Why Mature Pharmacies Need Transaction Advisory Services
Who are the advisors that a mature pharmacy should have on hand to support growth?
In this video, Ollin Sykes, CPA, discusses the transaction advisors that mature pharmacies should be sure to have on their advisory team, beginning with a pharmacy CPA. Learn which advisors are critical and how they help with pharmacy tax planning, mitigation and compliance, risk management, lending, and more. Find out more about the importance of an industry specific advisors that support growth in mature pharmacies.
If you prefer to read this content, the video transcript is below.
The number one advisor that I would suggest that someone make sure they have in place is an experienced pharmacy CPA. One that can assist with both the tax planning, the tax mitigation, as well as the tax compliance, for that particular pharmacy. Especially in light of tax reform active 2017 that has provided so many opportunities for planning, for tax mitigation, and to reduce taxation frankly, as a result of being very taxpayer business friendly. So if you don’t have that person in place, and you’re an experienced pharmacy, and if you’ve been in business a long time, you probably have a pretty good equity base, pretty good solid balance sheet.
Perhaps your debt is paid down pretty dramatically, and you’re probably at the stage in your life cycle of the pharmacy where you potentially have been paying either too much tax, or have the opportunity for tax mitigation. So if you don’t have that person involved that can help and guide you to make sure that the maximum potential again of this tax reform act which has passed, that went into effect 1/1 of ’18, was used. Keeping in mind that you may have missed some opportunities for the tax year ’18, but a lot of these opportunities are still available for 2019 and years thereafter. In fact, this tax law does not mature until 2025. And most likely, with Congress as it is today, there probably aren’t gonna be any changes in the next few years that’ll be material in nature. So you got to make sure that you’re minimizing that taxation. That includes having advisors in place to assist in the retirement planning area. And I’m talking about advisors who are not necessarily trying to sell you a package of goods, but provide to you the correct retirement plan for yourself, your family, and for your key folks that you have in the pharmacy. That will provide for the long-term retirement planning benefits as well as tax mitigation and reduction at the same time.
And there are numerous options to consider there, some of which require less cash flow than others, and there’s some there that require a lot of cash flow, such as a cash balance plan, which is part of a defined benefit plan where you can put up to $275,000 a year. And you might say well, I don’t necessarily have those funds to put into a plan on top of what’s already taken place within the industry. But I would suggest that you take a hard look at how you’re currently structured, to make sure that whatever you’re putting into a plan is again maximizing what it is that you’re looking to do as you go forward.
But if you don’t have those advisors in place, from the retirement side, from the tax mitigation and planning side, as you work towards a potential exit down the road, whether that’s five or 10 years from now, you can add some tremendous value on a tax deferred basis to your family’s net worth if you do this properly and you give yourself enough time to accumulate the funds in a very tax advantageous way. So again, that should be led by again, that experienced CPA advisor in the pharmacy industry who works in close contact with the retirement planning advisors who are again, not just trying to sell and generate commissions, but generate the right plan that you need to have in place to take you to what your desires are down the road.
As far as risk management is concerned, there are firms out there that will specialize in dealing with pharmacists only. And can expand the insurance packages pretty dramatically from outside the scope of what you would normally find at a regular insurance agent who maybe is not familiar with the pharmacy space. We do deal with folks constantly that have that specialty. We see them at trade shows, we have clients that are involved in that.
In extreme situations there are captive insurance programs, which is a very specialized manner of dramatically increasing coverages for some of the larger pharmacies who can afford to literally own their own insurance companies. This is a very hotly contested area by the Internal Revenue Service, but it in the right cases works very, very well. So yes, there are people that work very closely with pharmacies in this space to maximize the insurance risk management process.
If you have a CPA who has more than one or two pharmacists, pharmacies as clients, that person should be knowledgeable in this entire space, and be able to know who to reach to for pharmacy niche banks, for regulatory specialists, for legal healthcare specialists, for risk management experts, for retirement experts in this space, and has experience in this particular area. If they do not have these kinds of contacts, you most likely don’t have that right person in place.