writing and you both sign the LOI, it is time to enter the due diligence process. This is an important decision since you will be giving the buyer an exclusive period of time to complete this process and keep in mind, your pharmacy will be off the market during this time.
Accept a buyer offer, sign the LOI and buyer begins the due diligence process: 6-8 weeks
Most buyers will want 45-60 days to verify your documents and financials; although, if you have good record keeping practices, you can cut that time substantially (see step 2). Asking for 45-60 days is appropriate since there are usually many requests for additional information. For example, a buyer may ask to see your wholesaler purchasing records for a given period to verify sales figures or a sales breakdown of third party plans you accept. They will most likely move forward with finding a lender during this time. There may also be some negotiation on various items such as the method used to value inventory etc. This is also usually the time when the buyer will decide whether they want an asset or stock purchase arrangement, which will greatly influence the next step. Remember this can be a very stressful time in the process but the finish line is in view and surrounding yourself with the right professionals to help can really ease the burden and relieve the stress of this process. Most pharmacy owners do not have time to run their business and go through this process alone so don’t feel like you are failing if you need help.
Prepare and negotiate the Purchase Agreement: 2-6 weeks
After the buyer is satisfied with the accuracy of the information provided, it is time to work on the purchase agreement. This is one of the most intensive parts of the sales process. It is critical to find a qualified attorney and/or someone who understands what pharmacy specific items need to be address in the agreement to work with your attorney. One example would be to provide the buyer with the proper documents to continue operations while getting themselves set up with third parties and completing the state licensing and DEA registration. There is obviously too much information in the agreement to go into any type of detail, but suffice it to say this is the document that governs every aspect of the sale (i.e. inventory count, third party payments, leases, delivery vehicles, etc.). If the last step seemed stressful, this step will make it seem like a party. Again having the right help is the key to getting through this successfully.
Sign purchase agreement and begin final stages of acquiring funding: 4-12 weeks
Once the purchase agreement is signed, the buyer can “officially” begin seeking financing. Lending institutions will usually not put too much effort into the acquisition of financing until they can see the entire road map of what is going to occur to complete the sale. If the buyer is doing a SBA loan, which is what the majority of loans are, you can expect the process to take longer than a conventional loan. Additionally, in an SBA loan, buyers must put down 10% of the sales price of which 5% needs to come directly from them. The other 5% can be financed by some other means such as owner financing etc. Just a word of advice here…you can expect a request to owner finance the other 5% as this is very common so be prepared on how you want to handle this.
Loan approved, schedule and conduct closing: 4 weeks
The loan is approved and you are now in the home stretch. The closing is usually scheduled at the end of a month since it makes it easier to deal with third party billing and regular payments that are usually on a monthly basis (i.e. business insurance, equipment leases, maintenance contracts, etc.). If another time is selected, there is the extra step of prorating everything. At the very least, try not to schedule the closing for the middle of a pay period.
Sale complete: Celebrate!
The sale is complete but as the previous owner, there are still a few items to clean up after you celebrate. When selling your pharmacy you are required to properly closeout your licenses, registrations and other items, including a final inventory of Schedule Drugs. Do not skip this step!
Selling a pharmacy can be complicated, stressful and very time consuming. A competent professional pharmacy broker and their staff will spend hundreds of hours going through all of the intricate details involved with each of the above steps. You need to ask yourself if you have the time to thoroughly research the selling process and then successfully implement it while still running your pharmacy until the sale is complete. There are many moving parts in this process and you can expect issues to arise at some point that must be addressed correctly and quickly or the sale could be lost. If you decide to do it alone, strap yourself in tightly, it will be quite a ride. If you do decide to enlist the help of a broker, you will want to choose one that specializes in pharmacy brokerage and ideally one that has pharmacists and former pharmacy owners structuring the deal. Either way we sincerely wish you the best of luck!
We hope that you will consider working with PRS to help you sell your pharmacy!
Why Choose PRS to Value and/or Sell Your Pharmacy
Selling your pharmacy is the culmination of a lifetime of hard work and does not belong in the hands of amateurs. If you wish to discuss your options with true professional pharmacy brokerage and valuation experts, please reach out to the pharmacy ownership specialists at PRS Pharmacy Services. If you decide to have us value and/or sell your pharmacy, we will assign one of PRS’s licensed Pharmacists with at least 20 years of experience valuing, selling, transferring and opening retail pharmacies to be your Project Manager. The Pharmacist Project Manager, along with our skilled support staff, will work with you every step of the way to take the stress out of, what can be, a very stressful process.
PRS is a Different Kind of Broker…
PRS is the ONLY pharmacy ownership and brokerage consultant endorsed by NCPA, the Federation of Pharmacy Networks and over twenty Buying Groups representing more than 15,000 independent pharmacies. Why? Unlike some companies that claim to be experts, we actually are, and our vast experience in a variety of unique situations make us the BRAND NAME in pharmacy consulting, compliance and brokerage.
To date, PRS has sold, transferred, or opened over 500 independent pharmacies and has worked in all 50 states. Our experience will far exceed your expectations. We are fully insured, licensed and accredited. We invite you to compare us to our competition and see for yourself.
About the authors:
Harry Lattanzio is a registered Pharmacist, a Pharmacy Owner and President of PRS Pharmacy Services. He has been helping independent pharmacies succeed for over thirty-five years.
He has spoken numerous times in front of top pharmacy and medical professionals both in the US and overseas on the topic of American pharmacy practice. He directed and oversaw the opening of PRS’s first overseas pharmacy and has consulted on pharmacy projects in Eastern Europe and Asia.
Mr. Lattanzio was the recipient of the first Pharmacy Times Next Generation Pharmacist Award for Industry Advocate of the Year created to honor the future of pharmacy and the professionals who are defining it through their innovative professional practice.
Scott Weaver is a registered pharmacist and an Accredited Business Intermediary and Pharmacy Regulatory Specialist. His education and decades of experience working in and helping independent pharmacies would be invaluable to any new or existing pharmacy owner and a must have for any non-pharmacist business owner looking to buy a pharmacy. He is the current VP of Pharmacy at PRS and conducts seminars for numerous trade organizations and groups every year. Including his talk on “How to Value a Pharmacy” and “Timelines and Protocols for Opening or Transferring a Pharmacy” at the NCPA Ownership Workshop held three times a year. Scott has successfully assisted hundreds of pharmacy owners over his 30+ years with PRS.