The phrase “exit strategy” has become an everyday component of business conversation in recent years. This is no doubt the work of highly educated graduate business students, one of whose roles in life, so it seems, is to constantly add to the vocabulary of the business world, something I call “B-school speak.” These are the same young people who brought into fashion words like “scalable,” as in, “is that model scalable,” and “resonate,” as in, “that doesn’t resonate with investors,” as well as the dreaded and often feared label, “dot-com.”

In the past, a time known as “the good old days,” words like “retirement” or “selling the business” were more in vogue when a businessperson, employee or owner decided it was time to hang up their spikes (or their mortar and pestle, as the case may be). If they were a corporate employee, they simply checked into company policy from time to time as regards retirement, determined what they were entitled to after twenty-five, thirty or thirty-five years of service and, when their time came, notified someone in the company that they were planning to retire. This notification triggered a party on their behalf, at which they received a gold watch and other assorted gifts, and it triggered the start of their pension payments which, supplemented by Social Security, were hopefully enough to enable them to live a decent life through those golden years.

In the case of pharmacists who were small business owners, the idea of retirement was an often vague and fuzzy concept, not one they particularly explored, thought much about or perhaps even embraced. Being a busy people, working long hours, many pharmacists never had the time to develop the outside interests so often associated with a pleasant retirement: outdoor sports, gardening, cultural pursuits, travel and so forth. At best, they had a pleasant family life, a spouse, children and grandchildren whom they could interact with during their limited time away from the pharmacy on Sunday afternoons, during an occasional holiday or an even less frequent vacation (this is a word that is often not found in pharmacy owners’ vocabulary).

When these storeowners from ancient times (the ’60s and ’70s) did decide to retire, the issue of what to do with their stores was a simple one. Usually — if not always — they sold them to other pharmacists who would maintain the stores in their original locations and pay for the accumulated assets and the good will they had built up in the community over the years. This money was their “pension plan,” their funded retirement.

Or, sometimes the storeowner had children working in the business and he or she was happy to turn the store over to them, continuing to receive money from the business to fund retirement, eventually parting with the equity and seeing that it was transferred to the new owners.

Another alternative was to sell to partners they already had, perhaps younger individuals, perhaps pharmacists they had taken into partnership over the years. This process could be a stressful one if the owners and their partners had not maintained a reasonable and current valuation of the business and updated it on a regular basis. But with that said, there were always ways to work this out so that a partner who wished to retire could do so.

In today’s world of community pharmacy ownership, the situation has become somewhat more complex and a lot more stressful. No longer is “selling the business” the simple option it once was when it comes to retirement planning. For many pharmacy owners, most of their personal net worth is tied up in their business often including the real estate they occupy. The ability to sell the business and either lease back or sell the real property it is housed in is often the number one (and sometimes only) financial component of a community pharmacy owner’s retirement funding, with the exception of Social Security.

Accordingly, the need for effective exit-strategy planning is critical for today’s pharmacy owners. Despite shrinking margins and the ever-growing third-party-payer environment, today’s remaining independent and small chain community pharmacies, some 20,000-plus of them, are reasonably large and reasonably valuable businesses. Valuable for their sales and profits, valuable for their asset base and valuable for their market share within the communities they serve. To attempt to sell a business like this without effective planning, taking a long look at the big picture and developing and implementing a workable plan, is, in this writer’s opinion, a grave mistake.

Effective exit-strategy planning includes the following elements:

·         A thorough review of the current financial status of the business, sales, profits and trends over the past three years.

·         An objective analysis, with the assistance of an outside professional, as to how the financial status or asset base of the business might be improved in the short run, to make it more appealing to a prospective buyer.

·         A review of the local marketplace, to ascertain the pharmacy’s competitive position and value to a purchaser.

·         The development of reasonable expectations as to the value of the business and the ability to sell it.

·         An understanding of the timing and events that the marketing and sale of the business require.

·         Most important of all, the development of a reasonable timeline to make it all happen, in order to exit successfully. Timing, and planning, is everything in life!!

While it is certainly true that contingencies can and do arise — and unforeseen events can occur — pharmacy owners who plan thoroughly for their exit from the retail arena can do so successfully, selling their businesses for the highest possible value in the marketplace, free from the pressure of a “forced sale.” In this way, they can reap the benefits of the years they have devoted to being independent community pharmacy owners and pass on the legacy and reputation they have built up in their communities to their successors, helping to maintain the presence of community pharmacy within the marketplace.

This material is copywrited by Anthony P. De Nicola of Buy-sellapharmacy.com, Inc.  Publication or reprinting without the express permission of the author is forbidden.

Tony De Nicola is a pharmacist from New York who currently serves as president of Buy-Sellapharmacy.com, a national firm that evaluates and appraises pharmacies and advises pharmacists on all aspects of buying and selling a pharmacy. You can contact him and his associates at www.buy-sellapharmacy.com  

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