Five key steps to developing your exit strategy
Five key steps to developing your exit strategy
You're an independent pharmacy owner. You've spent years working hard to build a local business that patients in your community have come to know, trust and rely on. Chances are, you decided to become an independent pharmacist because you value the opportunity to have a meaningful impact on the lives of your patients. You value the opportunity to chart your own course, to control your own destiny and run your store in the way that will best meet the needs of your community. Well, those reasons are exactly why it's important to start planning, now, for your retirement. Whether you've owned a pharmacy for 5 years or 40, it's important to follow these five steps to protect your legacy.
Start planning now. And think through the tough questions, early. It's never too early to start planning your exit strategy. Preparation is the key to a successful transition. Ask and answer the tough questions - early - and then revisit and answer them again, often. For example,
- When it's time to sell, will your goal be to sell your pharmacy to the highest bidder? Or are there other factors to consider, like transitioning your pharmacy to a family member or key employee?
- If the latter is true for you, have you had the conversation with these folks? Are they committed to small business ownership? Do you have a plan in place to help them develop the skills they'll need to eventually take over the reins?
- Until what age do you plan to own and operate your pharmacy? Have you considered slowly transitioning away from daily controls while still maintaining ownership?
These are just a handful of the types of questions that small business owners need to ask themselves when determining their exit strategy. While the old adage "better late than never" is certainly true, waiting too long to ask these questions can severely limit your exit strategy options. The sooner you start planning, the more confidence and control you'll be likely to have over when and how you retire.
Consider all of your options. Most pharmacy owners have two options: to sell to a chain or to an individual who wants to continue their legacy of independent pharmacy ownership. One major misconception is that retail chains are the only ones who can pay top dollar for your pharmacy. That's not true. Pharmacy ownership is an excellent career option for pharmacists who have already been working in a retail setting for a number of years and are ready for ownership. It's also quite common for other independent pharmacy owners to purchase multiple pharmacies, often in a neighboring town.
It's your pharmacy. Only you can decide who continues your legacy, and what's best for your family, your employees and the community. Just remember not to sell yourself short - consider all of your selling options.
Get your financial house in order. It's important to understand that the value of your pharmacy is a direct multiple of your net operating Income. Buyers and bankers want to be assured that the pharmacy can generate sufficient cash flow to service the debt. This is where you will need to be as transparent as possible. Protect yourself with a confidentially agreement, but be prepared to share at least three years of the pharmacy's most recent tax returns, year-to-date financial statements, prescription summary audit logs, top drugs dispensed, third party plan mix, labor schedules and any "discretionary" operating expenses.
Independent pharmacy values are generally based on the profitability of the business. The most profitable and efficiently run pharmacies generate the highest prices. It's important to stay focused on implementing efficiencies, processes or technology that can improve your bottom line and attract the best possible price from potential buyers.
Take a phased approach. Don't let your exit strategy become an emergency exit strategy due to an unplanned life event. Retirement doesn't have to happen overnight. Develop a transition plan that helps you adjust to retirement - one that gives you more flexibility, time with family, time to pursue other interests - while also allowing you to remain connected to your pharmacy in a way that ensures a good transition for the new owner, your employees and your patients.
A successful transition includes upfront and honest communication with your staff. They know that one day you'll retire. It's best to let them know your plan. It can be hard to give up the reins, but consider a role with the new owner as you transition her into ownership. It's important that your staff and the community recognize that this was your choice, and how that choice can benefit not just you, but also your team, your patients and the community.
Don't go it alone. Assemble your team of trusted advisors to develop the best possible exit strategy for your needs. Engage your accountant and craft a plan to maximize your profitability. Ask your pharmaceutical distributor and other key partners what tools and solutions you can use to drive margins and revenues. Take a closer look at the appearance of your store. Consider removing clutter or upgrading fixtures, lighting, flooring and the exterior. Engage a tax attorney to determine taxation consequences and potential mitigating measures.
Regardless of how long you've been a pharmacy owner - take these steps now, and re-evaluate your exit strategy frequently. Afterall, it's never too early to start planning your future.