Exit Strategy: How Community Pharmacists Can Get the Most from a Pharmacy Sale

By Bill LaRose, R.Ph |

Planning ahead can help a community pharmacy owner maximize the value of his or her business. 

Every independent pharmacy owner will eventually reach retirement and transition out of the business. The only question is whether that transition happens by choice when the owner wants to sell or by circumstance when the owner must sell.

There are a number of situations that could expedite a community pharmacy owner’s need to sell their business. For instance, a new competitor could enter the market in a way that dramatically impacts the pharmacy’s revenue. Or changes to third-party payer plans could undercut the pharmacy’s profits. In these scenarios, it may be the increased stress or loss of passion for the business that leads an owner to sell sooner than expected.

But one of the most common circumstance that forces independent pharmacy owners to sell the business before they feel ready involves health issues — either their own health or the health of a family member.1

Sadly, unprepared owners who feel pressured to sell their community pharmacy often receive less value for their business than if the owner had, years earlier, developed a proactive exit strategy.

Thinking about difficult or unpleasant topics is never easy. Many owners who love providing for the needs of their communities may be understandably reluctant to contemplate their own retirement or transition.

But, in this case, addressing and planning for an eventual sale will allow owners to take control of their future. A predefined exit strategy not only increases the likelihood an owner will receive top value for their business, but also ensures their pharmacy’s legacy of delivering care in the community continues on after they leave.

Here are six suggestions for community pharmacy owners trying to map out their exit strategy:

  1. Assemble a trusted team. Pharmacy owners may be incredible pharmacists. They may have great skills when it comes to caring for patients or motivating employees, but that doesn’t mean they can plan an exit strategy all by themselves. Owners need to consult with a team of experts. Ideally, this team should include an attorney, an accountant or financial advisor, a business coach and an acquisition advisor. 

  2. Know the answers to buyers’ most likely questions. Potential buyers of a pharmacy want answers. They want information. There are certain questions that arise in almost every pharmacy sale such as: What are the terms of your lease? Is the building included in the sale? What is your average prescription price? What are your gross margins? When an owner cannot answer these types of questions, the value of the business drops dramatically. Pharmacy owners should make sure to have accurate, detailed and organized record-keeping systems so that when the time comes to sell, prospective buyers can feel confident that they are looking at a well-run business.

  3. Meet or beat industry performance benchmarks. Community pharmacies are most appealing to buyers when they are on par or outperform industry benchmarks. For example, a community pharmacy’s gross profit margins should ideally be at or above 21%; payroll should be less than 13% of gross sales.  Sales volume should be growing on a year-over-year basis. 

    Independent pharmacy owners might consider engaging an experienced business coach to evaluate their business performance across a range of industry benchmarks. A coach can help identify areas of above-average performance to highlight during a sale, as well as points of underperformance that an owner could address proactively to boost the value of the business.

  4. Calculate the true value of the pharmacy. Pharmacy owners should always have an idea of how much their business is worth. Pharmacies are frequently valued based on a multiple of adjusted earnings, but there are other legitimate methods that yield alternative valuations. Pharmacy owners should consult with their accountant and an acquisition advisor to generate a realistic estimate for what the pharmacy might command in the marketplace.

  5. Fix any problems that might undermine the pharmacy’s valuation. Pharmacy owners should do everything in their power to remedy issues that might cause prospective buyers to lose interest or reduce what they’re willing to pay for the pharmacy. Problems such as declining prescription counts, narrow profit margins, incomplete or inaccurate financial statements,  short lease terms and no renewal options, poor workflow, outdated fixtures, bad lighting and worn carpeting can all make a pharmacy less valuable. Fixing such problems won’t just make a pharmacy more valuable in a future exit negotiation, it will also make the business stronger and more profitable now.

  6. Preserve an independent legacy. Most community pharmacy owners want their independent pharmacy to endure in the community for decades to come — even if they are no longer the ones behind the counter. That’s why it’s so important to plan an exit strategy well in advance. An unplanned sale could force a community pharmacy owner to accept a below-market offer and watch the pharmacy’s doors close forever. 

    By contrast, a community pharmacy owner who starts planning his or her exit strategy years in advance has time to find qualified buyers who share the same enthusiasm and passion for maintaining an independent pharmacy presence in the community. AmerisourceBergen’s Pharmacy Ownership Services has a proven track record of keeping independent pharmacies independent. The program helps find the right buyer for each independent pharmacy. That buyer could be a supervising pharmacist already working in the community pharmacy. It could be an ambitious young pharmacist who has dreams of transitioning to become an owner of an independent pharmacy. It could be another independent pharmacy owner who would like to own more than one pharmacy (or who already runs several pharmacies but would like to add one more). Or it could be a regional buying group that plans to build on all the goodwill the pharmacy has built over the years — keeping its existing name, retaining its employees, preserving its relationships and legacy — while centralizing certain aspects of the management structure to improve profitability.

With advance planning, community pharmacy owners have plenty of options when it comes to deciding how they want to exit their business. By optimizing their operations, keeping clean records and surrounding themselves with a trusted team of advisors, independent pharmacy owners can make sure they exit on their own terms and get the full value of their business — whenever that exit ultimately takes place.

1. Colony RX (2017, January 10). Why Pharmacy Owners Sell Their Pharmacies. Retrieved 2018, January 10 from http://colonyrx.com/pharmacy-owners-sell-pharmacies/ 

About the Author

Bill LaRose, R.Ph

Pharmacy Acquisition Advisor
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