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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