It's a seller's market for those looking to transition or divest; buyers must consider profit and continuity in addition to price.
Retirement is the welcome and well deserved finish line for many pharmacists after a successful career. But the milestone requires careful consideration-and years of planning-to fully realize the best financial and mental benefits retirement can bring.
Before a pharmacy owner can walk out the door for the last time, there are legal, financial, emotional, and pharmacy management considerations that should be addressed and specific steps that should be taken to promote a smooth transition from one owner to another.
“There’s a lot of pharmacists near retirement age who don’t necessarily have a retirement plan or succession strategy,” says Charlie Le Bon, Director of Pharmacy Ownership Services for AmerisourceBergen.
The biggest mistake most pharmacists make is underestimating the amount of time it will take to prepare their pharmacy for succession or a sale.
Experts recommend that pharmacists begin preparing for retirement three to five years before they plan to leave. By preparing in advance, pharmacists are able to find a suitable successor if they desire, identify areas of weakness within the business and optimize operations to improve their profits during a sale.
Succession Planning Versus Replacement Planning
One of the first steps out-going pharmacists need to consider is how they want to exit the industry. According to Ben Coakley, director of business development for Waypoint Rx, there is a significant difference between succession planning and replacement planning.
Succession planning is a comprehensive exit strategy that allows a pharmacist to make sure his or her values are still incorporated into the pharmacy after departure. “Succession planning is when you are preparing your successor, preparing the pharmacy,” Coakley says. “You are doing employee retention and you are doing a lot of these things because the owner says ‘I want a little bit of say in how this goes.’”
Replacement planning, on the other hand, is simply selling a pharmacy, which focuses more on preparing for the actual transaction rather than working in collaboration with the new owner to smooth the transition before the sale.
True succession planning, Coakley says, is a way for the selling pharmacist to ensure his or her values are maintained in the new ownership.
“It’s like dating,” he says. “You have to go through the dating process to learn the new successor and whether he or she has the values that you share. That’s the most important part when it comes to succession planning.”
According to Coakley, most pharmacists typically want succession planning, but it can be a difficult and timely process, leading many to end up with replacement planning instead.
Waypoint Rx has developed a tailored program known as Transitions Rx to guide owners and new buyers through the succession process, including the pharmacy, legal, financial, and emotional aspects of the transition.
Le Bon says the overall selling process for pharmacies can take anywhere from six months to five years and can be hindered by any number of challenges, including geographic, financial, or business operation issues.
“It varies substantially. Part of it is you have to find a buyer that’s a right fit,” he says.
Optimizing the Financial Picture
Many retiring pharmacists may have a certain dollar figure in mind that they hope to sell their business for, but just like in a home sale, a business is only worth what a buyer will pay.
To optimize the profits from a sale, pharmacists need to spend time and resources before selling a pharmacy to streamline operations, maximize profits, and make cosmetic improvements to the store.
“It’s kind of like curb appeal with your house. It’s curb appeal as it relates to your pharmacy and you want to pretty it up if you can,” says Bill Popomaronis, BSPharm, vice president of professional affairs for NCPA.
Arriving at a Fair Price
As part his responsibilities, Popomaronis helps buyers and sellers arrive at a fair and responsible price for a business. He recommends sellers make themselves more valuable to the bank handling the sale by creating a lean inventory, making sure the pharmacy is buying at the best price by partnering with an aggressive wholesaler, and making the payroll as efficient as possible.
Le Bon says the best way for pharmacies to gain a better understanding of their current operations is to undergo an outside business evaluation that can help the pharmacy create an individualized set of recommendations to maximize both efficiency and profitability.
“If they are able to plan ahead accordingly, and work to increase the efficiency of a business, ultimately, we help increase the sales price when it is time to retire,” he says.
Popomaronis also recommends pharmacies “normalize the books” by looking at NCPA benchmarks, assessing what is a fair and reasonable price, and assessing the one-time nonrecurring extraordinary expenses that a seller may have put in, but that won’t be expected by the new owner. These expenses are typically found on the expense side of the ledger and are added back into the profit, he says.
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“The greater the profit, the greater the price for the business,” Popomaronis says. “A $3-million store that has a 5% normalized net profit will not be as expensive as one that is at 8%.”
One factor working in favor of sellers is that community independent pharmacies continue to be a sought-after commodity.
“I would say, in terms of a ratio, it’s probably two to one buyers to sellers,” Le Bon says. “There’s definitely an appetite and a hunger for pharmacists to own their own business and to play that role as a critical part of a patient’s journey.”
Easing the Transition
Experts say pharmacists can also employ strategies to help ease the transition from one owner to another to help increase the probability that the pharmacy will continue to succeed under new ownership.
Some pharmacy owners choose to continue to work at the store in a part-time capacity to not only help answer any lingering questions but also to assist with customer retention.
Coakley says there are typically two types of responsibilities in any business: ownership responsibility and management responsibility. Most owners looking to sell a business are tired of the management responsibility, including payroll, billing, and scheduling.
“A lot of times in succession plans, we transfer [management responsibilities] first,” he says. “We need to make sure the new owner can run the business and that mentally they are capable of handling this before we give them the ownership control.”
Other owners prefer to exit on a set date.
One of the biggest obstacles facing pharmacists reaching the end of their career is reaching burnout before they are able to put the steps or pieces in place to hand off the pharmacy in the way they had hoped.
Experts say by planning early and relying on experts to help, pharmacy owners can ensure their life’s work is able to continue under new ownership and leave a lasting legacy.