The Pharmacy Ownership Podcast | The Multi Store Owners Guide to Selling Your Pharmacy

If you’re a multi-location pharmacy owner, you’re going to want to tune in to this episode of the Pharmacy Ownership Podcast! 

In this episode Scotty Sykes, CPA, CFP® and Ollin Sykes, CPA, CITP, CMA tackle a common yet complex issue: selling a single pharmacy location from a multi-store entity.  

With real-world examples, Scotty and Ollin walk you through:

• The crucial steps of spinning off one location 

• Importance of proper accounting practices, like using class codes for profit and loss statements and balance sheets.  

• Common pitfalls pharmacy owners face when they haven’t prepared for such a transaction 

• And offer key advice for owners looking to avoid financing roadblocks and ensure a smooth sale.  

ASK A QUESTION

More Resources on this Topic:

Service – Rx Assessment

Podcast – Preparing to Sell Your Pharmacy 

Blog – Do These 2 Things Before Selling Your Pharmacy 

Video – Pharmacy Selling Options: Asset Sale Vs. Common Stock Sale

If you prefer to read this content, the video transcript is below:

Scotty Sykes, CPA, CFP®: All right, welcome everybody to another episode of the Pharmacy Ownership Podcast. And today’s question is, we got a pharmacy that is looking to sell one of its locations, but the location is within one entity. So it’s a one pharmacy entity with four different pharmacy locations. The owner’s looking to sell one of those locations, and what are the steps and what is spinning that one location off look like and what is the issues and concerns that arise with something like that. So, Ollin, take it off, take it away. 

Ollin B Sykes, CPA, CITP, CMA: Yeah, that issue arises pretty commonly, Scotty, and folks who have not prepared over time for that inevitable situation where it’s maybe one location of a multiple entity, C -Corp or an S -Corp, either one, or even a partnership for that matter that wants to be sold, maybe to a PIC or to an outside third party. And frankly, this is an issue that the pharmacy niche banks run into pretty commonly. And the only way really to handle that transaction is pretty much on an asset sell basis. Because if there’s multiple, let’s just say there’s four stores in one entity. Let’s just assume the entity is an S corporation. There’s one balance sheet. There might be four P&Ls if you’re class coding correctly the stores, but there’s only one balance sheet. So, it obviously cannot be a stock sale because that would transfer the stock of the entire entity to the third party. So, you’ve got obviously scripts, you’ve got goodwill, you’ve got potentially other assets, you’ve got inventory associated with that location. Hopefully you’ve been defining and segregating your third-party receivables as well as inventory potentially as well as payables and fixed assets for that location. So, you should be able to relatively easy allocate the assets as well as the liabilities that need to be involved in the transaction if liabilities are going to be involved in this transaction so that your legal healthcare specialist can put together an asset.  

Scotty Sykes, CPA, CFP®: Attorney that is. 

Ollin B Sykes, CPA, CITP, CMA: Yeah. Exactly. The attorney can put together the agreement to satisfy both the buyer and the seller. But that’s really the only way to handle this transaction. And if the accounting has not been segregated by class code or by entity over time, that makes the situation almost impossible to finance because the banks are not going to be able to see what really has taken place with that entity on a historical basis. So those are the kinds of issues that we run into, oftentimes, Scotty, when this kind of situation arises. 

Scotty Sykes, CPA, CFP®: So, if you have multiple locations within one entity, it’s important to use class codes in your accounting system to have separate location, profit and loss statements. And in addition to that is having a balance sheet that has class coded items on it. So, inventory, pharmacy one, inventory, pharmacy two, receivables, pharmacy one, receivables, pharmacy two, the accounts payables, class coded… 

 Ollin B Sykes, CPA, CITP, CMA: Yes. Correct. 

Scotty Sykes, CPA, CFP®: And whatever else needs to be segregated. Those are obviously the most important pieces there and maybe the equipment and fixtures and things, but having that balance sheet classified and broken out correctly, having the profit and loss broken out right with the class codes is vital here. So as a multiple location owner, you absolutely have to be doing that. 

Ollin B Sykes, CPA, CITP, CMA: No question about it. If you want to optimize the potential sale of your transaction, there’s really no other way to do it. And that’s just a fact of the situation. And it’s a very commonly, it’s a very common issue that we run into. again, the pharmacy and niche banks run into that provides issues because they have got to be in a position to generate EBITDA calculations to be able to project what type of monies that that particular location is can afford to handle from a debt perspective on a financing arrangement. So again, the due diligence on these kinds of things would be similar to if you sold the entire entity, but still, it’s going to have to be an asset sale. 

Scotty Sykes, CPA, CFP®: And Ideally, you wanna consider if you’re a pharmacy owner, multiple pharmacy owner, and you’re looking to add a store, consider putting that additional store into its own entity so that down the road, when these issues do come up, which they most likely will, you’re not gonna be faced with this dilemma per se. You’re gonna have a separate entity and you’ll be able to address that entity in a much easier way. 

Ollin B Sykes, CPA, CITP, CMA: Correct. And Scotty, that oftentimes arises on the spur of the moment when another store or location from a competitor in your area calls you and says, well, I’ve had it. I want to sell my files. I want out of here and I want to be out here in two weeks. The easiest thing to do is to absorb that into your present entity. But that is where you’ve got to stop and say time out. You need to set up a separate, probably LLC, maybe make an S -Election. You talk to your tax advisors about the setup of that and treat each different location that you potentially purchase, even if it’s just a file buy as a separate legal entity, you’re going to have to go through the hassle of the third-party approvals. It’s going to take you two to six months to do that, depending on what state that you’re in and what buying group that you’re with. But ultimately, that will be your best course of action, because you may want a PIC to own a portion of that one location down the road and not the whole of your entire entity. So again, that’s a common situation we see, especially in this marketplace here with as much transition that’s going on with boomers. 

Scotty Sykes, CPA, CFP®: Thanks everybody for listening in. And if you have any topics you’d like for us to cover on the Pharmacy Ownership Podcast, let us know and we’ll glad to bring them up on the podcast here. Appreciate everybody listening in.