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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