Should I Sell My Pharmacy to a Chain?
So, CVS offered to buy your pharmacy. It looks like a great deal on the surface, but chains have gotten wise about structuring contracts that give the best return on investment…to them. Here are some of the top items to keep in mind when thinking of selling your pharmacy to a chain, especially if they are doing the valuation.
Will I be paid in full upfront?
Sellers prefer full payment at closing. Pharmacy chains do not. Do not be surprised when your sales agreement states that you get only a portion of the agreed upon selling price at closing. Expect to wait a year or more for the final payment, minus some formula for customers and scripts not retained. That’s right, if any of your customers leave the chain, you are penalized. Thus, the odds of receiving the full payment offered are very slim.
How will taxes effect the structure of the deal?
Pharmacy chains will write sales agreements to provide maximum tax benefits to themselves, which usually means it is bad for the seller. Taxes paid by you will be much less in an equitably structured deal. Definitely involve an expert pharmacy consultant specializing in pharmacy brokerage and have them review any sale agreement before you sign on the dotted line. The best deal for you is to have as much of the proceeds as possible designated as “good will”, which is taxed at the lower capital gains rate, as opposed to the much higher ordinary income rate. This can make a huge difference for money you keep.
What about real estate, equipment and inventory?
If you own the building in which the pharmacy is located, factor in lost rent and needing a new tenant when deciding whether you should sell your pharmacy to a chain. A chain will not want to buy the building. They will not want to buy your entire inventory, so be careful with the wording regarding inventory or you could be stuck with a lot of it. They will not buy any OTC items, fixtures, equipment or supplies and you will still be responsible for the payments on any financed equipment. If you rent space, consider how long is remaining on the lease and what a lease buyout may cost. Be sure to factor in how all of these items will decrease the overall proceeds you receive by selling your pharmacy to a chain as opposed to selling to someone who will keep the location and buy virtually everything.
Do you want to keep working?
It has probably been awhile since you requested time off or needed permission to leave work early. When asking yourself, “Should I sell my pharmacy to a chain?”, you will have to get used to this idea again because you may be required to work at the chain for at least a year, maybe more, to earn a part of the retained sales price. On the other hand, if you are not required to work for the chain you will be required to sign a non-compete, which will prevent you from working in your area for a few years. Think these arrangements through carefully, and be honest with yourself about what you are willing to do.
What about your legacy?
No doubt, you have spent countless hours building, nurturing and realizing your dream of being a pharmacy owner. Over the years, you and the pharmacy became part of your community. It’s your legacy. If you sell your pharmacy to a chain, the legacy ends. Are you prepared for that? What about the rest of the dedicated staff who helped you build the pharmacy business? Pharmacy chains will not hire most of them. What about your loyal and trusting customers? How does selling to a chain affect them?
Are you still asking yourself, “Should I sell my pharmacy to a chain?” Well, when you consider all of these factors, perhaps selling to a chain may not be as easy or profitable as it appears on the surface. Especially since there are many qualified independent buyers with access to funding waiting to start their own dream. Whatever you decide, have a pharmacy valuation performed by an experienced independent pharmacy consultant. This is the first and most important step in the process of selling.
A Word of Caution When Selecting a Consultant.
Be careful, some so-called “experts” talk a good game but actually have no idea what they are doing. They are just trying to capitalize on the current state of affairs in the independent pharmacy industry. PRS has had to fix some very costly mistakes made by inexperienced companies claiming they know how to sell, transfer, open or value a pharmacy. Rest assured that pharmacy chains will recognize this lack of expertise on your side if it’s present.
Before working with any pharmacy valuation or brokerage “expert”, ask to see a list of professional brokerage and pharmacy transfer references and details of their “years” of experience. Be sure to call trusted pharmacy organizations such as NCPA, the Federation of Pharmacy Networks and/or your Buying Group to see which company they endorse and recommend. Finding a qualified expert is the most important step in successfully selling your pharmacy. Choose wisely. Good luck!
Why Choose PRS to 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 a true, experienced pharmacy brokerage and valuation expert, please reach out to the pharmacy ownership specialists at PRS Pharmacy Services. If you decide to have us sell your pharmacy, we will assign one of PRS’s licensed Pharmacists with over 20 years of experience selling and opening retail pharmacies to be your dedicated 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 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. We are fully insured, licensed and accredited. We invite you to compare us to our competition and see the difference working with a professional can make for yourself.
Are you a Buyer? Ask about our Pharmacy Finder Program where we help you find the pharmacy of your dreams. Regardless of where you are in the progression, if pharmacy chains are approaching you, make sure you talk to us before moving forward.
Harry Lattanzio is a licensed Pharmacist, Pharmacy Owner and President of PRS Pharmacy Services and has been helping independent pharmacies succeed for over thirty-five years.