What's your exit strategy? How to tell when it's time to shut your pharmacy's doors
We are often asked by our clients, “How long will it take for you to sell my pharmacy," to which they seem to expect an answer of “three to six months.” A better question is: how long will it take to plan and execute my exit correctly? Unlike selling your house, divesting your pharmacy business shouldn’t be measured in months. Years of pre-planning are necessary to maximize your return, quantified through a careful examination by you with your professional advisors. For those exiting a business, opportunity definitely rewards those who are prepared. The following outlines what matters most as you contemplate your last day:
Pictures are nice, but cash is king and at low-risk is queen
While the appearance of your pharmacy and condition of any equipment are important, it’s your financial statements that matter most. The two equally important aspects to consider as you bolster your financial performance are: (a) how to maximize cash flow sustainably and (b) reduce the risk for the buyer. Well-kept books and financial statements provide clear profitability and reduced risk for your buyer, minimizing questions and resultant explanations. Remember: value equals income divided by risk; in other words, when high income is coupled with low risk, the results are a higher selling price.
↑Selling Price = ↑Income and ↓Risk Rate
The importance of growth
View your business through the lens of the prospective buyer. A potential buyer will contemplate your growth over the last five years and scrutinize growth prospects in the future. They will consider the investments required to sustain or further grow the business. The worst thing you can do is apply cruise control in the final stretch – optimize both financially and operationally in your aisles and keep your foot on the accelerator. Growth must also come from a sound “strategy-stable” operating window as the buyer will be wary of a patched together series of schemes.
Take you out of the business
Goodwill is, in part, related to the quality of your assembled workforce, so it pays to have reliable, well trained, and engaged staff. Providing a clearly defined set of operating, maintenance, and cleaning procedures ensures a smooth operation for the buyer. The buyer will recognize that the business can often run without you in your absence. Trust us, you will not want to stay on after you have sold, and especially with multi-location organizations, your sell date is not necessarily your eject date.
When can you retire with “enough”?
A coordinated effort by all your professional advisors will help to determine an optimum sell date. Developing a strategic wealth plan will allow you to peg a sale date at which you will be able to live in retirement comfortably. To determine this date accurately, however, input metrics are required from a valuator, investment professional, and accountant. Your corporate lawyer and tax professional can make that day come sooner by ensuring your after-tax proceeds from your sale are maximized. A word of caution – don’t delay as some tax restructuring strategies may require at least a 24-month holding period.
Planning ahead will pay huge dividends to you when converting your business balance sheet to a personal one. Over the short years ahead, rewards are maximized when you have time to execute the coordinated plan you and your advisors have constructed.
