Why exit planning is essential for your pharmacy
No doubt you have heard the adage “Failing to prepare is preparing to fail” a million times already, but that doesn’t make it any less appropriate for pharmacist-owners thinking of selling their pharmacy business.
The sad fact is that many if not most pharmacist-owners do not spend enough time getting ready for what will probably the single biggest liquidity event of their lives. We understand why that is. Pharmacists are typically focused on serving patients and customers to the best of their abilities, and the day-to-day demands of running a business can easily distract them from contemplating a future for their pharmacy without them in it.
Yet that future is coming. And the difference between exiting your pharmacy on your own terms or having an exit forced upon you – through death, disability, divorce, a shareholder dispute or any number of other events that can derail your business – often comes down to whether you have taken the steps necessary to prepare for that day.
What is an exit plan?
Exit planning is the process of developing a strategy to sell your ownership in your company to investors or to another company. Having a plan is a vital step towards enhancing the value of your pharmacy for sale and ensuring that the transition to life after ownership is a smooth one for you and yours.
An effective exit plan should feature a few essential elements. A current market assessment, a list of potential buyers, and some idea of the marketing strategies you will deploy to put your business in its best light are all good things to include. But perhaps the most important is this: a clearly established timeline for your exit.
Many pharmacist-owners fail on this step, either by not having a clear idea of when they want to exit or not giving themselves enough time to get ready. Successfully selling a pharmacy takes longer than you might think. In fact, we recommend that pharmacist-owners get their exit planning in place at least five years before they plan to sell.
Why begin exit planning early?
Having your exit strategy ready allows you plenty of time to prepare all the documents you will need – and there are lots of them – before negotiations with buyers. It will also give you time to implement the operational changes your pharmacy might need to improve its profitability or lower risk – the two most important factors in determining its market value. You will also be better able to ensure your business and its ownership (shares) are structured to maximize tax efficiencies.
On a more personal level, knowing when and how you are going to exit is a huge help in figuring out how and whether the sale of your business will support you and your family in retirement (or whatever the next stage of your career will be). And you will be able to come up with ideas for how you will be spending all that extra time you’ll have after leaving your pharmacy.
Finally, in the actual negotiations for the sale of your pharmacy, an exit plan is a useful part of your psychological and bargaining toolkit. It sets your strategy for the process and establishes the goalposts for the deal. In any business negotiation, the side that is best prepared usually comes out on top. That’s the side you want to be on!
What are the mistakes to avoid?
Most pharmacist-owners we work with are very good at running their pharmacies. But selling a business requires a completely different skill set. That makes having a solid exit plan all the more important, because it can help you avoid these mistakes.
Leaving it too late: If you don’t have a plan, you might not have time to evaluate buyers properly or negotiate the best deal possible. Even if you manage both, you might not be prepared for your life after selling.
Not knowing your number: If you don’t know what your business is worth, it is hard to know whether an offer is good or bad. Many pharmacist-owners rely on word-of-mouth estimates (“The pharmacist the next town over sold his pharmacy for X dollars so why can’t I?”) or valuation rules of thumb (“Pharmacies are worth X times revenue” or some such). Very often, these shortcuts can give an owner an unrealistic and inaccurate estimate of the market value of their pharmacy. If you want to do better – and you should – there is no substitute for a data-based, professionally prepared business valuation by a valuator who understands the pharmacy industry. After all, the cost of “mispricing” your business can be high. Overestimating value could jeopardize your retirement plans; underestimating could mean you accept a poor offer and leave money on the table. So, don’t cut corners when it comes to knowing your number.
Using advisors who don’t understand pharmacy ownership: Selling a pharmacy business is a complex process, and it is practically guaranteed that you, as a pharmacist-owner, will not have all the requisite skills or experience to ensure a satisfactory outcome. That means you will need a team of advisors – legal, accounting, insurance, tax, and wealth management – to support you along the way. These should not, however, just be any advisors. They need to have an in-depth knowledge of the pharmacy industry and regulations. And they must also understand your business and your priorities for its sale. If they do not have that knowledge, they will not be able to give you the support you almost certainly will need.
Putting off retirement planning: A good exit plan includes a robust plan for life post-exit. Leaving a business into which you have poured your time, money and attention for years can be a highly disruptive event. Many former pharmacist-owners struggle with regret, with a loss of their sense of purpose, even with depression. Trust us: you will be much happier over the long run if you are not just financially but also emotionally prepared. How will you spend your newfound leisure time? How long will your money last and how will you spend it? Will you stay involved with the community and, if so, how? How will you define your self-worth when you are no longer running the business, meeting with patients and interacting with staff every day? These are big questions, and the time to answer them is before you sell your pharmacy, not after.
The antidote for those problems is simple: plan ahead. Even if you begin long before you intend to sell, remember that exit planning is a process, and your plan can and should evolve over time as your goals and your business evolve. You might well find that what you thought you wanted out of your exit – and how you were going to get there – change along the way. In other words, it’s a journey, and starting out on that journey early will make reaching your ultimate destination all the more rewarding – and successful.
