Selling & Buying Pharmacies

Business Plans

2006-10-22T18:21:00.000-07:00

All business loan and venture capital deals begin with the clear communication of the facts, which influence a Funding Source to consider the transaction. This communication comes in the form of a business plan.

Great insight into the Client=s company comes from the business plan. Therefore, a plan needs clear and concise data stating the Client=s product, or service, who they are, their track record, the funding request, financial statements, and other informative information. Clients must use the plan to effectively communicate their strategies, and their commitment to the success of the project.

An effective plan will always start with a one page Executive Summary. This one page will be written with facts, no fluff, so that the reader has a clear understanding about the company and what they do. Statements made in the Summary are supported by the documentation within the body of the plan. It is the summary that encourages the reader to spend valuable time digesting the rest of the business plan.

It is advisable for the Client to have a good understanding of all the elements necessary to make a successful plan. There are always Clients who spend too much time trying to market projects to funding sources, when the project has no chance of being funded due to the poor quality of the business plan. The business cannot be funded if no one is willing to read their plan and accept the information as being of sound business and financial reasoning.

There are a number of books and sources available to assist the Client develop a better understanding of writing and presenting a business plan. One source that provides free business information is the web site http://www.startingandexpandingabusiness.com/. Along with other information on this site there is a list of books, which focus on the development of business plans. These books were the ones recommended by professionals who participated in a national survey concerning books on business plans.

When approaching a Funding Source, Clients should take into consideration: if a person is job hunting, does a quality resume, or a sloppy one have the greatest possibility of landing the job? The answer, of course is Aquality.@ When seeking capital for projects, the same is true concerning business plans.

Currently, there are a tremendous number of deals already in the marketplace, and there are many more people looking to expand their business. Many of these deals submitted for financing are turned down due to the fact the APlan@ is not adequate and will never be successfully accepted by a Funder.

Clients need to understand the chances of successfully funding a project, diminishes greatly when they are unable to present a quality business plan. Submitting an inadequate plan, or completing a plan with partial effort, will not get successful results.

When a Client submits an ineffective business plan to a Consultant who will then in turn submit the plan to multiple funding sources, the Consultant has choices. One, trash the deal and move onto the next deal. Two, the Consultant can waste time and money calling other Consultants and Funding Sources in a fruitless attempt to find Funding. Three, determine whether the project is at least viable then discuss with the Client the facts of submitting a quality package.

Want to learn more about business loans or getting a pharmacy financed? We encourage pharmacy owners to provide questions or feedback to the articles and comments posted at www.articles-sellingpharmacies.blogspot.com.

Until next time,
Brad MacLiver
www.pharmacyvaluations.com

Medicare Reimbursements

2006-10-12T19:44:00.000-07:00

The confusion with the new Medicare changes has been well documented by the media. Pharmacy owners are spending a tremendous amount of time with customers assisting them pick a plan - and as you know, there are many plans. Assisting with picking plans is good customer service, but it is time consuming and doesn’t pay the bills. Owners and their staff have also had to spend time on the phone with the different insurance companies trying to get paid. Some states have had to step in and help fund the system to keep it moving. When the pharmacy owner does get paid the reimbursements are coming in slower, and as we all knew would happen, the reimbursements are less in 2006 than they were in years past.

Many expect to see razor-thin profit margins and some profit margins may even turn negative because pharmacies are getting even less than before from health insurers. Larger drug chains are better off because they can count on high volume and higher margins from the front end sales. Lower margins will hurt the non-chain drugstores, and reimbursements could end up low enough to make some independents fold.

The number of Medicare plans will expand in 2007 providing more choices for the consumer, but adding to the confusion the pharmacy owner must deal with. Next year, 48 states will offer more than 50 drug plans, with 23 states offering at least 55 choices.

Pharmacy owners can expect the continuation of increasing expenses while experiencing a downward slide in reimbursements.

Want to learn more about declining reimbursements? We encourage pharmacy owners to provide questions or feedback to the articles and comments posted at www.articles-sellingpharmacies.blogspot.com.

Brad MacLiver
www.WashburnAndAssociates.com
http://www.pharmacyvaluations.com/

Tax Strategies for Selling a Pharmacy

2006-09-14T11:56:00.000-07:00

Many CPA’s inform their clients that selling a pharmacy will result in high tax burdens. Most CPA’s are great at year to year tax accounting, but few CPA’s handle the buying and selling of pharmacies. Due to that, they do not research specific tax laws that would benefit their clients during a pharmacy transaction.

There are special tax regulations that affect a good portion of a pharmacy transaction. These regulations are there for the benefit of the pharmacy seller, but most pharmacy owners and CPA’s don’t know about them.

There are numerous tax laws. One law that few pharmacy owners take advantage of is for capital gains tax. When a pharmacy, or other large asset, has appreciated in value over the years and is now being considered for a possible sale, there are specific strategies that can counter the exposure to capital gains tax when the asset is sold. These strategies, developed from federal IRS codes, allow the 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. There will be more discussion on estate planning in upcoming blog posts at www.articles-sellingpharmacies.blogspot.com.

When pharmacy owners are considering selling a pharmacy, it is to their benefit to work with pharmacy specialists like Washburn & Associates. Pharmacy industry experts handle pharmacy transactions on a daily basis and know how to structure a deal using these special tax codes.
When implemented properly these tax codes can assist in maximizing the overall amount of money a seller walks away with.

Want to learn more about these special tax codes? We encourage pharmacy owners to provide questions or feedback to the articles and comments posted at www.articles-sellingpharmacies.blogspot.com.

Brad MacLiver
www.WashburnAndAssociates.com
www.PharmacyValuations.com

Tough Questions

2006-09-09T12:18:00.000-07:00

Most business owners find that selling their business is one of the most important events in their life, both professionally and personally. Handled properly, it can be very rewarding. Handled poorly, it can become a perilous chore especially if employees, customers, vendors, and competition learn the business is for sale.

Selling a pharmacy is a complicated process that involves many difficult decisions. For most owners the pharmacy is their biggest personal asset. It is difficult being impartial after years of work growing the business. Some of the issues are:

How do I find a suitable and qualified buyer?
How long does the process take?
How do I keep the process confidential?
How will I document the transfer?
How will a buyer value my business?

Tough questions because each one impacts a subset of issues that require close attention.

Washburn & Associates is a company that specializes in mergers and acquisitions of pharmacies. The company maintains it's own database of buyers plus a network of associates. To aggressively market pharmacies discreetly Washburn & Associates relies heavily on their, own database and research capabilities.

In-depth buyer interviews need to be conducted to insure sellers have confidence they are negotiating with a qualified buyer.

To learn more about the buyer qualification process and other aspects of buying and selling a pharmacy - bookmark this Blog – www.articles-sellingpharmacies.blogspot.com to read more articles and comments concerning selling and buying a pharmacy.

We encourage pharmacy owners to post comments, or ask questions.

Best regards,
Brad MacLiver
Washburn & Associates
www.pharmacyvaluations.com
www.washburnandassociates.com
bradpharmacy@msn.com

Market Conditions: Pharmacy Industry

2006-09-07T20:42:00.000-07:00

Currently there are a number of factors that are driving the current market conditions of the pharmacy industry. These conditions affect the values of pharmacies.

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 pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current 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.

Washburn & Associates provides valuations based on real market conditions and does not use a simple formula for calculating the value of a pharmacy. Complex methods are used to derive the value of a pharmacy. As a national company that specializes in pharmacy, Washburn & Associates has extensive and current industry data. Jack Washburn’s 31 years pharmacy industry experience, excellent reputation, integrity, ability, along with the company’s national data, are reasons the largest financial institutions, major chains, regional chains, and independents use the services of Washburn & Associates.

Factors that are considered in deriving a realistic value include national trends such as sales figures. We know that due to aging population and new drugs being introduced that in general most pharmacies are seeing an increase in sales. However, due to new federal regulations and other market conditions net profit ratios are declining.

The new Medicare Part D plans will have a negative impact on the pharmacy owner’s profit. Gross margins will decline and cash sales will be reduced. It is expected, due to the confusion of the multiple plans customers will gravitate to the larger chains, which will have a better ability to provide guidance and deal with the confusion of the plans.

The rising costs of healthcare in the U.S., is a major issue. A standard benchmark of the economy has been the “The nation’s economy goes as General Motors goes.” GM is experiencing some financial difficulties and they claim healthcare costs are a major contributor of the difficulties. GM and the United Auto Workers union recently reached a multibillion-dollar agreement to cut health care costs. Sears/K-Mart has announced cuts in its health benefits. Wal-Mart is proposing numerous ways to hold down healthcare costs. For the average company that offers benefits, 10% of their annual revenue is spent on employee healthcare, and they have seen costs jump by as much as 20% annually in some years. HMOs are increasing premiums while the benefits are diminishing. Required co-payments for brand name drugs are increasing, driving more customers to use generics, once again cutting into the pharmacy owners’ profits. Due to the concerns of healthcare costs Wallstreet analysts have lowered expectations on publicly traded pharmacy stock values.

Some insurance companies are designating patients on long-term medications only purchase the medications from mail order companies who provide products at lower prices. This results in local pharmacies not only missing out on Rx sales, but front-end sales will also decline since the customer is not entering the store.

Local demographics also play a part in the valuation process. Communities, which are experiencing growth, bring new customers and new competition. Smaller communities have less growth potential and with the declining profits a buyer needs to purchase at a lower value because the ability to service the debt will be declining.

Pharmacies across the country have had difficulties in finding pharmacists. This shortage of pharmacists not only affects employee opportunities it also affects the number of independent buyers. There are also fewer corporate buyers. Smaller chains have run into financial difficulties and have stopped their expansion. CVS purchased Eckerds. In most markets these two major buyers are now only one. It is more difficult to drive a price higher when there are fewer willing or capable to purchase.

The consolidation of the pharmacy industry 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. Values drop. There are many factors contributing to the downward pressure of values and there is not any expectation of a turn around. Don’t be fooled by the inexperienced claiming grand outcomes and over stating values not based on realistic market conditions.

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This article was written and submitted to www.articles-sellingpharmacies.blogspot.com
By: Brad MacLiver
Washburn & Associates
www.pharmacyvaluations.com
www.washburnandassociates.com