Merry Christmas Washington

Washington (WA) drug store business owners we want to wish you and your staffs a Merry Christmas and a Happy New Year!

In the coming new year when you need a pharmacy business valuation, drug store financing, or acquisition services we are here to assist you.

   Watch our Christmas video: http://youtu.be/Lm-6ls-rzrY  

Estate Planning for Pharmacy Owners in Washington

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many WA pharmacy owners are experiencing lower profit margins and have considered selling. For a number of years, a pharmacy industry roll-up has been occurring, and consolidation of the pharmacy seller’s customer traffic into fewer pharmacy locations. However, there are a number of Washington pharmacies that are located with other nearby pharmacies geographically so consolidation won't take place. Some drug store and pharmacy owners have, despite where their location or what is happening in the industry, taken a stance and refuse to consider selling.  However, as with things like taxes, an exit strategy for the business is inevitably required.

Estate Planning is a topic that many people working in all industries shy away from. For the pharmacy owner in WA who works 6 days a week, takes very few vacations, fills scripts all day, then mops the floor and does the books at night, there usually isn’t much time to consider additional things such as estate planning. However, knowing that there will eventually be a transfer of the business, it is important for the pharmacy owner to consider a proper succession plan for the pharmacy business.

Developing a plan to transfer the business will be time consuming, but done correctly will allow the business to be successfully transferred in an acceptable manner. An estate plan for a pharmacy owner does not need to be changeless process. Fine-tuning, updating, and amendments are recommended as government regulations, economic conditions, and personal expectations change.

Estate planning allows a Washington pharmacy owner to anticipate and arrange for the transfer of the drug store. The plan will be formatted in attempts to eliminate uncertainties, assist the transfer by trimming expenses, and reduce taxes.

The process may involve Trusts, Wills, Living Wills, Power of Attorney, Medical Power of Attorney, Business Valuations, Life Insurance, Charitable Remainder Trusts, Buy-Sell Agreements, and other legal documents. All of the different aspects of the estate planning are to provide the pharmacy owners in Washington coordinated directives.

When there are non-family members as partners in the drug store business, it is essential that the estate planning incorporate a Buy-Sell Agreement. A buy-sell agreement, governs the transfer of the business between pharmacy partners. The agreement may also be known as a partner buyout agreement, or a business will. To help protect the family in the event of a partner’s death, the buy-sell agreement may be funded with a life insurance policy.

Estate planning, buy-sell agreements, and the transfer of the pharmacy should incorporate a WA pharmacy business valuation completed by a third party that has expertise in the pharmacy industry, performs a large number of pharmacy business valuations each year, and has current industry data as a basis for the conclusions. Using simple accounting formulas, multipliers, and valuators inexperienced in pharmacy will not provide an accurate business valuation.

Most pharmacy owners spend a major part of their life building the business. The efforts should not disappear because the pharmacy owner in Washington refuses to accept their mortality and plan accordingly. The only pharmacist in some small pharmacies is the owner. If the scripts can’t be filled by a licensed pharmacist then by law the customer files must be transferred to another pharmacy. Due to this, a Washington pharmacy’s business value may drop to a negligible figure in just a few days after the passing of the owner. Contingencies outlined in an estate plan should address this issue. Unfortunately due to not having an effective plan in place, each year a number of pharmacy owners die and their family is left with an asset with very little value.

Tips:        
1. When the family drug store is the sole means of income for several family members it becomes even more crucial to have a succession plan in place.
2. Disputes can be avoided if estate plans are be developed with clear directives.
3. Minimizing tax liabilities is a major goal for most who complete an estate plan, which means expert tax advice should be sought.
4. Many online books and websites are available that provide advice and documents for developing an estate plan. When choosing the self-help route, it is recommended to have a paid expert review the completed documentation to ensure that it legally complies when the time comes.
5. While the estate plan is being developed, it is important to talk with children and other family members of the pharmacy owner in Washington, especially if there are some family members that work in the business and others that don’t.



 

Financing Washington Pharmacy Franchises

By Brad MacLiver
Authorship and profile at Google


A Washington (WA) pharmacy franchise is a contractual relationship between two parties. One, the Pharmacy Franchisor is the party that developed their drug store business model, branded the pharmacy related products, and produced the system the pharmacy franchisees will operate under. The second party, the Pharmacy Franchisee, purchases a franchise license from the Pharmacy Franchisor, and usually pays an ongoing Washington pharmacy franchise fee, or royalty fees, to use the name, products, systems, trade secrets, etc., created by the Pharmacy Franchisor.

Several options for financing a pharmacy franchise business are available, but all pharmacy franchise or drug store funding sources prefer to lend to pharmacy franchisees who will be working with a nationally recognized name with long track records. Newer pharmacy franchise models won’t possess these two traits and will be considered more risky.

Traditional Bank Financing used in funding a pharmacy franchise is available when a Washington pharmacy franchise has the track record and pharmacy name recognition. Many of the banks will show interest in this type of funding opportunity. Unfortunately once the bank reviews the loan documents, many of these banks decline the funding request because they don’t understand the security provided for the pharmacy loan. Community drug stores typically have very little traditional assets to offer as security. Lenders for pharmacy will use traditional methods for analyzing the cash flow available to service to the debt, and they will also need to understand the nontraditional collateral that will secure the loan.

As a borrower, even when incorporated, the independent drug store owner’s personal credit rating will be a factor, along with personal tax returns, and financial statements. The amount of actual cash on hand and the verification of the source of the down payment will be critical factor in qualifying for a Washington pharmacy business loan.

 

Washington Pharmacy Franchise Funding Tips:

1. Because there are many pharmacy franchise financing options available, pharmacy owners should perform proper due diligence then obtain the pharmacy funding in Washington that best suits their situation.

2. It is recommended to consult either an accountant or attorney who is already familiar with pharmacy franchise financing.  They should review the pharmacy business loan documents.

3. To guide prospective pharmacy franchisees or borrowers with drug store loans, consult pharmacy consulting services and franchise associations.

4. New Washington pharmacy owners need to make sure their funding request is enough to get the pharmacy running and profitable. Less than ample funding for the initial stages may put the drug store in a position of needing additional funding. Smaller working capital loans that would be in a subordinated position will be more difficult to obtain at a later date.

When pharmacy owners have questions and need information regarding pharmacy franchise business loans in Washington, or any types of funding for community drug stores and pharmacies, they should contact a WA pharmacy industry specialist who can provide quality answers and sound advice.

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Financing Types Available for Pharmacies in Washington

By Brad MacLiver
Authorship and profile at Google


A number of different options for funding WA pharmacy franchises, specialty pharmacies, and traditional community drug stores are available:

SBA Financing for Pharmacy Business Loans

The U.S. Small Business Administration, or the SBA, will partially guarantee pharmacy franchise lender loans, thus reducing exposure to risk for the lender.  There is a loan program called 7(a).  It is a standard for funding pharmacy franchises, and these loans can provide necessary funding for: pharmacy franchise entry fees, real estate where the Washington pharmacy will be located, property improvements, working capital, and pharmacy related equipment.

Borrowers for the pharmacy franchise must be creditworthy, without any bankruptcies, have ample down payment, but there are variations here, and the business must be able to repay the loan from the cash flow of the pharmacy in Washington.

Terms can range from 5 to 20 years. Within SBA standards interest rates may be adjustable or fixed and will be negotiated by the lender dependent on the financial strength of the pharmacy transaction.

There are SBA fees for guaranteeing Washington pharmacy business loans. These fees, which are paid to the government and not kept by the bank, can be rolled into the pharmacy financing.

Patriot Express Business Loan Program

This is another SBA loan program that can be used for pharmacy franchise business loans and is reserved for military veterans, active service members, their spouses, and survivors. The Department of Veterans Affairs would be involved in the pharmacy loan process.

Pharmacy funding from the Patriot Express program can furnish relatively fast approval times, may accept a smaller down payment from the borrower than traditional business loans, and lower credit scores may also be accepted. Patriot Express business loans provide opportunities for lower interest rate pharmacy business loans.

Funding for WA Pharmacists Who Are Veterans

There are specific franchise loan programs available for honorably discharged veterans and these Vet programs can be considered for pharmacy franchise loans.

Pharmacy Financing From the Franchisor

Financing a Washington pharmacy franchisee is a usual topic in discussions with a pharmacy franchisor. Franchisors should be able to direct potential drug store franchisees toward funding programs that have previously been successful for their other Washington pharmacy franchisees. Preferred lenders will already be familiar with the pharmacy franchisor and their systems.

Pharmacy franchisors may also provide some funding internally. Lower collateral will be offset by higher interest rates. This may help with qualifying for a pharmacy acquisition of a franchise, but may hurt the franchisee’s long term cash flow. Due diligence of pharmacy franchisor funding should be completed before any final decisions are made.

Personal Assets Used in WA Pharmacy Finance

Not all prospective pharmacy franchise owners have enough cash on hand. Part of the drug store business financing may require the borrower to liquidate personal stocks, provide personal assets as collateral, refinance their home, or use their 401k to assist the lenders security for making the Washington pharmacy business loan.

If the borrower still does not have enough personal assets then a family member or a friend may be required as a partner in the pharmacy. Since the pharmacy partner’s cash and assets will also be at risk of loss, these partners may require some controlling interest in the drug store.

Retirement Accounts Used in Pharmacy Finance

Retirement Plans can be self-directed and used to invest into a Washington pharmacy franchise. The retirement plan can purchase stock in the pharmacy franchise. This is similar to how the retirement plan currently may be investing in publicly traded stocks and mutual funds. Lower debt service and higher profit potential may result when incorporating this option that uses less external financing in funding the franchise.

The downside is, if the pharmacy in Washington crashes, so does the retirement fund. The method of providing less expensive financing for the pharmacy needs to be weighed against the risk of failure.

Because of the factors involved such as deferred taxes, early or improper distributions, and IRS involvement, funding a pharmacy transaction with a retirement account should be handled by a company who has expertise in this arena. Pharmacists and investors in Washington interested in using this financing structure should research the Employee Retirement Income Security Act of 1974 (ERISA).

Pharmacy Franchise Agreement Buyout Funding

Understand that pharmacy situations are changing in WA, economic factors are a concern, mail order pharmacy is growing, and market shares are shifting. All of these can have a negative impact on the cash flow of a pharmacy franchise. Drug store owners paying franchise royalty payments may not survive the tightening profit ratios. Due to this, these pharmacy franchises may only have the options of bankruptcy, or buying out the franchise agreement when allowable.

Buying out the franchisor allows the Washington pharmacy to remove the franchisor from the equation. This in turn allows the pharmacy owner more flexibility in their business decisions. The pharmacy franchisor sold the drug store franchise with expectations of earning income from the cash flow their pharmacy franchisees. Due to their long term plan, Franchisors may not be willing to allow the pharmacy franchisee to remove itself from the franchisor. However, if it is an option to negotiate a Franchise Agreement Buyout, the buy-out transaction can be financed as well.

Many banks, unfortunately, don’t know the details of the WA pharmacy industry. This lack of pharmacy expertise results in the banks viewing the funding request as a request from a business with very little collateral compared to amount of financing the pharmacy wants. To help establish a successful funding process, a pharmacy owner should be advised to use a Washington pharmacy industry specialist to take advantage of funding opportunities that are available.

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Sale & Purchase Agreements in Washington

By Brad MacLiver
Authorship and profile at Google


A Pharmacy Listing Agreement is the contract that provides a pharmacy broker the business seller’s permission to sell their Washington drug store. During the process of presenting the business being sold to qualified drug store buyers there are negotiations and preliminary offers.

Once the preliminary stages have been negotiated it is time to put forth the details of the potential pharmacy transaction in contract form. This contract is usually called the Purchase and Sale Agreement, but it may also be referred to as an Asset Purchase and Sale Agreement, Pharmacy Asset Purchase Agreement, Asset Purchase Agreement, or variations of these contract titles. Whatever the title is on the contract, this document should be considered the “blueprint” for transferring the Washington pharmacy business to the new owner.  

The Pharmacy Purchase and Sale Agreement details how much the buyer agrees to pay and what assets the seller in Washington is conveying to the buyer. When the agreement is put in writing, describes the transaction in some detail, and is accepted and signed by both parties, this contract becomes a legally binding agreement. Therefore, during the negotiated development of the Pharmacy Purchase and Sale Agreement proper diligence should be taken.

Due to liability issues it is seldom that a Washington pharmacy’s corporate stock will be purchased. Therefore, these transactions almost always are only asset purchases.

The elements in a Pharmacy Purchase and Sale Agreement are not limited to but can include: assets purchased, assets excluded, aspects regarding counting and purchasing the inventory, electronic and hard copies of pharmacy customer files, liabilities, purchase price, closing date, transferring the assets' title when being purchased, conversion of pharmacy customer files, warranties and representations, non-compete clauses, restrictive covenants, transferring the phone services, notification of customers, signs, Board of Pharmacy notifications, accounts receivables, business seller and pharmacy employee employment, confidentiality, pharmacy inventory counting, any costs associated with closing, lien searches, actions to be taken before the closing date, the pharmacy’s computers, office equipment, and automated filing machines.

Although it covers many aspects of transferring the business assets from the pharmacy seller in Washington to the new owner, it should be understood that the Purchase & Sale Agreement does not provide tax and legal guidance for the seller. Those issues do not pertain to the buyer of the assets. Therefore, the pharmacy seller should be well advised by a knowledgeable pharmacy broker, accountant, or attorney regarding tax consequences, restrictive covenants, and the structure of the deal. These aspects of the deal may not have any impact from the buyer’s point of view, but if not considered carefully may have affects to the seller’s financial position after the transaction is closed.

Washington pharmacy owners who are considering selling will benefit when working with a specialist who operates exclusively in the pharmacy industry and can provide expert guidance in bringing about a transaction that provides the most benefits regarding the seller’s tax consequences, family and estate planning. Proper planning and a blueprint that structures the transaction appropriately will increase the net amount of money the seller receives for the pharmacy’s assets.

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Should a Broker be Used When Buying a Washington Pharmacy

By Brad MacLiver
Authorship and profile at Google


When deciding between using a pharmacy broker, or pursuing the acquisition of a Washington pharmacy yourself, buyers of pharmacies and drug stores need to weigh several factors including skills, knowledge, and time.
            
Many pharmacy buyers are experts behind the counter, but many who have never bought a pharmacy in the past, don’t have the complete understanding of all the variables including State and Federal Regulations, negotiating the best price, structuring the deal, and the best options for financing the acquisition. These are skills that many Washington pharmacy buyers believe they possess, but pharmacy buyers need to recognize how many times they have actually purchased a pharmacy compared to a pharmacy industry expert.

Knowledge is power and using a pharmacy broker with extensive know how in valuing and transferring pharmacies will save a pharmacy buyer in Washington considerable time and headaches resulting in a more cost efficient transaction. The cost of acquisition must be considered in the analysis of Return on Investment (ROI). If the acquisition will benefit the buyer, then any additional time spent with a stagnant transaction will be benefits lost.

Transactions are definitely time consuming. When handling a transaction yourself, how many additional hours will you need to work to complete the Washington pharmacy acquisition and then still not be certain if all the details were done correctly?

Just finding the appropriate pharmacy to buy can be an expensive, laborious, and time consuming process. If the pharmacy’s numbers appear to provide the ROI the WA pharmacy buyer requires, is the pharmacy seller both cooperative with the buyer and knowledgeable about the transaction process?

Pharmacy sellers in Washington, their attorney, their CPA, and even their families can slow the process. Pharmacy buyers should understand this and possess the credentials that all of the various parties can have faith in while undergoing the many steps of acquisition.

After a pharmacy has met the preliminary requirements of the buyer, a current market pharmacy business valuation is necessary to verify the current value of the WA pharmacy.  It should be based on a sound financial and market analysis and not just a simple accounting or multiple formula.  In today’s market, pharmacy sellers usually want a higher acquisition price for their family owned pharmacies, than what the current market is willing to pay. A certified valuation completed by a third party who possesses extensive experience in the pharmacy industry will help guide the buyer and seller in their negotiations.

Buying a pharmacy business is not like buying a used car. There are many steps that must be taken. Pharmacy buyers who are not discussing an acquisition with a Washington pharmacy seller who will actually move forward with providing all the documentation and financial statements will be losing valuable time in their acquisition search. Both the seller and buyer need to have a meeting of the minds and provide a collective effort in pursuing the closing of the pharmacy acquisition. By the time a closing occurs and all aspects of the transaction have been completed, substantial cash and time will have been invested.

When inexperienced parties are undergoing the acquisition process it can be a draining experience full of headaches and worries. A smoother and more confident process can be accomplished when a Washington pharmacy industry expert is involved in the transaction. A pharmacy broker will take steps to pre qualify the buyer. This allows the seller the knowledge they are working with a real buyer and not a tire kicker.

If the buyer will need financing to complete the deal they will find many banks will not finance a pharmacy acquisition. A broker working exclusively in the pharmacy industry will have sources of funding who understand the industry and will fund pharmacy acquisitions in WA.

In Washington pharmacy mergers and acquisitions it is important to understand confidentiality, and how the perceived changes may affect employees and customers. A broker acting as the middle man between the buyer and seller can assist the confidentiality of the transaction.

There are many things to consider when purchasing a pharmacy. Using a pharmacy business broker who specializes in the Washington pharmacy industry will benefit both parties involved in the buying and selling of a pharmacy.

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Using Tax Strategies When Selling Pharmacies in Washington

By Brad MacLiver
Authorship and profile at Google


Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. Washington (WA) pharmacy buyers participate in the pharmacy industry roll-up to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Washington pharmacy sellers both independent owners and drug store chains must consider their current market value, recognize the narrowing of profit margins, and realize what their tax consequences will be if they sell.

When pharmacy owners sell their pharmacy in Washington it is considered a capital asset. The difference between the amounts it is sold for and the amount spent to either purchase or start the pharmacy is a capital gain, or a capital loss. In the U.S., all capital gains must be reported and the appropriate tax paid.

Specific tax strategies can be used to help offset the tax liabilities when selling a Washington pharmacy or a drug store. 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 in WA.

Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a Washington pharmacy will result in tax consequences. However, most of these professionals do not handle the buying and selling of pharmacies on a daily basis and may not realize the different aspects of structuring a WA pharmacy transaction allowing the reduction of the tax burden to the pharmacy owner.

There are some capital gain tax strategies that must be implemented before any obligation to sell the Washington pharmacy. When a drug store owner is considering selling their pharmacy either now, or in the next few years, it is urgent the best course of action be considered now instead of later.

Estate planning when selling a WA pharmacy should also be a consideration. Specific federal regulations allow an asset to be converted to an income stream, provide a tax deduction, increase asset diversification, and provide risk reduction, along with offering effective retirement and estate planning. If the pharmacy seller in Washington is nearing a retirement age, or will be working as a WA pharmacist for another company, instead of being an owner, then estate planning should also be considered.

As reimbursements are cut, more regulations are applied, and pharmacy profits continue to slip, more independent pharmacy owners along with small and regional pharmacy chains in Washington will be considering selling their pharmacies and drug stores. Tax considerations should be a paramount part of the decision process.

Pharmacy owners should consult with a pharmacy industry expert for advice on structuring the sale of their Washington pharmacy. Someone with extensive experience in pharmacy and drug store acquisitions will have the knowledge and expertise to structure the transaction for tax considerations. Like all tax planning issues, waiting until the end of the year is not always the best strategy. Following this advice can place larger sums of money in the bank of WA pharmacy owners when a pharmacy is sold.

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