Is it Worth Selling a Pharmacy Note at a Discount in Vermont?

By Brad MacLiver
Authorship and profile at Google


When a Vermont (VT) pharmacy acquisition has been accomplished by using the private financing method of a pharmacy business note, the holder of the pharmacy note in Vermont has the option of selling the pharmacy business note for a lump sum of cash instead of waiting for the monthly payments and taking the risk those payments will always be made. Pharmacy business notes can be sold by using a discounting method. Instead of buying a pharmacy note at its face value, the pharmacy note will be discounted. Meaning the Investor will pay less than face value due to the risk being transferred from the Pharmacy Note Holder (the note seller) to the Pharmacy Note Investor (the note buyer).

Most pharmacy business note sellers only look at the discount rate and quickly calculate in their head that they are giving up too much money to make the selling of the Vermont pharmacy note an attractive proposition. However, further analysis needs to be completed before a final decision is made by weighing the discounted amount with the benefits of a lump sum of cash.

1. What is the motivation for selling the VT pharmacy note? What are the desired goals? Is reducing the exposure to risk a consideration? Is there a financial decision to pay off debt? Is capital required for a new venture? Are there dreams of exotic vacations or world travel that could be accomplished with a lump sum of cash? How important is it to accomplish these goals? What are the opportunity costs if you don’t have the lump sum of cash to achieve your goals, or invest in something that pays a higher return? Determine investment and family priorities.

2. What is the Current Fair Market Value of the pharmacy business? This is what someone is really willing to pay for the business, and not just an “earnings times x” formula. Real aspects of what is happening in the pharmacy industry must be considered and it is advantageous to have a Vermont pharmacy industry specialist calculate the pharmacy business valuation.

3. How much cash is immediately required by the holder of the pharmacy note?

4. A pharmacy note in VT that is seasoned has more value than a “green” note that doesn’t have a payment history. Are you willing to hold the note for a certain amount of time to allow the business buyer time to prove to an Note Investor the capability of the payor making the payments?

5. Are you willing to sell only a portion of the Note (this is called a “Partial Sell”)? The discount rate can be a more attractive proposition when only a portion of the note is sold and the Pharmacy Note Investor is not holding all the risk.

Understanding Risks for the Note Buyer:

1. Pharmacy Buyer Competency: There is the risk that the pharmacy buyer may not run the business as efficiently as you have, sales drop, and the Vermont pharmacy business buyer cannot meet the payment obligations. Incompetency could lead to late payments, missed payments, or bankruptcy.

2. Pharmacy Industry Changes: Changes caused by influences either within the industry, or regulations governing the industry, can make it increasingly difficult for the pharmacy business buyer in VT to meet the contractual financial obligations.

3. Future Competition: Sales and income of the store may be affected by yet unforeseen Vermont pharmacy competition either building in the neighborhood or through mail order.

4. Loan to Value: When originating a pharmacy business note in Vermont you may be creating financing where there is a “negative loan to value.” Example: the pharmacy business note is for $250,000, but there is only $75,000 of tangible assets for collateral.

5. Title Insurance: Pharmacy business notes in Vermont don’t have title insurance that will make good a loss arising through defects of titles, or liens.     

6. Time Value of Money: Where a dollar received today is more valuable than a dollar received in the future.

7. Opportunity Costs: When the selection of holding the Vermont pharmacy business note ties up capital and prevents potential financial gains from other investments.

It is beneficial to discuss the options and potential origination of a pharmacy note with Pharmacy Business Note Investor before the Purchase and Sale Agreement is finalized for the acquisition of the pharmacy. This provides the VT pharmacy business seller, and future note seller, valuable insight into structuring the pharmacy business note so it can be successfully purchased.


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Using Business Notes in Vermont for Financing a Pharmacy Acquisition

By Brad MacLiver
Authorship and profile at Google


When acquiring or selling a VT pharmacy or drug store, one alternative financing method is to have the seller originate financing and carry back a business note. At first glance many Vermont pharmacy owners will not want to take this approach. They want their cash and their exit. When a pharmacy owner is considering selling their drug store, looking at the benefits of originating a business note and not just the perceived costs, they may find that offering Private Finance in the form of a Pharmacy Business Note will provide them an alternative course of action.

Advantages of Creating and Selling a Pharmacy Business Note in Vermont

1.  The process of selling a Vermont pharmacy or drug store to an individual can be easier and less time consuming when the pharmacy seller agrees to carry a business note, than a buyer pursuing traditional financing.

2. By offering Seller Carryback Financing, often referred to as Private Finance, a pharmacy business owner can greatly increase the number of potential buyers for their business, and most likely sell the business at a higher price.

3. When a pharmacy business note is created there are the options of keeping it for monthly income, selling the entire Vermont pharmacy note for a large lump sum, or selling part of the pharmacy business note to meet current financial needs and keeping the remainder for future income.

4. Selling either a portion, or the entire VT pharmacy business note, frees up capital that can be used for new ventures, or paying off old debt.

5. When a pharmacy business note is created and sold, with the proper professional guidance, a transaction can be structured that allows the pharmacy business seller in VT the biggest advantage in achieving the seller’s goals.

When originating a pharmacy business note the terms and interest rate are set and agreed upon between the seller and buyer of the business. The seller of the business accepts the promissory note, which is secured by the business including any inventory and equipment that belongs to the business. The pharmacy business seller then sells the note to an Investor who is willing to hold the Vermont pharmacy note in exchange for compensation. Since Investor can’t go back to the pharmacy business buyer and change the terms of his purchase agreement, the seller of the note must discount the note. The Investor is compensated from the difference of what the note was originated for and the discounted price paid for the pharmacy business note.

More Tips for Business Notes:

1. If a business note is poorly structured, it may prevent their sale, so seek out professional advice before you originate a financial instrument that can’t be sold.

2. Sellers of business notes should fully understand the risk of Investors to successful sell the business note.

3. Private Financing in the form of a Business Note is a suitable alternative that should be looked at as a business financing option.

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Pharmacy Acquisition Finance in Vermont

By Brad MacLiver
Authorship and profile at Google


When a Vermont (VT) pharmacy is being sold, seldom does the pharmacy buyer pay cash for the acquisition. Even when cash is available, Vermont pharmacy buyer strategies usually involve financing the transaction.

Typical acquisitions take 6-9 months to complete, so the pharmacy seller will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions will involve many hours of due diligence, and negotiation. Along with the buyer and seller the acquisition will involve attorneys, accountants, lenders, valuation companies, Vermont pharmacy industry specialists, pharmacy brokers, along with others. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the pharmacy buyer’s ability to close the deal.

The process will begin with determining the value of the drug store. There are many companies that offer valuation services. However, due to the changing circumstances of the pharmacy industry a pharmacy industry specialist should be used for valuing the company instead of a valuation company that has a broader spectrum. In order to complete a valuation the selling company needs to provide up-to-date data. Lenders funding Vermont pharmacy transactions will not accept a sellers “gut feeling” or a value based on a simple accounting formula. Lenders need to make a decision to finance a pharmacy based on sound and verifiable information.

There are a number of methods to finance a VT pharmacy acquisition. Each can be customized or included with other forms of financing to provide the buyer with the best financing package and the greatest chance for the businesses financial success.

Structuring the transaction is extremely important. The drug store seller of course wants as much money as possible and wants cash. However, the pharmacy buyer desires to spread out the debt service, wants to have as little cash as possible invested in the acquisition.

The VT pharmacy industry is in a market where it is more difficult to obtain funding. For the acquisition to be financed a lender will need a strong understanding of the pharmacy industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

One simple example of this is the Vermont Pharmacy Industry. Pharmacies have typically been known for generating profits and to be stable businesses. However, they are usually in leased locations, and their furniture, fixtures, and computers typically will only provide $15-20,000 of collateral for a buyer requesting a million dollar loan. A lot of money is tied up in inventory, but the small pills are considered by a lender to easy to move out the door in the event of default. Due to these circumstances many lenders will not loan money to these traditional money making businesses.

For the best chance of success at pursuing Pharmacy Acquisition Finance, make sure that both the pharmacy valuation company and the lender have expertise in the Vermont pharmacy industry.

Tips for Pharmacy Acquisition Finance:

1. Attorneys and CPAs who have represented the pharmacy or drug store for several years may potentially see the transaction as putting themselves at risk of losing a client when the business is sold. Make sure they work diligently on the Vermont pharmacy transaction and are not slowing or undermining the process.

2. Because pharmacy acquisitions in Vermont will usually involve about 6-9 months or even up to two years, all parties involved should follow a time table. Important items end up sitting on the desk of someone that is outside of the control of the buyer or seller much too often.

3. All of the VT pharmacy’s financial information needs to be current. During the lengthy acquisition process, the data supplied to both the lender and the buyer will need to be updated on a continual basis. During a nine month period, things can change drastically, and the pharmacy seller will need to continually prove the financial condition of the company.


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Vermont EBITDA and Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


EBITDA: earnings before interest, taxes, depreciation and amortization..... is often used to measure the value of some businesses including independently owned pharmacies. It can also be used in the comparison of similar companies whether independents or pharmacy chains.
       
Generally, EBITDA makes it easier to evaluate various companies and to compare them against industry averages by removing the non-core and irregular operating costs, such as interest, which can vary depending on the management’s choice of financing, taxes which can fluctuate depending on acquisitions or losses from prior years, and arbitrary factors of depreciation and amortization.

The EBITDA formula can be used as a guideline when valuing larger companies, or when comparing the profitability of large similar companies in the same industry.

For the effective use of EBITDA, these larger companies should possess significant assets, have heavy amortization schedules, or bear substantial amounts of debt. Considering independent Vermont pharmacies don’t meet that criteria, this formula is not a useful measure as the sole means for valuing pharmacies for acquisition purposes.

To Calculate EBITDA:
1) Calculate net income by obtaining total income and subtract total expenses.
2) Determine the total amount of taxes paid to federal, state, and local governments.
3) Compute interest fees paid to companies or individuals for the use of credit, or capital.
4) Establish the cost of depreciation (the expense recorded to allocate a tangible asset's cost over its useful life).
5) Determine the cost of amortization (the expense for consumption of the value of intangible assets, such as goodwill, patents, and copyrights, over a specific period of time, or the asset's expected life.
6) Add #1 through #5.

EBITDA calculation example:
1) Start with net Income   1,300
2) Add taxes paid            375
3) Add interest Expenses     225
4) Add depreciation          115
5) Add amortization           60
6) Result is EBITDA        2,075

EBITDA Drawbacks:
1) Can be misleading number when it is confused with cash flow.
2) Can make even completely unprofitable firms appear to be financially healthy.
3) Numbers are easy to manipulate.
4) Can overlook cash requirements for growth in accounts receivable.
5) Can miss cash requirements for growth in inventories.
6) Not factual when valuing small companies.
7) Not effective for companies with few assets, small amounts of debt, or low depreciation or amortization schedules.

In previous years, EBITDA was being used as a way to estimate cash flow in leveraged buyouts to calculate whether companies could service their debt. Factoring out interest, taxes, depreciation, and amortization can allow an unprofitable business to appear financially healthy. This method of valuation was used extensively during the dotcom era to value unprofitable businesses, with few assets, little earnings, and the results from that method caused many to go bust. This was a blaring example of misapplying EBITDA.

Knowledgeable Vermont pharmacy specialists performing pharmacy business valuations will use EBITDA in pharmacy valuations, but only as part of a larger formula when computing values for specialty pharmacies especially those who have a niche in HIV, disease management, long term care, etc. However, EBITDA should not be used as part of the usual formula for standard retail pharmacy acquisitions in Vermont.

The EBITDA number for a specific existing Vermont pharmacy is important, for the most part, when the existing ownership is establishing their store value for the purpose of a line of credit, borrowing, creating a Trust, stock values, etc., but EBITDA does not have the same importance when selling a pharmacy. This is due to the fact the buyer will not have the same expenses as the seller.

Buyers may not have the same tax base, interest expense, or the same depreciation schedule, thus it is important that the buyer calculate an estimated EBITDA that is specific to their operating model, business systems, buying power, cost of operations, etc., not the sellers. It should also be noted that EBITDA assumes that the buyer will acquire all of the assets, working capital, accounts receivable, and liabilities. Those assumptions do not hold true regarding an acquisition of a VT pharmacy. Instead of the EBITDA number, Vermont pharmacy buyers should be focusing on sales, gross profit, cash flow, and customer mix.

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Pharmacy Industry Roll-Up in Vermont

By Brad MacLiver
Authorship and profile at Google


VT Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. Recessions, new government regulations, or other aspects of the industry that may be stifling profits end up providing incentives to consolidate

A principal reason for an industry roll-up is to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Consolidated businesses also have less risk from the impact of an unsatisfied customer and have the reward of being able to recruit, or keep, key employees.

An example of an industry roll-up can be seen with the Vermont pharmacy industry. It is a well established industry and is still experiencing sales growth. However, pharmacies and drug stores have seen a steady decline in their profit margins due mainly to government regulations, even as sales increase. There has also been a shortage of Vermont pharmacists - a required key employee.

Industry roll-ups are often initiated by investors seeking investment opportunities. However, in the case of pharmacies in Vermont, the roll-up is a necessity due to declining net profits ratios. Companies that are acquired in a roll-up are usually small independently-owned businesses whose owners believe in the economic benefits of combining forces with a larger organization, or simply need an exit strategy. In the pharmacy industry roll-up, independents have been a majority of the acquisitions, but there has also been a consolidation of a number of the larger VT pharmacy chains.

During the pharmacy industry roll-up pharmacies with better financial wherewithal are acquiring their local competition and combining two or more stores into a single location. This results in more customer traffic through a single location and reduces the expenses that come with multiple locations. This can dramatically drive up total sales while driving down the administrative and overhead costs per customer.

To help fund Vermont pharmacy acquisitions during the roll-up, specific funding programs have been developed. These pharmacy chain funding programs are backed by significant financial institutions who can provide the funding for pharmacy acquisitions. These pharmacy funding programs allow an investment group or an individual pharmacy business in Vermont with the capital to acquire and combine pharmacies in geographic areas.

Funders are willing to provide the necessary capital for the pharmacy roll-up because they recognize that combining individual pharmacy businesses provides a greater total business value than if each individual pharmacy value were added together. This synergistic quality reduces the risk of funding the individual acquisition.

When considering the selling, buying, or financing a VT pharmacy, whether an independent drug store, or multiple pharmacy locations,  due diligence and understanding of all aspects of the transaction should be considered. Using the services of a Vermont pharmacy industry expert to guide a pharmacy owner through the maze of details will benefit the pharmacy owner in making the best business decision.

All transactions involved in the pharmacy roll-up need to have the business valued at the current market value. Business valuations for the Vermont pharmacy industry should be calculated by a company that has in-depth knowledge of the pharmacy. Simple accounting formulas used by many to estimate a value do not provide an accurate picture because the simple formulas do not take into account the aspects that are causing the pharmacy industry roll-up.

The aspects of the market which are stimulating the roll-up are also having downward pressure on the pharmacy business valuations. Pharmacy owners have been watching what has been occurring in the Vermont pharmacy industry. While profit margins slip, new regulations are being imposed, and as reimbursements are pared down there is wide expectation that the business values in the VT pharmacy industry will continue to slide to lower levels, and thus the pharmacy industry roll-up will continue.

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Acceleration Clauses in Commercial Leases and Pharmacy Business Loans in Vermont

By Brad MacLiver
Authorship and profile at Google


A provision of many VT pharmacy business loans and commercial leases is an acceleration clause. The acceleration clause in the loan/lease agreements allows the lender to accelerate their collection of payments contingent on an event occurring. These events may include lack of payment by the borrower, failure to keep the property adequately insured, failing to pay tax assessments, not maintaining the property, selling the property/asset, etc.

Lenders view the acceleration clause as an important tool in their business loan and commercial lease programs. Loan and lease documents might not specifically address the foreclosure of a property, or repossession of an asset, but this is where the acceleration clause comes into effect. Without the clause the lender would only be able to foreclose on one missed payment at a time. With the acceleration clause, despite whatever event kicks the clause into gear, the lender can demand immediate and full payment of all remaining balances and fees.

The pharmacy business loan or lease documents that are provided to the Vermont pharmacy owner will describe any rights, any conditions, and any obligations relevant to the acceleration clause. When the pharmacy owner, in this case the borrower, is unable to meet their obligations, the loan or lease then goes into default. A payment that is even a single day late is able to cause a default, so VT pharmacy business loans and commercial lease documents should be thoroughly read and completely understood before signing.

Tips:
1. If a Vermont pharmacy’s slowing cash flow is going to cause a business loan default, but the VT pharmacy owner has additional unencumbered assets they may be able to negotiate with the lender by offering additional collateral.

2. If a pharmacy in Vermont can catch up on their payments they can reinstate the business loan before the acceleration starts.

3. States have different rules specifying the requirements of notification when an acceleration clause being exercised. Pharmacy owners should comprehend the laws in their state because lack of knowledge is never an excuse.
                                 
4. When an acceleration clause is exercised on a commercial lease, there is the possibility the landlord cannot collect rent from both the defaulting tenant and a new tenant at the same time. To save themselves some money, pharmacy owners should help the process by assisting the landlord re-lease the property. However, please note, should the Vermont pharmacy be in the process of being sold and the files and inventory moved to a competitor’s location, the pharmacy buyer will require restrictions in the Purchase and Sale Agreement  that the new tenant cannot be another pharmacy.

5. Lenders prefer not to have to go through the foreclosure process, so if your pharmacy in Vermont is headed in that direction start talking with the lender about finding a solution. Communication with the lender is a good thing.

6. Some pharmacy business loans and commercial leases require a “personal” guarantee from the business owner. This means that the business owner’s personal assets and credit will become involved in the event of a default. The “corporate” status of the business will not keep the lender from seizing the personal assets.

When considering financing a Vermont pharmacy for acquisition, or expansion, due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide a pharmacy owner through the maze of details will benefit the pharmacy owner in making the best business decision.

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Bridge Loans and Pharmacy Acquisitions in Vermont

By Brad MacLiver
Authorship and profile at Google


With the changes in the Vermont (VT) pharmacy industry independent drug store owners, small and regional pharmacy chains, and Vermont pharmacy equity investment groups are acquiring pharmacies to obtain a larger competitive footprint in a geographic area. During the acquisition phase of the business expansion there may be opportunities that require action, which is faster than the traditional funding process.

Bridge Loans are a short-term financing option and are used while waiting for permanent financing, or the next stage of financing to be obtained. Bridge loans provide funding to "bridge" the gap between a company’s current needs and their long term financing requirements.  Permanent financing is generally used to "take out," or pay back, the bridge loan.

One of the characteristics of a bridge loan is that they can close quickly, which in turn allows a company to capitalize on a timely business opportunity, or acquisition. The quick access to money can also allow a business the chance to avoid penalties, bankruptcy, or other temporary problems. If longer term issues need to be dealt with, this “transitional financing” provides the company time until longer term financing can be secured.

Another characteristic of bridge loans is that the process usually requires less documentation than conventional financing. Bridge loan lenders don’t usually have the same government regulations to adhere to, so they tend to have more flexibility in their lending criteria and the documentation they require. However, less documentation does not mean they won’t perform due diligence to have a comfort level with the transaction before they fund.

Examples of using Bridge Loans in Vermont Pharmacy Transactions:

1. An independent VT pharmacy owner learns of health issues and decides to quickly sell the family owned pharmacy to an employee or local competitor. Traditional financing for the pharmacy buyer may require a time line that is not acceptable when considering the circumstances. A bridge loan can be used to quickly accomplish the transaction.

2. A small pharmacy chain needs $1 million to expand their business. They have 3 new equity investors who will be investing in the firm over the next 6 months, but at different intervals. However, the business has opportunities which require action sooner than 6 months. The quick closing bridge loan allows the pharmacy chain in VT access to the needed funds so they can complete their expansion and increase profits. Money from the 3 new equity investors will pay off the bridge loan.

3. A Vermont pharmacy owner in a leased location has an opportunity to quickly acquire a commercial property that would be a great pharmacy location, but the property is in disrepair. A bridge loan provides the needed funds to acquire and rehab of the property and once that is complete conventional long term financing can be obtained.

4. A pharmacy group in Vermont developing new pharmacy locations can receive bridge loan funding to get through the permitting process of a project when conventional financing isn’t available at this early stage due to there is still too much risk. A bridge loan allows the project to move into the construction phase and then qualify for other forms of financing.

5. When a pharmacy in Vermont is owned by two or more partners and one of the partners is ready to exit the business, a bridge loan can help ensure the cash flow and uninterrupted operation of the business during the partner buyout.

6. Real estate, or equipment bought at auction may have a narrow window for closing the deal and timing of traditional financing would keep the buyer from proceeding with the opportunity. Benefits of a bridge loan will permit the Vermont pharmacy owner to quickly respond to the opportunity.

When there are business opportunities, buying pharmacies, selling pharmacies, quick deadlines, an old loan maturing before a new loan can be put in place, funding needs during the permit, planning, or evaluating stages, etc., bridge loans can be an essential financial tool.

Tips regarding pharmacy bridge loans in VT:

1. Bridge loans are quick to obtain but they expire quickly.

2. Bridge loans are similar hard money loans and the terms are often used interchangeably during conversation. Both loans are short-term, higher interest rate, and non-standard loans, but hard money can refer to the lending source in some circles, while a bridge loan refers to the duration of the loan.

3. Because a bridge loan will usually come with a higher interest rate rather than traditional financing with a larger down payment.  This results in a lower Loan to Value (LTV) and a lower level of risk and provides an opportunity for lower interest rates.

4. Due to the shorter time period of bridge loans, borrowers will need to keep in mind that fees for valuations, legal, dues diligence, etc., will be amortized over a smaller period of time than traditional financing transactions.

Take note that the types of deals which require bridge loans may be considered speculative in nature or have higher risk factors. Because of this, banks will often refuse to offer bridge loans. Banks must also meet government regulations, so they need to justify their lending practices. Bridge loans, which are riskier, do not usually fall within the lending parameters of many banks. A majority of the bridge loans must therefore come from private investment firms.  It is best to talk with a company that has access to several funding sources who can provide bridge loans.

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Vermont Pharmacy Acquisition Finance

By Brad MacLiver
Authorship and profile at Google


When a Vermont (VT) pharmacy or drug store is being sold, seldom does the buyer pay “out of pocket” cash for the acquisition. Even when cash is available, pharmacy acquisition strategies usually involve financing the transaction.

Typical acquisitions take 6-9 months to complete, so the Vermont pharmacy seller will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions will involve many hours of due diligence and negotiation, so the process should involve qualified parties.

Along with the buyer and seller the acquisition will involve attorneys, accountants, lenders, valuation companies, industry specialists, along with others. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the Vermont pharmacy buyer’s ability to close the deal.

The process will begin with determining the value of the business. There are many companies that offer valuation services. However, pharmacies in Vermont are not ice cream stores. There are many aspects of valuing a pharmacy that are unique to the industry, so generic valuations or simple accounting formulas should not be used. An industry specialist should be used for valuing the pharmacies instead of a valuation company that has a broader spectrum.

In order to complete a valuation the selling company needs to provide up-to-date data. Lenders will not accept old data, or a sellers “gut feeling.” Lenders need to make a decision to finance based on sound and verifiable information.                

Structuring the transaction is extremely important. The seller of course wants as much money as possible and wants cash. The buyer needs to spread out the debt service and wants to have as little cash as possible invested in the acquisition.

Pharmacies and drug stores are in an industry where it is more difficult to obtain business loan due to the majority of the value in a pharmacy in Vermont is the customer files and not hard assets. Therefore, for the acquisition to be financed a lender will need a strong understanding of the industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

Pharmacies in VT have typically been known for generating profits and to be stable businesses. However, they are usually in leased locations, and their furniture, fixtures, and computers will only provide $15-20,000 of collateral for a buyer possibly requesting a million dollar loan. A lot of money is tied up in inventory, but the small pills are considered by a lender to easy to move out the door in the event of default. Due to these circumstances many lenders will not loan money to these traditional money making businesses. A successful transaction takes a lender that understands the pharmacy industry.

Tips regarding pharmacy in VT acquisitions and finance:

1. Attorneys and CPAs who have been representing the pharmacy seller for many years may see the transaction as putting themselves in a position of losing a client when the business is sold. Make sure they are not only working diligently on the transaction but not slowing or undermining the process.

2. Since pharmacy acquisitions in Vermont take 6 to 9 months worth of work to finalize, all participating parties need to be aware of time tables. Items of importance will much too often end up sitting on the desk of someone who is outside of the control of the buyer or seller.

3. It is essential that all financial information be current. Over the lengthy process, the data supplied to both the buyer and the lender needs to be updated on a regular basis. Several factors can change drastically during a nine month period and the Vermont pharmacy seller will need to continually prove the financial condition of the company.

For the best chance of success when pursuing “pharmacy acquisition finance,” make sure the valuation company and the lender you are consulting have expertise in that industry. Make sure the company that has the pharmacy experience and expertise, and that they are a direct correspondent with lenders who understand VT pharmacy.

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Current Vermont Pharmacy Industry Market Conditions

By Brad MacLiver
Authorship and profile at Google


Currently there are a number of factors that are impacting the current market conditions of the U.S. pharmacy industry in VT. These factors are affecting the pharmacy business valuations of pharmacies and drug stores all across the U.S.

Local Demographics:

The valuation process also includes local market conditions and local demographics. Smaller communities have less growth potential and with the declining profits a buyer will need to purchase at a lower value because they will have to service the debt from a business loan and still try to make a living. The same is true for communities that have lost population due to economic conditions, or have a high rate of unemployment. Fewer people, or fewer customers with the ability to purchase, will mean fewer sales and less chance of any substantial improvement in the near term. This results in a lower Vermont pharmacy business value.

Vermont Pharmacists Shortage:

Pharmacies in Vermont and across the country have had difficulties in finding pharmacists.  This shortage of pharmacists not only affects employee opportunities it also affects the number of potential independent buyers. 

Fewer Buyers:

There are also fewer corporate buyers. Some of the largest pharmacy chains have been purchased and consolidated in the pharmacy industry roll up. Many smaller chains have run into financial difficulties and have stopped their expansion. It is more difficult to drive a price higher when there are fewer willing, or capable, to purchase.

Current Market Conditions Requires Industry Roll-up:

The consolidation of the pharmacy industry is required to get more traffic into a single store.  Due to simple economics, when any business has a reduction in profits they are less attractive to a buyer and pharmacy business values drop. There are many factors contributing to the downward pressure of Vermont pharmacy values and there is not any expectation of a turn around. Pharmacy owners should not be fooled by inexperienced Brokers claiming grand outcomes and over stating pharmacy business values not based on realistic market conditions.

With the consolidation of the pharmacy industry in VT that has been happening for several years, many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have pharmacy related experience, nor do they use current market conditions when they value a pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current pharmacy market conditions. Brokers are valuing pharmacies 2 to 3 times more than what the market is realistically willing to pay because of this. Anybody can quote a high value to capture a listing regardless of experience, and an overinflated asking price does not guarantee that the business will sell for that price.

Mail Order Pharmacies in VT:

Some insurance companies have decided to designate a noticeable amount of pharmacy patients as “long-term medications” and it is required that they only purchase the medications from mail order pharmacy companies who provide products at lower prices. This results in local pharmacies both missing out on prescription sales and suffering a decline in front-end sales because customers are not entering the store. Pharmacy mail order sales have now surpassed sales from independent retail Vermont pharmacies.

Choose a firm that provides pharmacy business valuations in Vermont based on real market conditions and does not use a simple formula for calculating the value of a pharmacy. Complex methods are most suitable to derive the value of a pharmacy.

 

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Vermont Pharmacy Transactions and Capital Gains Tax

By Brad MacLiver
Authorship and profile at Google


Almost every possession you have and use for either personal or business purposes is a capital asset. When Vermont (VT) pharmacy owners sell their capital assets, the difference in the amount at which it was sold and the amount at which it was purchased is known as a capital gain or loss.

Capital gains may also refer to "investment income" that arises in relation to real assets, such as property, financial assets, and intangible assets such as goodwill. In the U.S., all capital gains must be reported and the appropriate tax paid.

When selling a pharmacy or a drug store in Vermont, there are specific tax strategies that can be used to help offset the tax liabilities. Unless a professional is handling a large number of pharmacy acquisitions, they usually do not know these federal regulations that allow for reducing the tax liability for the pharmacy owner.

During this period of history where it is more difficult to finance a business, pharmacy sellers may already be required to lower their asking price, so a VT pharmacy buyer can qualify for the financing required. On top of the lower offers they will be required to pay higher percentages in taxes.

This is a dilemma for the Vermont pharmacy seller who wants as much money out of the deal as possible. For most pharmacy owners their business is the largest asset they will ever own and selling the business at a certain dollar amount has been part of their retirement and estate planning. Knowing they will need to cut out a larger chunk of the proceeds to give to the government will cause some pharmacy owners to reconsider their retirement plans. The good news is there are financial tools and strategies that allow the Vermont pharmacy owner to proceed with their plans.

Family Foundations are tax exempt/nonprofit organizations, which provide tax advantages and control over philanthropic activities. Family foundations are typically private foundations that are funded by a small number of sources, and do not conduct widespread fund-raising activities. They may receive gifts from friends and limited sources. Family members serve as trustees, directors, and officers. As private foundations they can make grants, or donations to other organizations. Having a Family Foundation provides a number of benefits including, income tax deductions, exemptions from estate and gift taxes, along with the reduction or elimination of other taxes.

One strategy, but not the only one, that is currently available to assist the capital gains tax burden is the Charitable Remainder Trust (CRT). CRT’s are legally described as Split Interest Trusts. The term is used because of the blend of philanthropic motivations and personal financial aspects. CRT’s can decrease tax liabilities, increase a business owner financial wealth, and at the same time provide a vehicle for charitable giving.

CRT’s are formed when a person donates assets to this special type of Trust. Assets can be cash, stocks, real estate, etc. The CRT is set up for a set period of time, or until the donor’s (VT pharmacy owners) death. An individual (pharmacy owner or family member) can receive income from the Trust’s assets. Upon the donor’s death the assets go to a designated charity. Part of the income from the Trust can be used to purchase life insurance on the donor. The proceeds of the life insurance go to a designated heir(s) who receive the money without incurring any estate tax liability.

Other tax strategies, including the usage of CRT's, are not known by many, so it is advisable for pharmacy business owners to be knowledgeable of the various tools that are available in structuring a business transaction.  They should also keep in mind that only professionals with vast experience with CRT's should be consulted to setup a Charitable Remainder Trust.  Failing to follow strict IRS guidelines could be cause for increased taxes, fines, and, in some cases, criminal charges.

There have been seedy individuals over the years who have attempted to use CRT's and similar financial tools in illegal scams, and with increases in capital gains taxes, there is an expectation that more scams will begin to surface.  Be well-informed about the possibilities and be confident you are working with experts in your industry.

You should consult a firm that has extensive experience in drug store and pharmacy acquisitions.  Firms with both the knowledge and expertise to structure the transaction appropriately to reduce tax liabilities can save a Vermont pharmacy owner large sums of money when a pharmacy is sold.

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Buy-Sell Agreement for Vermont Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


When a Vermont pharmacy is owned by two or more shareholders partners should have a Purchase-Sale Agreement. A buy-sell agreement is a written document that contains procedures and controls the future sale of the Vermont pharmacy business.

Pharmaceutical buy-sell agreements shelter the interest of the parties who own a Vermont pharmacy and control the actions triggered by a shareholder to leave the business because of death, disability, divorce, dissolution, or retirement. Agreement will control how and when the shares of the pharmacy business is sold or transferred. It will also provide guidance on how the pharmacy will be evaluated together with the obligations of the remaining shareholders in the Vermont pharmacy.

Buy-sell agreements are important because the various elements of a future sell is predetermined, and does not need to be negotiated during a heated conflict, or during a grieving period. It offers both the shareholder and the family a comfort level that when the inevitable time comes for an exit strategy that the process was carefully considered in advance.

Disadvantages of not having a buy-sell agreement between Vermont pharmacy owners is that a disability can leave a partner who works more and another does not add to productivity. In the event of a death, without an agreement, one party will have a nonproductive heir, or a new partner can be inserted that has personality conflicts with the surviving partner. The wrong partner can be calamitous for the Vermont pharmacy business.

There are various types of buy-sell agreements: Entity Buy-Sell Agreement, Cross-Purchase Buy-Sell Agreement, wait and see Buy-Sell Agreement, Disability Buy-Sell Agreement. Buy-sale agreements are also known as a company will or a buyout agreement.

Possible elements of a buy-sell agreement:

1. Shareholders name and number of shares and voting rights of each.

2 Guide for certified pharmacy valuation and purchase of shares a shareholder.

3 Mutual covenants and considerations.

4. Restrictions on the transfer, purchase or encumber the company stock.

5. Protocol in case of a shareholder's divorce or termination of a shareholders' agreement of employment.

6. Obligation to purchase   sale of shares from an estate.

7 Purchase of insurance to ensure the ability to meet obligations.

8. Purchase of shares paid in lump sum or in installments.

9 Remedies for breach of contract or non-payment.

10 Until the transfer is complete, the right to inspect books and records.

11. Amendments and notices of promotions or legal issues.

12. Enforcement of the agreement, the binding effects and arbitration procedures for disputes.

13. Process for the dissolution or liquidation of the company.

14 Maintenance of the property for a transitional period.

15. Preserve the representations and warranties.

16. The conditions for transfer.

17. Bill of Sale

To ensure that the necessary funds are available, buy-sell agreements are often funded with life insurance. If the death of one of the Vermont pharmacy owners occurs, the life insurance settlement provides funding for the remainder of the Vermont pharmacy owner to buyout partners share of the estate.

Life insurance for each partner must be in place, because without a way to gain purchase of the Vermont pharmacy's share buy-sell agreement will not be functional. As the business grows and develops how much insurance must be adapted to provide adequate coverage. Without insurance, the surviving shareholders may not have enough money to buy the required amount of the estate to meet - leaving the survivor with an unwanted partner.

To have adequate insurance coverage and to determine the details of the buy-out terms, is a certified pharmacy business valuation necessary. There are a large number of companies offering business valuations. Because of the dynamics and the current market of the pharmacy industry, a valuation firm should have extensive pharmacy experience. Accounting Simple formulas and multipliers will be adequate or realistic valuation does not provide for a Vermont pharmacy business.

Pharmacy buy-sell agreements are absolutely important papers that must be completed with care and seriousness. Even with a long term partnership, it's just too late to create a buy-sell agreement, when an event has already happened that would require the document.

Tips for These Type of Agreements:

1 Buy-sell agreements are important papers that should not be taken lightly. Consult a licensed professional.

2 Documents must take the appropriate laws and regulations that vary from state to state. Search the right guidance.

3. Premiums for insurance that the buy-sell agreement, the Fund will be deductible.

4 Ensure that the pharmacy valuation performed by an established pharmaceutical industry expert.