Exit planning: the basics for pharmacists
Most pharmacist-owners are more concerned with running their businesses than with planning how to get out of them. Yet inevitably, the day will come when you realize it is time to turn the equity in your pharmacy into capital. And to do that right – and avoid the trap of being forced to sell by circumstances rather than selling on your own terms – requires a thoughtful, comprehensive exit plan.
Sadly, many pharmacist-owners don’t do this early enough – or don’t do it at all. They let doubts and uncertainties get in the way of exit planning. They end up exiting the business anyway – inevitably, everybody does – but often not at the price, or at the time, or under the circumstances that they wish they could have.
Understanding exit planning is key to being prepared. So here is a simple primer on the process – what it is, how it works, and when you should start doing it.
- Defining exit planning
Exit planning is the process of developing a strategy to sell your ownership in a company to investors or to another company. The exit does not have to be a full liquidation of your stake in the business – it can just be a reduction in your holdings. The goal, of course, is to sell at a substantial profit (or, in the case of a company that’s losing money, limit your losses). Basically, you are converting the value of the business (or of the part you own) into cash. What you do with it after that – well, that should be part of your exit plan too!
- The importance of exit planning
It boils down to this: In any business transaction, the party that is better prepared usually wins. When you have a good exit strategy, you are preparing yourself to be ready, financially and personally, for what is likely the biggest liquidity event of your life. Among other benefits, a plan gives you a goal to work towards; a lens through which to assess your business, its strengths and its weaknesses; and a roadmap to improving your pharmacy business to maximize its market value. Perhaps most importantly, an exit plan can alleviate the hassles and the stress that inevitably come with a business exit.
- The process of exit planning
It’s important to understand that exit planning is a process, not a piece of paper. Sure, you can and should write down your plan, but realize the goals, circumstances and the market are changing all the time. You need to be ready to accommodate that into your planning, which means continually revisiting and revising along the way. But the most important first step isn’t to put pen to paper (or digits to keyboard); it’s to change your mindset. When you’re exit planning, you are preparing for the day when you no longer have to think as an owner/operator, but rather as an investor looking beyond the day-to-day towards your long-term future.
- Timing
The best time to start exit planning? Right now! That’s in large part because successfully selling a pharmacy business usually takes longer than owners think. Depending on the structure of your business and a host of other factors, exiting a pharmacy the right way can take years of preparation and planning. Planning early allows you the time to make any of the operational or structural changes you need to make the most of an eventual sale. That’s why, in an ideal world, a pharmacist-owner begins exit planning five years before they hope to sell.
Remember: failing to plan is planning to fail.
- Plan for risks
Hope is not a strategy. Many pharmacist-owners hope they will get a good price for their business; many hope the proceeds will fund a lavish lifestyle in retirement; many hope the process of selling will be stress-free. But even the best-laid plans can and do go awry. Life happens. Death, divorce, disability, disagreements among shareholders – what we call the Four Ds – can spring up at any time and force the sale of your business, or at the very least derail whatever plans you had for when, how and for how much you were going to sell. As much as possible, then, an exit plan should address the “What if?” questions. What if your marriage dissolves? What if you become disabled and can’t or don’t want to work anymore? What if your other shareholders want to get out?
Sure, an exit strategy should have a Plan A that shoots for the top. But just be sure you spend some time thinking about Plans B, C and D, as well.
