With the current market situation, many pharmacies owners have experienced lower profit margins and therefore have considered selling. A pharmacy industry roll-up has been taking place for years, consolidating the small store pharmacy owner's customer traffic into fewer pharmacy locations. There are, however, a considerable number of pharmacies that aren't in a geographical location with other nearby pharmacies, making consolidation impossible. Some pharmacy owners, despite their location, have taken a position that they will not consider selling under any condition. But, unfortunately, a transfer of the business is ultimately inevitable.

Estate Planning is an area that many people, in all industries, avoid. The pharmacy owner who works six days a week, taking very few vacations, fills scripts all day and then mops the floor and does the books at night will not usually want to spend time considering things like estate planning. However, knowing that eventually a transfer of the company is inevitable, it's important that the pharmacy owner take time to develop a succession plan for the pharmacy business.

To develop a business transfer plan will take time, but if done correctly, it will reap great rewards. Estate plans for pharmacy owners need to be flexible, as government regulations, economic conditions & personal expectations will demand that changes be made over time.

Estate planning is a pharmacy owner's tool to transfer ownership of the store when the time is appropriate. The plan should be formatted in a way that attempts to eliminate uncertainties, trim costs and reduce taxes.

The process can involve Trusts, Wills, Living Wills, Powers of Attorney, Medical Powers of Attorney, Business Valuations, Life Insurance, Charitable Trusts, Buy-Sell Agreements and other particular legal documents. All the different aspects of estate planning provide the owner with coordinated directives.

When there are non-family members as partners in pharmacy operation, it's critical that the estate planning include a buy-sell agreement. Buy-sell agreements govern the transfer of the pharmacy between the pharmacy partners. The agreement may also be known as a partner buyout agreement or a business will. To protect the surviving partners in the case of death of a partner, buy-sell agreements are funded with life insurance. This allows the remaining partner(s) to buy out the spouse without liquidating the the business assets to pay the surviving spouse their share.

All estate planning and buy-sell agreements should be precluded by a credible pharmacy business valuation. This valuation forms the basis for all planning and should be conducted by an experienced pharmacy sales and acquisitions firm that has current industrial data and buyer formulas that are updated annually. Often, valuable and expensive planning is wasted when a pharmacy valuation is conducted by a CPA or some data analyst that has no pharmacy sales experience. If it's worth the time and money to have a good estate plan, then it is critical to have that plan based upon a reliable pharmacy valuation.

Most pharmacy owners spend their lives building a successful business. Their efforts could evaporate for their posterity if they refuse to properly plan for their business to successfully and smoothly transfer.

Tips:

1 When the family drug store is the only source of income for family members, it becomes crucial to have a succession plan in place.

2 To avoid disputes among shareholders, clear directives must be developed and agreed upon.

3. Because minimizing tax liability is an important objective for an estate plan, qualified tax advice should be sought.

4. Many online documents and books are available to provide guides for estate planning. However, when using self-help tools, pay an expert to review all documentation before it is finalized.

5. Before finalizing the estate plan, talk with children and other family members, especially if some do not work in the business.

Resource Box

Learn more about estate planning & pharmacy valuations by contacting www.WashburnAndAssociates.com. Sign up for a free Pharmacy Valuation Newsletter.

Permission to reprint this article is granted provided this resource box is kept unchanged and included with the article.