By Brad MacLiver
Authorship and profile at Google
With
the current market conditions many 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 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 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 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 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 pharmacy should
incorporate a pharmacy business valuation completed by a third party that has
expertise in the pharmacy industry, performs a large number of pharmacy
business valuations each year, and has current industry data as a basis for the
conclusions. Using simple accounting formulas, multipliers, and valuators
inexperienced in pharmacy will not provide an accurate business valuation.
Most
pharmacy owners spend a major part of their life building the business. The
efforts should not disappear because the pharmacy owner refuses to accept their
mortality and plan accordingly. The only pharmacist in some small pharmacies is
the owner. If the scripts can’t be filled by a licensed pharmacist then by law
the customer files must be transferred to another pharmacy. Due to this, a
pharmacy’s business value may drop to a negligible figure in just a few days
after the passing of the owner. Contingencies outlined in an estate plan should
address this issue. Unfortunately due to not having an effective plan in place,
each year a number of pharmacy owners die and their family is left with an
asset with very little value.
Tips:
1.
When the family drug store is the sole means of income for several family
members it becomes even more crucial to have a succession plan in place.
2. To
avoid disputes, estate plans should be 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 especially if there are some family that
work in the business and others that don’t.
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