Georgia Drug Stores - Merry Christmas

Merry Christmas and Happy New Year to all of the pharmacy and drug store owners in Georgia (GA).  Watch our Christmas video:    http://youtu.be/Lm-6ls-rzrY


As you bring in the new year, the staff at www.pharmacyvaluations.com is here to assist you.

Estate Planning for Pharmacy Owners in Georgia

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many GA pharmacy owners are experiencing lower profit margins and have considered selling. A pharmacy industry roll-up has been occurring for a number of years, consolidating the pharmacy seller’s customer traffic into fewer pharmacy locations. However, there are a number of pharmacies that are not in a geographic location with other nearby Georgia pharmacies, so consolidation can’t take place. Some pharmacy and drug store owners, despite where they are located or what is happening in the industry, have taken a stance and won’t consider selling. However, just like paying taxes, an exit of the business, is eventually inevitable.

Estate Planning is a topic many people, in all industries, shy away from. For the pharmacy owner who works 6 days a week, takes very few vacations, fills scripts all day, then mops the floor and does the books at night, there usually isn’t much time to consider additional things such as estate planning. However, knowing that there will eventually be a transfer of the business, it is important for the Georgia pharmacy owner to consider a proper succession plan for the pharmacy business.

Developing a plan to transfer the business will be time consuming, but done correctly will allow the business to be successfully transferred in an acceptable manner. An estate plan for a pharmacy owner in GA does not need to be changeless process. Fine-tuning, updating, and amendments are recommended as government regulations, economic conditions, and personal expectations change.

Estate planning allows a pharmacy owner to anticipate and arrange for the transfer of the drug store. The plan will be formatted in attempts to eliminate uncertainties, assist the transfer by trimming expenses, and reduce taxes.

The process may involve Trusts, Wills, Living Wills, Power of Attorney, Medical Power of Attorney, Business Valuations, Life Insurance, Charitable Remainder Trusts, Buy-Sell Agreements, and other legal documents. All of the different aspects of the estate planning are to provide the Georgia pharmacy owners coordinated directives.

When there are non-family members as partners in the drug store business, it is essential that the estate planning incorporate a Buy-Sell Agreement. A buy-sell agreement, governs the transfer of the business between pharmacy partners. The agreement may also be known as a partner buyout agreement, or a business will. To help protect the family in the event of a partner’s death, the buy-sell agreement may be funded with a life insurance policy.

Estate planning, buy-sell agreements, and the transfer of the GA pharmacy should involve a pharmacy business valuation performed by a third party that is an expert in the pharmacy industry, completes a large number of Georgia pharmacy business valuations each year, and has up-to-date industry data as a basis for their conclusions. Applying simple accounting formulas/multipliers and relying on valuators inexperienced in pharmacy does not provide an accurate business valuation.

Most pharmacy owners in Georgia will spend a large portion of their life building the business. Those efforts should not be undone because the pharmacy owner refuses to accept their mortality and plan accordingly. In some small pharmacies, the only pharmacist is the owner, and if their scripts can’t be filled by a licensed pharmacist then, by law, the customer files a required to be transferred to another pharmacy.  The pharmacy’s business value may drop to a negligible figure within just a few days after the passing of the owner because of this. The contingencies outlined in an estate plan should address this issue. Each year, unfortunately, because effective plans are not in place, many GA pharmacy owners die and their family is stuck with an asset with very little value.

Tips When Planning an Estate:
1. If the family drug store is the sole means of income for several family members, it is even more vital to have a succession plan in place.
2. Disputes can be avoided if estate plans are developed with clear directives.
3. Minimizing tax liabilities is a major objective for most completing an estate plan, therefore expert tax advice should be sought.
4. Many on-line documents and books are available that provide advice and documents for developing an estate plan. When going the self-help route, it is advisable to have a paid expert review the completed documentation to ensure that it can be legally complied with when the time comes.
5. While developing the estate plan it is essential to talk with children and other family members of the pharmacy owner in Georgia especially if there are some family that work in the business and others that don’t.


 

Pharmacy Franchise Financing in Georgia

By Brad MacLiver
Authorship and profile at Google


A Georgia (GA) pharmacy franchise is a contractual relationship between two parties. One, the Pharmacy Franchisor is the party that developed their drug store business model, branded the pharmacy related products, and produced the system the pharmacy franchisees will operate under. The second party, the Pharmacy Franchisee, purchases a franchise license from the Pharmacy Franchisor, and usually pays an ongoing pharmacy franchise fee, or royalty fees, to use the name, products, systems, trade secrets, etc., created by the Georgia Pharmacy Franchisor.

There are a number of options for financing a pharmacy franchise business in Georgia. All pharmacy franchise funding sources, for drug stores, prefer lending to a pharmacy franchisee who will be working with a nationally recognized name and long track records. Newer Georgia pharmacy franchise models won’t possess these two traits and will be considered more risky.

Traditional Bank Financing can be used to a Georgia pharmacy franchise when the pharmacy franchise has both a track record and pharmacy name recognition. Many banks will have interest in this type of opportunity for funding.  After the bank looks over the loan documents, however, many of them will decline the funding request because they don’t fully grasp the security provided for the pharmacy loan. Community drug stores typically have very little traditional assets to offer as security. Lenders for pharmacy will use traditional methods for analyzing the cash flow available to service to the debt, and they will also need to understand the nontraditional collateral that will secure the loan.

As a borrower, even when incorporated, the independent drug store owner’s personal credit rating will be a factor, along with personal tax returns, financial statements, along with the pharmacy's current retail or specialty valuation. The amount of actual cash on hand and the verification of the source of the down payment will be critical factor in qualifying for a pharmacy business loan in Georgia.

GA Pharmacy Franchise Funding Tips:

1. Because there are many pharmacy franchise financing options available in Georgia, pharmacy owners should perform proper due diligence then obtain the pharmacy funding that best suits their situation.

2. It is advisable to have an accountant or attorney that is familiar with pharmacy franchise financing to review the pharmacy business loan documents.

3. There are Georgia pharmacy consulting services and franchise associations who can help guide a prospective pharmacy franchisee or borrower or a drug store loan.

4. New Georgia pharmacy owners need to make sure their funding request is enough to get the pharmacy running and profitable. Less than ample funding for the initial stages may put the drug store in a position of needing additional funding. Smaller working capital loans that would be in a subordinated position will be more difficult to obtain at a later date.

When pharmacy owners in GA have questions and need information regarding pharmacy franchise business loans, or any types of funding for community drug stores and pharmacies, they should contact a Georgia pharmacy industry specialist who can provide quality answers and sound advice.

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Financing Types for Georgia Pharmacies Available

By Brad MacLiver
Authorship and profile at Google


There are a number of different options available for funding GA pharmacy franchises, specialty pharmacies, and traditional community drug stores.

SBA Financing for Pharmacy Business Loans

The U.S. Small Business Administration (SBA) partially guarantees loans for Georgia pharmacy franchise lenders reducing the risk exposure for the lender. A loan program called 7(a) is a standard for funding pharmacy franchises. These loans can provide funds for pharmacy franchise entry fees, real estate where the pharmacy in Georgia will be located, property improvements, working capital, and pharmacy related equipment.

Borrowers for the pharmacy franchise must be creditworthy, without any bankruptcies, have ample down payment, but there are variations here, and the business must be able to repay the loan from the cash flow of the pharmacy.

Terms can range from 5 to 20 years. Within SBA standards interest rates may be adjustable or fixed and will be negotiated by the lender dependent on the financial strength of the pharmacy transaction.

There are SBA fees for guaranteeing pharmacy business loans. These fees, which are paid to the government and not kept by the bank, can be rolled into the Georgia pharmacy financing.

Patriot Express Business Loan Program

The Patriot Express Business Loan Program is another SBA loan program that can be used for business loans in a pharmacy franchise.  This loan is strictly reserved for military veterans, active service members, their spouses, and survivors.  If using this loan, the Department of Veterans Affairs would be directly involved with the Georgia pharmacy loan process.

Georgia pharmacy funding using the Patriot Express program have the benefit of relatively fast approval times and a smaller down payment from borrowers than traditional business loans.  Lower credit scores can also be accepted.  Opportunities are provided by patriot Express business loans for lower interest rates than most Georgia pharmacy business loans.

Funding for Pharmacists in GA Who Are Veterans

Specific franchise loan programs are available for honorably discharged veterans.  These Vet programs are another possibility for pharmacy franchise loans.

Pharmacy Financing From the Franchisor

With a pharmacy franchisor, financing a Georgia pharmacy franchisee is a usual topic in discussion. Franchisors should have the option to direct potential drug store franchisees toward funding programs that have been successful in the past for their other pharmacy franchisees. Preferred lenders will already be familiar with the pharmacy franchisor and their systems.

Pharmacy franchisors may also provide some funding internally. Lower collateral will be offset by higher interest rates. This may help with qualifying for a pharmacy acquisition of a franchise in Georgia, but may hurt the franchisee’s long term cash flow. Due diligence of pharmacy franchisor funding should be completed before any final decisions are made.

Personal Assets Used in Pharmacy Finance

Not all prospective pharmacy franchise owners have enough cash on hand. Part of the drug store business financing may require the borrower to liquidate personal stocks, provide personal assets as collateral, refinance their home, or use their 401k to assist the lenders security for making the pharmacy business loan.

If the borrower still does not have enough personal assets then a family member or a friend may be required as a partner in the Georgia pharmacy. Since the GA pharmacy partner’s cash and assets will also be at risk of loss, these partners may require some controlling interest in the drug store.

Retirement Accounts Used in Pharmacy Finance

Retirement Plans can be self-directed and used to invest into a Georgia pharmacy franchise. The retirement plan can purchase stock in the pharmacy franchise. This is similar to how the retirement plan currently may be investing in publicly traded stocks and mutual funds. Lower debt service and higher profit potential may result when incorporating this option that uses less external financing in funding the franchise.

The downside is, if the pharmacy in Georgia crashes, so does the retirement fund. The method of providing less expensive financing for the pharmacy needs to be weighed against the risk of failure.

Because of the factors involved such as deferred taxes, early or improper distributions, and IRS involvement, funding a pharmacy transaction with a retirement account should be handled by a company who has expertise in this arena. Georgia pharmacists and investors interested in using this financing structure should research the Employee Retirement Income Security Act of 1974 (ERISA).

Pharmacy Franchise Agreement Buyout Funding

Understand that pharmacy situations are changing, economic factors are a concern, mail order pharmacy is growing, and market shares are shifting. All of these can have a negative impact on the cash flow of a pharmacy franchise. Drug store owners paying franchise royalty payments may not survive the tightening profit ratios. Due to this, these Georgia pharmacy franchises may only have the options of bankruptcy, or buying out the franchise agreement when allowable.

Buying out the franchisor allows the pharmacy to remove the franchisor from the equation. This in turn allows the pharmacy owner more flexibility in their business decisions. The pharmacy franchisor sold the drug store franchise with expectations of earning income from the cash flow their pharmacy franchisees. Due to their long term plan, Franchisors may not be willing to allow the Georgia pharmacy franchisee to remove itself from the franchisor. However if a Franchise Agreement Buyout can be negotiated, the buy-out transaction can also be financed.

Unfortunately many banks don’t understand the dynamics of the Georgia pharmacy industry. This lack of pharmacy knowledge results in the banks looking at the funding request and all they see is a business that has very little collateral compared to amount of financing the pharmacy is requesting. To assist the successful funding process a pharmacy owner in Georgia is advised to use a pharmacy industry specialist to capitalize on the funding opportunities that are available.

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Georgia Purchase & Sale Agreements

By Brad MacLiver
Authorship and profile at Google


A Pharmacy Listing Agreement is the contract that provides a pharmacy broker the Georgia business seller’s permission to sell their drug store. During the process of presenting the business being sold to qualified drug store buyers there are negotiations and preliminary offers.

Once the preliminary stages have been negotiated it is time to put forth the details of the potential pharmacy transaction in contract form. This contract is usually called the Purchase and Sale Agreement, but it may also be referred to as an Asset Purchase and Sale Agreement, Pharmacy Asset Purchase Agreement, Asset Purchase Agreement, or variations of these contract titles. Whatever the title is on the contract, this document should be considered the “blueprint” for transferring the pharmacy business to the new owner.  

The Pharmacy Purchase and Sale Agreement details how much the buyer agrees to pay and what assets the Georgia seller is conveying to the buyer. When the agreement is put in writing, describes the transaction in some detail, and is accepted and signed by both parties, this contract becomes a legally binding agreement. Therefore, during the negotiated development of the Pharmacy Purchase and Sale Agreement proper diligence should be taken.

Due to liability issues it is seldom that a pharmacy’s corporate stock will be purchased. Therefore, these transactions almost always are only asset purchases.

Elements of the Pharmacy Purchase and Sale Agreement include, but are not limited to: assets being purchase, assets being excluded, aspects of counting and purchasing the inventory, both electronic and hard copies of pharmacy customer files, liabilities, purchase price, closing date, transferring title of the assets being purchased, the conversion of pharmacy customer files, warranties and representations, non compete, restrictive covenants, phone transfers, notification of customers, signs, Board of Pharmacy notifications, accounts receivables, the employment of pharmacy and business seller employees, confidentiality, pharmacy inventory counting, any costs attributed to the closing, lien searches, actions that must be taken before the closing date, computers and office equipment in the pharmacy, and the pharmacy's automated filling machines.

Although it covers many aspects of transferring the business assets from the Georgia pharmacy seller to the new owner, it should be understood that the Purchase & Sale Agreement does not provide tax and legal guidance for the seller in Georgia. Those issues do not pertain to the buyer of the assets. Therefore, the pharmacy seller should be well advised by a knowledgeable pharmacy broker, accountant, or attorney regarding tax consequences, restrictive covenants, and the structure of the deal. These aspects of the deal may not have any impact from the buyer’s point of view, but if not considered carefully may have affects to the seller’s financial position after the transaction is closed.

Georgia (GA) Pharmacy owners who are considering selling will benefit when working with a specialist who operates exclusively in the pharmacy industry and can provide expert guidance in bringing about a transaction that provides the most benefits regarding the seller’s tax consequences, family and estate planning. Proper planning and a blueprint that structures the transaction appropriately will increase the net amount of money the seller receives for the Georgia pharmacy’s assets.

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Learn more about pharmacy and drug acquisitions, finance, and
business valuations by following us on:

   Facebook
   Twitter
   LinkedIn
   Google+
   Tumblr

Watch our videos at:
   YouTube

Web sites:
   www.PharmacyValuations.com
   www.BuyingAndSellingPharmacies.com

 

Using Tax Strategies When Selling a Pharmacy in Georgia

By Brad MacLiver
Authorship and profile at Google


When an industry’s many players are consolidated into smaller groups for economic benefits it is known as an industry roll-up. Georgia (GA) pharmacy buyers participate in the pharmacy industry roll-up in Georgia to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Pharmacy sellers both independent owners and drug store chains must consider their current market value, recognize the narrowing of profit margins, and realize what their tax consequences will be if they sell.

When Georgia pharmacy owners sell their GA pharmacy it is considered a capital asset. The difference between the amounts it is sold for and the amount spent to either purchase or start the pharmacy is a capital gain, or a capital loss. In the U.S., all capital gains must be reported and the appropriate tax paid.

Specific tax strategies can be used to help offset the tax liabilities when selling a Georgia pharmacy or a drug store. Unless a professional is handling a large number of pharmacy acquisitions, they usually do not know these federal regulations that allow for reducing the tax liability for the pharmacy owner in Georgia.

Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a GA pharmacy will result in tax consequences. However, most of these professionals do not handle the buying and selling of pharmacies on a daily basis and may not realize the different aspects of structuring a pharmacy transaction allowing the reduction of the tax burden to the pharmacy owner in Georgia.

There are some capital gain tax strategies that must be implemented before any obligation to sell the Georgia pharmacy. When a drug store owner is considering selling their pharmacy either now, or in the next few years, it is urgent the best course of action be considered now instead of later.

Estate planning when selling a GA pharmacy should also be a consideration. Specific federal regulations allow an 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. If the pharmacy seller is nearing a retirement age, or will be working as a Georgia pharmacist for another company, instead of being an owner, then estate planning should also be considered.

As reimbursements are cut, more regulations are applied, and pharmacy profits in Georgia continue to slip, more independent pharmacy owners along with small and regional pharmacy chains will be considering selling their GA pharmacies and drug stores. Tax considerations should be a paramount part of the decision process.

Pharmacy in GA owners should consult with a pharmacy industry expert for advice on structuring the sale of their pharmacy. Someone with extensive experience in Georgia pharmacy and drug store acquisitions will have the knowledge and expertise to structure the transaction for tax considerations. Like all tax planning issues, waiting until the end of the year is not always the best strategy. Following this advice can place larger sums of money in the bank of Georgia pharmacy owners when a pharmacy is sold.

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Pharmacy Industry Roll-Up in Georgia

By Brad MacLiver
Authorship and profile at Google


GA Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. Recessions, new government regulations, or other aspects of the industry that may be stifling profits end up providing incentives to consolidate

A principal reason for an industry roll-up is to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Consolidated businesses also have less risk from the impact of an unsatisfied customer and have the reward of being able to recruit, or keep, key employees.

An example of an industry roll-up can be seen with the pharmacy industry in Georgia. It is a well established industry and is still experiencing sales growth. However, pharmacies and drug stores have seen a steady decline in their profit margins due mainly to government regulations, even as sales increase. There has also been a shortage of GA pharmacists - a required key employee.

Industry roll-ups are often initiated by investors seeking investment opportunities. However, in the case of pharmacies, the roll-up is a necessity due to declining net profits ratios. Companies that are acquired in a roll-up are usually small independently-owned businesses whose owners believe in the economic benefits of combining forces with a larger organization, or simply need an exit strategy. In the pharmacy industry roll-up, independents have been a majority of the acquisitions, but there has also been a consolidation of a number of the larger Georgia pharmacy chains.

During the Georgia pharmacy industry roll-up pharmacies with better financial wherewithal are acquiring their local competition and combining two or more stores into a single location. This has the result of more customer traffic through a single location.  This reduces the expenses that come with multiple locations and can also dramatically drive up total sales while driving down the administrative and overhead costs per customer.

To help fund pharmacy acquisitions during the roll-up in Georgia, specific programs for funding have been created. These pharmacy chain funding programs are backed by major financial institutions that provide the funding for pharmacy acquisitions. These pharmacy funding programs allow an individual Georgia pharmacy business, or an investment group, the capital to acquire and combine pharmacies in geographic areas.

Funders are willing to provide the capital for the pharmacy roll-up in Georgia because they recognize that combining the individual pharmacy businesses provides a greater total business value than if each individual GA pharmacy value were added together. This synergistic value reduces the risk of funding the individual acquisition.

When considering the buying, selling, or financing a pharmacy, whether an independent drug store, or multiple pharmacy locations,  due diligence and understanding of all aspects of the transaction should be considered. Using the services of a GA pharmacy industry expert to guide a Georgia pharmacy owner through the maze of details will benefit the pharmacy owner in making the best business decision.

All transactions involved in the pharmacy roll-up in Georgia need to have the business valued at the current market value. Business valuations for the pharmacy industry should be calculated by a company that has in-depth knowledge of the pharmacy. Simple accounting formulas used by many to estimate a value do not provide an accurate picture because the simple formulas do not take into account the aspects that are causing the GA pharmacy industry roll-up.

The aspects of the market which are stimulating the roll-up are also having downward pressure on the pharmacy business valuations. Georgia pharmacy owners have been watching what has been occurring in the pharmacy industry. While profit margins slip, new regulations are being imposed, and as reimbursements are pared down there is wide expectation that the business values in the pharmacy industry will continue to slide to lower levels, and thus the Georgia pharmacy industry roll-up will continue.

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