Is it Worth Selling Pharmacy Notes in New Hampshire at a Discount?

By Brad MacLiver
Authorship and profile at Google


When a New Hampshire (NH) pharmacy acquisition has been accomplished by using the private financing method of a pharmacy business note, the holder of the pharmacy note 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 in New Hampshire 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 New Hampshire 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 New Hampshire 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 New Hampshire pharmacy industry must be considered and it is advantageous to have a pharmacy industry specialist calculate the pharmacy business valuation.

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

4. A New Hampshire pharmacy note 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 discounted rate can be more attractive 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 chance that the pharmacy buyer may not run the business as efficiently as you have.  Sales could drop and the New Hampshire pharmacy business buyer cannot meet the payment obligations. Incompetency possibly leads to late payments, missed payments, or even bankruptcy.

2. Pharmacy Industry Changes - Changes caused by influences either within the pharmacy industry or regulations that govern the industry can make it more and more difficult for the pharmacy business buyer in NH to meet the contractual financial obligations.

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

4. Loan to Value - If you are originating a New Hampshire pharmacy business note, you may be creating financing where there is what's known as a “negative loan to value.” Example: the pharmacy business note is for $450,000, but there is only $150,000 of tangible assets for collateral.

5. Title Insurance – Pharmacy business notes 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 NH 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 New Hampshire pharmacy note with Pharmacy Business Note Investor before the Purchase and Sale Agreement is finalized for the acquisition of the pharmacy. This provides the 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 New Hampshire for Financing Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


When acquiring or selling a New Hampshire (NH) pharmacy or drug store, one alternative is to have the seller originate the financing and carry back a business note. At first glance many pharmacy owners will not want to take this approach. They want their cash and their exit. When a New Hampshire 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.
               
The Advantages to Creating and Selling a Pharmacy Business Note

1. The lengthy process of selling a pharmacy or drug store to an individual in New Hampshire can be made easier and less time consuming when the pharmacy seller agrees to carry a business note rather than a buyer pursuing more traditional financing.

2. Offering Seller Carryback Financing, which is referred to as Private Finance quite often, a NH pharmacy business owner can greatly increase the number of potential buyers for their business, which will most likely allow the business to sell at a higher price.

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

4. Selling either a part or the entire pharmacy business note in New Hampshire frees up capital that can be used for new ventures or to pay 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 New Hampshire pharmacy business seller 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 pharmacy note in exchange for compensation. Since Investor can’t go back to the New Hampshire 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.

Tips:

1. Poorly structured business notes may prevent their sale, so seek professional advice before originating a financial instrument that can’t be sold.

2. Sellers of business notes need to fully understand the Investors risk in order to successful sell the business note.

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

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New Hampshire Pharmacy Acquisition Finance

By Brad MacLiver
Authorship and profile at Google


When a New Hampshire (NH) pharmacy is being sold, seldom does the pharmacy buyer pay cash for the acquisition. Even when cash is available, New Hampshire 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 accountants, attorneys, money lenders, companies that perform valuations, specialists in the pharmacy industry, pharmacy brokers, and other specialists. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the NH 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 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 in New Hampshire based on sound and verifiable information.

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

It is crucial that you structure the transaction because the drug store seller will naturally want as much money as possible and wants cash. However, the New Hampshire pharmacy buyer desires to spread out the debt service, wants to have as little cash as possible invested in the acquisition.

The 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 in NH and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

One simple example of this is the Pharmacy Industry. New Hampshire 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.

When pursuing Pharmacy Acquisition Finance, for the best chance of success, make sure the pharmacy valuation company and the lender have expertise in the NH pharmacy industry.

Tips:

1. Attorneys and CPAs who have been representing the pharmacy or drug store 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 working diligently on the New Hampshire pharmacy transaction and are not slowing or undermining the process.

2. Since pharmacy acquisitions involve 6-9 months and sometimes a couple years, all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All of the pharmacy’s financial information needs to be current. Over the lengthy process the data supplied to both the buyer and the lender will need to be updated on a continuous basis. Things can change drastically during a nine month period and the NH pharmacy seller will need to continually prove the financial condition of the company.


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Using Tax Strategies When Selling Pharmacies in New Hampshire

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. NH pharmacy buyers participate in the pharmacy industry roll-up to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. New Hampshire 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 New Hampshire 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.

Tax strategies can be used to help offset of specific tax liabilities when selling a pharmacy or a drug store. Unless consulting with a professional who handles a large number of pharmacy acquisitions, you will find that they usually do not know these federal regulations that allow for reducing the tax liability for the pharmacy owner in NH.

Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a New Hampshire 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 pharmacy transaction allowing the reduction of the tax burden to the NH pharmacy owner.

There are some capital gain tax strategies that must be implemented before any obligation to sell the New Hampshire 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 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 NH pharmacy seller is nearing a retirement age, or will be working as a 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 NH pharmacy profits continue to slip, more independent pharmacy owners along with small and regional pharmacy chains will be considering selling their pharmacies and drug stores in New Hampshire. Tax considerations should be a paramount part of the decision process.

Pharmacy owners in NH should consult with a pharmacy industry expert for advice on structuring the sale of their pharmacy. Someone with extensive experience in NH 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 New Hampshire pharmacy owners when a pharmacy is sold.

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New Hampshire EBITDA and Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


EBITDA is an acronym that stands for: Earnings before interest, taxes, depreciation, and amortization. It is often utilized to measure the value of some businesses as well as used in the comparison of similar companies.
       
EBITDA generally makes it easier to evaluate various companies and to compare them against industry averages by removing the non-core and irregular operating costs like interest, which varies depending on the management’s choice of financing, as well as taxes, which fluctuates depending on acquisitions or losses from prior years.  Arbitrary factors of depreciation and amortization also effect EBITDA.

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

In order to use EBITDA effectively, these larger companies need to possess significant assets, have heavy amortization schedules, or have substantial amounts of debt. Considering independent New Hampshire pharmacies don’t meet that criteria, this formula is not a very useful measuring tool as the sole means for valuing pharmacies for acquisition purposes.

The Formula 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) Net Income            1,200
2) + Taxes paid            350
3) + Interest Expenses     220
4) + Depreciation          110
5) + Amortization           60
6) = EBITDA              1,940

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

As a means of estimating, EBITDA has been used to gauge cash flow in leveraged buyouts to estimate if 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 pharmacy valuation experts performing New Hampshire pharmacy business valuations will use EBITDA in pharmacy valuations, but only as part of a larger formula when computing values for specialty pharmacies in NH 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 valuations used in acquisitions.

The EBITDA number for a specific existing New Hampshire 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 in NH. 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 New Hampshire pharmacy. Instead of the EBITDA number, pharmacy buyers should be focusing on sales, gross profit, cash flow, and customer mix.

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Acceleration Clauses in Commercial Leases and New Hampshire Pharmacy Business Loans

By Brad MacLiver
Authorship and profile at Google


A provision of many New Hampshire (NH) pharmacy business loans and commercial leases is an acceleration clause. In the loan/lease agreements, the acceleration clause permits the lender to accelerate their collection of payments contingent on an event occurring. Such events include lack of payments by the borrower, failure to keep the property insured, a failure to pay tax assessments, lack of maintenance on 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 provided to the pharmacy owner will describe the rights, conditions, and obligations relevant to the acceleration clause. When the New Hampshire pharmacy owner (the borrower) doesn’t meet their obligations then the loan or lease goes into default. A payment that is even one day late can cause a default. Due to this, pharmacy business loans and commercial lease documents should be thoroughly read and understood before signing.

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

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

3. States have different rules requiring notification of an acceleration clause being exercised. New Hampshire pharmacy owners should understand the laws in the state where they operate. Lack of knowledge is not 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 New Hampshire 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 in New Hampshire.

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

6. There are some pharmacy business loans and commercial leases that require a “personal” guarantee from the business owner, which means that the business owner’s credit and personal assets will become involved in the event of a default. The “corporate” status of the business will prevent the lender from seizing their personal assets.

When considering financing a pharmacy for either acquisition or expansion, understanding of all ascepts of the transaction as well as due diligence should be considered. Taking advantage of the services of a NH pharmacy industry expert to guide a New Hampshire pharmacy owner through the maze of details will benefit the pharmacy owner in making the best business decision.

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Pharmacy Acquisitions and New Hampshire Bridge Loans

By Brad MacLiver
Authorship and profile at Google


With the changes in the NH pharmacy industry independent drug store owners, small and regional pharmacy chains, and pharmacy equity investment groups are acquiring pharmacies in New Hampshire to obtain a larger competitive footprint in a geographic area. There might be opportunities that require action during the acquisition phase of the business expansion which is quicker than the traditional funding process.

Bridge Loans are a tool for short-term financing that are used while waiting for permanent financing or the next stage of financing to be obtained. These 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 quality of bridge loans is that the process usually necessitates less documentation than conventional financing. Bridge loan lenders usually don't have the same sort of government regulations to adhere to, which allows them to have more flexibility in their lending criteria and the documentation they require. However, less documentation does not necessarily mean they will not perform due diligence to have a level of comfort with the transaction before they fund.

Examples of using Bridge Loans in NH Pharmacy Transactions:

1. An independent pharmacy owner in New Hampshire learns of health issues and decides to quickly sell the family owned pharmacy to an employee or local competitor. More traditional financing methods for the pharmacy buyer may require a time line that is not acceptable when considering the circumstances. Bridge loans can be used to quickly accomplish this transaction.

2. A small pharmacy chain requires $1 million in order to expand their business. This chain has 3 new equity investors who will be investing in the firm over the next 6 months but investing at different intervals. However, the business has opportunities which require action before 6 months. The quick closing bridge loan will help provice the needed funds to the New Hampshire pharmacy chain so they can complete their expansion and increase profits. Money from the 3 new equity investors will pay off the bridge loan.

3. A pharmacy owner in a leased location has an opportunity to quickly acquire a commercial property that would be a great pharmacy location in New Hampshire, but the property is in a state of disrepair. A bridge loan gives the required funds to acquire and rehabilitate of the property and once that is complete conventional long term financing can be obtained.

4. A pharmacy group developing new NH 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 New Hampshire is owned by two or more partners and one of the partners is ready to exit the business, a bridge loan can help ensure cash flow and uninterrupted operation of 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 NH pharmacy owner to quickly respond to the opportunity.

When there are business opportunities, buying pharmacies in New Hampshire, 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 NH pharmacy bridge loans:                        

1. Bridge loans are quick to obtain, but quick to expire.

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

3. Because bridge loans usually come with higher interest rates than traditional financing a larger down payment, meaning a lower Loan to Value (LTV) and a lower level of risk and provides an opportunity for lower interest rates.

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

Understand the types of deals that require a bridge loan may be considered speculative in nature, or have higher risk factors. Due to this many banks do not offer bridge loans. Banks must meet government regulations and need to justify their lending practices. Riskier bridge loans do not usually fall within the lending parameters of many banks. Therefore a majority of the bridge loans will come from private investment firms.  It is best to consult a company that has access to a number of funding sources who provide bridge loans.

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New Hampshire Pharmacy Acquisition Finance

By Brad MacLiver
Authorship and profile at Google


When a New Hampshire (NH) pharmacy or drug store is being sold, seldom does the buyer have to pay “out of pocket” cash for the acquisition. Even when cash is available, transactions for pharmacy acquisition strategies usually involve financing.

Acquisitions will typically take 6-9 months to complete, so the pharmacy seller in New Hampshire will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions will require many hours worth of due diligence and negotiation which means 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 NH 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, New Hampshire pharmacies 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.

New Hampshire 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 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 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 New Hampshire pharmacy industry.

Tips regarding pharmacy acquisitions and finance:

1. Attorneys and CPAs who have been representing the pharmacy seller in NH 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 working diligently on the transaction and are not slowing or undermining the process

2. Since pharmacy acquisitions involve 6-9 months of work to complete , all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All of the financial information needs to be current. Over the long process, the data supplied to both the lender and the buyer will need to be updated on a continual basis. Things can change dramatically during a 6-9 month period and the New Hampshire pharmacy seller will need to continuously prove the financial condition of the company.

When “pharmacy acquisition finance” is being pursued, ensure that the valuation company and the lender have expertise in that industry for the best chance of success. Choose a company that has both pharmacy experience, has expertise, and is a direct correspondent with lenders that understand NH pharmacy.

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Current Market Conditions in the New Hampshire Pharmacy Industry

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 NH. These factors are affecting the pharmacy business valuations of pharmacies, New Hampshire drug stores, and other pharmacies all across the U.S.

Local demographics:

The valuation process also includes local demographics and local market conditions. Smaller communities have less potential for growth and with the declining profits a buyer must 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 pharmacy business value.

Pharmacists Shortage in New Hampshire:

Pharmacies in NH 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 New Hampshire 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 in New Hampshire 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 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 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 NH pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current pharmacy market conditions. Due to this many brokers are valuing pharmacies 2 to 3 times more than what the market is really willing to pay. Any inexperienced person can quote a high value to capture a listing.  However, that does not mean the over inflated asking price is what the business will actually sell for.

Mail Order:

Some insurance companies are designating a noticeable amount of pharmacy patients as “long-term medications” and require they only purchase the medications from mail order pharmacy companies who provide products at lower prices. This results in local pharmacies in New Hampshire not only missing out on prescription sales, but front-end sales will also decline since the customer is not entering the store. Pharmacy mail order sales have now surpassed sales from independent retail pharmacies.

Choose a firm that provides NH pharmacy business valuations based on real market conditions and does not use a simple formula for calculating the value of a pharmacy. Complex methods must be utilized to derive the value of a pharmacy.

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New Hampshire Pharmacy Transactions and Capital Gains Tax

By Brad MacLiver
Authorship and profile at Google


Almost everything you own and use for personal, or business, purposes is a capital asset. When NH pharmacy owners sell a capital asset, the difference between the amounts you sell it for and the amount you paid for it (the basis), is a capital gain, or a capital 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 New Hampshire, 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 uncertain time where it is more difficult to finance businesses, NH pharmacy sellers may already be required to reduce their asking price so a pharmacy buyer is able to qualify for financing.  In addition to lower offers they will also be required to a pay higher percentage in taxes.

This is troubling for the pharmacy seller that wants as much money out of the deal as possible.  Most pharmacy owners' business is the largest asset they will ever own, so selling their business at a high enough dollar amount has been part of their estate and retirement planning. Considering they will need be forced to cut a larger chunk of the proceeds to pay in taxes will cause some pharmacy owners to reevaluate their retirement plans. The good news is that financial tools and strategies are available that allow for pharmacy owners in New Hampshire to proceed with their plans.

One such strategy is a Family Foundation.  Family Foundations are tax exempt/nonprofit organizations that provide both tax advantages and control over philanthropic activities.  They are typically private foundations, funded by a small number of sources, and they do not conduct wide fund-raising activities.  They may receive gifts from friends or other limited sources.  The family members will serve as trustees, directors, and officers, and as private foundations, they can make either grants or donations to other organizations.  Establishing a Family Foundation will provide 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 (pharmacy owners) death. An individual (New Hampshire 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.

Some tax strategies including the use of CRTs are not widely known. It would be advisable for NH pharmacy business owners to be aware of the different tools that are available in structuring a business transaction. They should also be aware that only a professional with vast experience in CRTs should be used to setup a Charitable Remainder Trust. Not following the strict IRS guidelines could be cause for increased taxes, penalties, and in some cases criminal charges.

Over the years there have been unscrupulous individuals who have tried using CRTs and similar financial tools in illegal scams. With the increase in capital gains taxes there are expectations more scams will be floating around out there. Be knowledgeable about the possibilities, but be confident you are working with experts in your industry.

You should consult a firm with extensive experience in pharmacy and drug store acquisitions. Firms that have the knowledge and expertise to structure the transaction appropriately, for tax considerations, can save a pharmacy owner large sums of money when a pharmacy in New Hampshire is sold.
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Buy-Sell Agreement for New Hampshire Pharmacy owners

By Brad MacLiver
Authorship and profile at Google


When a New Hampshire 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 New Hampshire pharmacy business.

Pharmaceuticals buy-sell agreements guard the interest of the parties who own a New Hampshire 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 New Hampshire 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 New Hampshire 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 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 devastating for the New Hampshire 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 available, buy-sell agreements are often funded with life insurance. If the death of one of the New Hampshire pharmacy owners occurs, the life insurance settlement provides funding for the remainder of the 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 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 pharmacy business.

Pharmacy buy-sell agreements are very important documents 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:

1 Buy-sell agreements are important documents 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.