The Entrepreneurial Pharmacy Podcast: Preparing to Sell Your Pharmacy
Before selling your pharmacy, it’s important that you have sound financials, but what other steps need to be taken?
In this episode of The Entrepreneurial Pharmacy Podcast, we dive deep into what you need to consider when selling your pharmacy. We talk about what pharmacy lending banks are looking for, cash vs. accrual accounting, perpetual inventory, and more!
Join the discussion below.
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More Resources on this Topic:
Blog – Do These Two Things Before Selling Your Pharmacy
Blog – Selecting Advisory Services for Selling a Pharmacy Business
Blog – Roadblocks to Selling Your or Buying a Pharmacy
Podcast – The Entrepreneurial Pharmacy Podcast: Are You Ready to Sell Your Pharmacy
If you prefer to read this content, the video transcript is below:
Scotty Sykes: So, you decided you want to sell your pharmacy. You’re thinking now’s the time. You’ve decided the timing’s right. You’re ready to retire or whatever it is. What do you do from here at preparing to sell your pharmacy? What does that look like?
Ollin Sykes: Depending on, Scotty, how far in advance one has made that decision, let’s assume just for talking purposes, somebody says that maybe in three years I want to look at exiting. I’ve got maybe a PIC here that’s interested in purchasing the pharmacy, first and foremost, you want to make sure that you fundamentally have your financial information in order. Well, what are we talking about? We’re talking about making sure that your balance sheet, your cash, your third-party receivables, you have good perpetual inventory numbers, that you reviewed your depreciation schedule and your fixed assets that you have in the pharmacy are not 40 years old listed on your depreciation schedule. That it’s been updated. That any indebtedness that you have outside of current payables it’s accurate from its reporting. And once you get the balance sheet straight, then all those adjustments affect your profit and loss schedule. If I’m a potential buyer looking at you selling your pharmacy, I want to make sure the numbers that you have are as accurate as possible. And I want to make sure that they’re on an accrual basis, frankly for financial reporting purposes. What is accrual accounting? That’s when you adjudicate a claim, you’re generating revenue, and that revenue should be recorded as receivable. And when you purchase, not necessarily pay for your wholesalers’ items, that you’re buying that liability is incurred on your books. It’s very important to have really good accrual financial information that you can present to a buyer, that the accountability is very clearly listed so the buyer’s representatives can review and do their own due diligence on these numbers and that the tax returns that you have prepared for the last 2, 3, 4 years are as accurate as possible regardless of whether you’re on an accrual basis or a cash reporting basis for taxes. You may be reporting differently for tax than you are for book purposes. That’s a little bit more detail than we can get into in this conversation. But these are the kinds of things that I think are very important in making sure that you can support your claim of what it is that you want to show is the value for the pharmacy. Keeping in mind the single most important number that any of the third parties, financing banks that finance the space for pharmacies, are going to be looking at your earnings before interest, taxes, depreciation, and amortization commonly referred to as EBITDA and that EBITDA number is going to have to reflect adjustments to it. That if I, as a buyer, are coming in and purchasing your pharmacy that you’re selling, those numbers will potentially exclude, or add back as the case may be, any personal type of items that you might have. So, what you’re trying to do as a seller is to maximize your EBITDA as much as you possibly can, because there’s some type of multiplier that’s going to be placed on that adjusted EBITDA to determine the value of your goodwill or your funds. And then again, whether you’re selling inventory receivables, the entity as a whole, or whatever, other items are added to that goodwill component. That’s the positive cash flow that as a seller, you want to be able to promote as large a figure as you can for as long as number of years as possible to maximize the value that you’re asking for the sale of your pharmacy.
Scotty Sykes: You also want to maximize the value in terms of the pharmacy itself, the physical. What does it look like?
Ollin Sykes: That’s very important.
Scotty Sykes: Is the outside of the pharmacy clean and updated? Is the sign, does it have holes in it? Does the pavement in the driveway, does it have holes on the pavement?
Ollin Sykes: Yep, absolutely.
Scotty Sykes: When you walk in, does it look like it’s a modern pharmacy or you’re going back in time?
Ollin Sykes: Absolutely, because that, what you’re showing to the outside patient public is extraordinarily important when you’re in a sale mode. It’s like you’re presenting a home for sale. You want your home to be freshly painted. You don’t want any rotten wood showing. The same concept applies with respect to selling your pharmacy. If you got old fixtures there that are busted and broken down, get rid of them. But the physical part of that becomes very important.
Scotty Sykes: Okay. We appreciate everybody listening in and we’ll have some new episodes coming out soon!
Ollin Sykes: Thank you very much!
