In Wyoming, is it Worth Selling a Pharmacy Note at a Discount?

By Brad MacLiver
Authorship and profile at Google


When a WY pharmacy acquisition has been accomplished by using the private financing method of a pharmacy business note, the holder of the pharmacy note has the option of selling the pharmacy business note for a lump sum of cash instead of waiting for the monthly payments and taking the risk those payments will always be made. Pharmacy business notes can be sold by using a discounting method. Instead of buying a pharmacy note at its face value, the Wyoming pharmacy note will be discounted. Meaning the Investor will pay less than face value due to the risk being transferred from the Pharmacy Note Holder (the note seller) to the Pharmacy Note Investor (the note buyer).

Most pharmacy business note sellers look at only the discount rate and then calculate in their heads that they are giving up too much money to make the selling of the Wyoming pharmacy note an attractive proposition. Further analysis must be performed before a final decision is made by weighing the discounted amount with the benefits of a lump sum of cash.

1. What is the motivation for selling the pharmacy note in Wyoming? What are the desired goals? Is reducing the exposure to risk a consideration? Is there a financial decision to pay off debt? Is capital required for a new venture? Are there dreams of exotic vacations or world travel that could be accomplished with a lump sum of cash? How important is it to you to accomplish these goals? What are the opportunity costs if you do not have the lump sum of cash available to achieve your goals? Can you invest in something that pays a higher return? Take investment and family priorities into account.

2. What is the Current Fair Market Value of the pharmacy business? This is what someone is really willing to pay for the business, and not just an “earnings times x” formula. Real aspects of what is happening in the WY pharmacy industry must be considered and it is advantageous to have a pharmacy industry specialist calculate the Wyoming pharmacy business valuation.

3. How much cash is immediately required by the holder of the pharmacy note?

4. A pharmacy note that is seasoned has more value than a “green” note that doesn’t have a payment history. Are you willing to hold the note for a certain amount of time to allow the business buyer time to prove to an Note Investor the capability of the payor making the payments?

5. Are you willing to sell only a portion of the Note (this is called a “Partial Sell”)? The discount rate can be a more attractive proposition when only a portion of the note is sold and the Wyoming Pharmacy Note Investor is not holding all the risk.

Understanding the Risk for the Note Buyer:

1. Pharmacy Buyer Competency - There is the risk that the pharmacy buyer in Wyoming may not run the business as efficiently as you have, sales drop, and the pharmacy business buyer cannot meet the payment obligations. Incompetency could lead to late payments, missed payments, or bankruptcy.

2. Pharmacy Industry Changes - Changes caused by influences either within the industry, or regulations governing the industry, can make it increasingly difficult for the WY pharmacy business buyer to meet the contractual financial obligations.

3. Future Competition - Sales and income of the store may be affected by yet unforeseen pharmacy in Wyoming competition either building in the neighborhood or through mail order.

4. Loan to Value - When originating a pharmacy business note you may be creating financing where there is a “negative loan to value.” Example: the WY pharmacy business note is for $500,000, but there is only $175,000 of tangible assets for collateral.

5. Title Insurance – Wyoming pharmacy business notes don’t have title insurance that will make good a loss arising through defects of titles, or liens.     

6. Time Value of Money - Where a dollar received today is more valuable than a dollar received in the future.

7. Opportunity Costs - When the selection of holding the pharmacy business note in Wyoming ties up capital and prevents potential financial gains from other investments.

It is beneficial to discuss the options and potential origination of a pharmacy note with Wyoming Pharmacy Business Note Investor before the Purchase and Sale Agreement is finalized for the acquisition of the pharmacy. This provides the pharmacy business seller, and future note seller, valuable insight into structuring the pharmacy business note so it can be successfully purchased.

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Using Business Notes in Wyoming for Financing Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


When acquiring or selling a WY pharmacy or drug store, one alternative is to have the seller originate the financing and carry back a business note. At first glance many pharmacy owners will not want to take this approach. They want their cash and their exit. When a Wyoming pharmacy owner is considering selling their drug store, looking at the benefits of originating a business note and not just the perceived costs, they may find that offering Private Finance in the form of a Pharmacy Business Note will provide them an alternative course of action.

Advantages of Creating and Selling a Pharmacy Business Note in Wyoming

1.  The process of selling a pharmacy or drug store to an individual can be easier and less time consuming when the Wyoming pharmacy seller agrees to carry a business note, than a buyer pursuing traditional financing.

2. By offering Seller Carryback Financing, often referred to as Private Finance, a Wyoming pharmacy business owner can greatly increase the number of potential buyers for their business, and most likely sell the business at a higher price.

3. When a pharmacy business note is created in WY, there are the options of keeping it for monthly income, selling the entire pharmacy note for a large lump sum, or selling part of the Wyoming pharmacy business note to meet current financial needs and keeping the remainder for future income.

4. Selling either a portion, or the entire Wyoming pharmacy business note, frees up capital that can be used for new ventures, or paying off old debt.

5. With professional guidance, a pharmacy business note that is created and sold can have a structured transaction that allows the WY pharmacy business seller the biggest advantage in achieving the seller’s goals.

Both the terms and interest rate are set and agreed upon between the seller and buyer of the business when originating a pharmacy business note. The seller of the business accepts the promissory note, which is secured by the business including any inventory and equipment that belongs to the business. The pharmacy business seller in Wyoming then sells the note to an Investor who is willing to hold the pharmacy note in exchange for compensation. Since Investor can’t go back to the pharmacy business buyer and change the terms of his purchase agreement, the seller of the note must discount the note. The Investor is compensated from the difference of what the note was originated for and the discounted price paid for the WY pharmacy business note.

Tips:

1. Poorly structured business notes may prevent their sale, so seek professional advice before originating a financial instrument that can’t be sold.

2. Sellers of business notes need to fully understand the Investors risk in order to successful sell the business note.

3. Private Finance, in the form of a Business Note, is an alternative that should be looked at as a business financing option.

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Using Tax Strategies When Selling Wyoming Pharmacies

By Brad MacLiver

Authorship and profile at Google

Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. WY pharmacy buyers participate in the pharmacy industry roll-up to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Wyoming pharmacy sellers both independent owners and drug store chains must consider their current market value, recognize the narrowing of profit margins, and realize what their tax consequences will be if they sell.

When pharmacy owners sell their pharmacy it is considered a capital asset. The difference between the amounts it is sold for and the amount spent to either purchase or start the Wyoming pharmacy is a capital gain, or a capital loss. In the U.S., all capital gains must be reported and the appropriate tax paid.

Specific tax strategies can be used to help offset the tax liabilities when selling a pharmacy or a drug store. Unless a professional is handling a large number of pharmacy acquisitions, they usually do not know these federal regulations that allow for reducing the tax liability for the Wyoming pharmacy owner.

Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a pharmacy will result in tax consequences. However, most of these professionals do not handle the buying and selling of pharmacies in Wyoming on a daily basis and may not realize the different aspects of structuring a pharmacy transaction allowing the reduction of the tax burden to the pharmacy owner.

There are some capital gain tax strategies that must be implemented before any obligation to sell the Wyoming pharmacy. When a drug store owner is considering selling their pharmacy either now, or in the next few years, it is urgent the best course of action be considered now instead of later.

Estate planning when selling a Wyoming pharmacy should also be a consideration. Specific federal regulations allow an asset to be converted to an income stream, provide a tax deduction, increase asset diversification, and provide risk reduction, along with offering effective retirement and estate planning. If the pharmacy seller is nearing a retirement age, or will be working as a Wyoming pharmacist for another company, instead of being an owner, then estate planning should also be considered.

As reimbursements are cut, more regulations are applied, and pharmacy profits continue to slip, more independent pharmacy owners along with small and regional pharmacy chains in Wyoming will be considering selling their pharmacies and drug stores. Tax considerations should be a paramount part of the decision process.

Wyoming pharmacy owners should consult with a pharmacy industry expert for advice on structuring the sale of their pharmacy in WY. Someone with extensive experience in Wyoming pharmacy and drug store acquisitions will have the knowledge and expertise to structure the transaction for tax considerations. As it is with all tax planning issues, procrastinating until the end of the year is not always the best strategy. Following this advice can place larger sums of money in the bank of Wyoming pharmacy owners when a pharmacy is sold.

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Wyoming EBITDA and Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


EBITDA is an acronym that stands for Earnings Before:
* Interest
* Taxes
* Depreciation
* Amortization
                 
This is often used to measure some businesses' value and used for the comparison of similar companies as well.

Generally, EBITDA makes it easier to evaluate various companies and to compare them against industry averages by removing the non-core and irregular operating costs, such as interest, which can vary depending on the management’s choice of financing, taxes which can fluctuate depending on acquisitions or losses from prior years, and arbitrary factors of depreciation and amortization.

The EBITDA formula can be used as a guideline when valuing larger companies, or when comparing the profitability of large similar companies in the same industry.

For the most effective use of EBITDA, larger companies should possess significant assets, have heavy schedules for amortization, or bear a significant amount of debt. Considering independent Wyoming pharmacies don’t meet that criteria, so this formula is not a useful measure as the sole means for valuing pharmacies in WY for acquisition purposes.

To Calculate EBITDA:
First calculate net income by obtaining total income and subtract total expenses. Then, determine the total amount of taxes paid to local, state, and federal governments. Compute interest fees paid to companies or individuals for the use of credit, or capital.  Establish the cost of depreciation, which is the expense recorded to allocate a tangible asset's cost over its useful life.  Next, determine the cost of amortization. This is expense for consumption of the value of intangible assets, such as goodwill, patents, and copyrights, over a specific period of time, or the asset's expected life.  Finally, add all of these numbers to calculate EBITDA.

EBITDA calculation example: 1. Net Income                 1,333
2. + Tax Expenses               362
3. + Interest Fees Paid         281
4. + Amount of Depreciation     163
5. + Amount of Amortization      71
6. = EBITDA                   2,210

7 Drawbacks of EBITDA: 1. Can be misleading number when it is confused with cash flow.
2. Can make even completely unprofitable firms appear to be financially healthy.
3. Numbers are easy to manipulate.
4. Can overlook cash requirements for growth in accounts receivable.
5. Can miss cash requirements for growth in inventories.
6. Not factual when valuing small companies.
7. Not effective for companies with few assets, small amounts of debt, or low depreciation or amortization schedules.

EBITDA, in the past, was being used as a way to determine the "cash flow" in leveraged buyouts to calculate whether companies could service their debt. Factoring out interest, taxes, depreciation, and amortization can allow an unprofitable business to appear financially healthy. This method of valuation was used extensively during the dotcom era to value unprofitable businesses, with few assets, little earnings, and the results from that method caused many to go bust. This was a blaring example of misapplying EBITDA.

Knowledgeable pharmacy specialists performing Wyoming pharmacy business valuations will use EBITDA in pharmacy valuations, but only as part of a larger formula when computing values for specialty WY pharmacies especially those who have a niche in HIV, disease management, long term care, etc. However, EBITDA should not be used as part of the usual formula for standard retail pharmacy acquisitions in Wyoming.

The EBITDA number for a specific existing pharmacy in Wyoming is important, for the most part, when the existing ownership is establishing their store value for the purpose of a line of credit, borrowing, creating a Trust, stock values, etc., but EBITDA does not have the same importance when selling a pharmacy. This is due to the fact the buyer will not have the same expenses as the seller.

Buyers may not have the same tax base, interest expense, or the same depreciation schedule, thus it is important that the buyer calculate an estimated EBITDA that is specific to their operating model, business systems, buying power, cost of operations, etc., not the sellers. It should also be noted that EBITDA assumes that the buyer will acquire all of the assets, working capital, accounts receivable, and liabilities. Those assumptions do not hold true regarding an acquisition of a Wyoming pharmacy. Instead of the EBITDA number, pharmacy buyers should be focusing on sales, gross profit, cash flow, and customer mix.

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The Wyoming Pharmacy Industry Roll-Up

By Brad MacLiver
Authorship and profile at Google


WY Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. Recessions, new government regulations, or other aspects of the industry that may be stifling profits end up providing incentives to consolidate

A principal reason for an industry roll-up is to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Consolidated businesses also have less risk from the impact of an unsatisfied customer and have the reward of being able to recruit, or keep, key employees.

An example of an industry roll-up can be seen with the pharmacy industry in Wyoming. It is a well established industry and is still experiencing sales growth. However, pharmacies and drug stores have seen a steady decline in their profit margins due mainly to government regulations, even as sales increase. There has also been a shortage of pharmacists in Wyoming - a required key employee.

Industry roll-ups are often initiated by investors seeking investment opportunities. However, in the case of WY pharmacies, the roll-up is a necessity due to declining net profits ratios. Companies that are acquired in a roll-up are usually small independently-owned businesses whose owners believe in the economic benefits of combining forces with a larger organization, or simply need an exit strategy. In the pharmacy industry roll-up, independents have been a majority of the acquisitions, but there has also been a consolidation of a number of the larger pharmacy chains in Wyoming.

During the Wyoming pharmacy industry roll-up pharmacies with better financial wherewithal are acquiring their local competition and combining two or more stores into a single location. This results in more customer traffic through a single location and reduces the expenses that come with multiple locations. This can dramatically drive up total sales while driving down the administrative and overhead costs per customer.

To help fund pharmacy acquisitions during the roll-up in Wyoming, specific funding programs have been developed. These pharmacy chain funding programs are backed by major financial institutions that provide the funding for pharmacy acquisitions. These pharmacy funding programs allow an individual pharmacy business, or an investment group, the capital to acquire and combine Wyoming pharmacies in geographic areas.

Funders are willing to provide the capital for the pharmacy roll-up because they recognize that combining the individual pharmacy businesses provides a greater total business value than if each individual Wyoming pharmacy value were added together. This synergistic value reduces the risk of funding the individual acquisition.

When considering the buying, selling, or financing a WY pharmacy, whether an independent drug store, or multiple pharmacy locations,  due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide a pharmacy owner in WY through the maze of details will benefit the Wyoming pharmacy owner in making the best business decision.

All transactions involved in the pharmacy roll-up need to have the business valued at the current market value. Business valuations for the Wyoming pharmacy industry should be calculated by a company that has in-depth knowledge of the pharmacy in WY. Simple accounting formulas used by many to estimate a value do not provide an accurate picture because the simple formulas do not take into account the aspects that are causing the pharmacy industry roll-up.

The aspects of the market which are stimulating the roll-up are also having downward pressure on the Wyoming pharmacy business valuations. Pharmacy owners have been watching what has been occurring in the pharmacy industry. While profit margins slip, new regulations are being enforced.  Also, as reimbursements are pared down, there is wide expectation that the business values in the WY pharmacy industry will continue to slide to lower levels.  This means the pharmacy industry roll-up will continue.

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Pharmacy Acquisition Finance in Wyoming

By Brad MacLiver
Authorship and profile at Google


When a WY pharmacy or drug store is being sold, seldom does the buyer pay “out of pocket” cash for the acquisition. Even when cash is available, pharmacy acquisition strategies usually involve financing the transaction.

Typical acquisitions take 6-9 months to complete, so the pharmacy seller in Wyoming will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions will involve many hours of due diligence and negotiation, so the process should involve qualified parties.

Along with the buyer and seller the acquisition will involve attorneys, accountants, lenders, valuation companies, industry specialists, along with others. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the WY pharmacy buyer’s ability to close the deal.

The process will begin with determining the value of the business. There are many companies that offer valuation services. However, Wyoming pharmacies are not ice cream stores. There are many aspects of valuing a pharmacy in WY that are unique to the industry, so generic valuations or simple accounting formulas should not be used. An industry specialist should be used for valuing the Wyoming pharmacies instead of a valuation company that has a broader spectrum.

In order to complete a valuation the selling company needs to provide up-to-date data. Lenders will not accept old data, or a sellers “gut feeling.” Lenders need to make a decision to finance based on sound and verifiable information.                

Structuring the transaction is extremely important. The seller of course wants as much money as possible and wants cash. The buyer needs to spread out the debt service and wants to have as little cash as possible invested in the acquisition.

Pharmacies and drug stores in Wyoming are in an industry where it is more difficult to obtain business loan due to the majority of the value in a pharmacy is the customer files and not hard assets. Therefore, for the acquisition to be financed a lender will need a strong understanding of the industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

Pharmacies have historically been known for generating a profit and being stable businesses.  That being said, they are usually have a leased location with furniture, fixtures, and computers that will provide only $15-20,000 worth of collateral for a buyer possibly requesting a million dollar loan. Quite a lot of money is tied up in inventory, but lenders typically consider the small pills as easy to move out the door in the case of default. Due to these circumstances many lenders will not loan money to these traditional money making businesses. A successful transaction takes a lender that understands the WY pharmacy industry.

Tips regarding pharmacy acquisitions and finance:

1. Attorneys and CPAs who have been representing the Wyoming pharmacy seller for many years may see the transaction as putting themselves in a position of losing a client when the business is sold. Make sure they are working diligently on the transaction and are not slowing or undermining the process

2. Since pharmacy acquisitions in WY involve 6-9 months of work to complete , all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All financial information needs to be current. Over the lengthy process the data supplied to both the buyer and the lender will need to be updated on a continuous basis. Things can change drastically during a nine month period and the Wyoming pharmacy seller will need to continually prove the financial condition of the company.

When pursuing “pharmacy acquisition finance,” for the best chance of success, make sure the valuation company and the lender have expertise in that industry. Choose a company that has the Wyoming pharmacy experience and expertise, and is a direct correspondent with lenders who understand pharmacy.

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Wyoming 340B Pharmacy Discount Programs

By Brad MacLiver
Authorship and profile at Google


The United States Department of Health and Human Services provides a program for discounted prescription drugs to qualified Federally Qualified Health Centers (FQHC), Disproportionate Share Hospitals (DSH), and other entities that qualify. When these facilities do not possess their own pharmacies, they are able to contract with a local WY pharmacy. The drug pricing program used is often referred to as 340B, named after the section of law that has established the program.
             
Section 340B legislation was enacted to assist indigent and uninsured populations with access to deeply discounted medications. Because the program was enacted to provide for certain populations, there are restrictions and regulations in how the program operates and who the medications can be dispensed to.

Pharmacies in Wyoming can be contracted by a FQHC, or similar 340B qualified entity, to manage and dispense the medications. Patients from these entities provide additional traffic in the pharmacies allowing the pharmacies the opportunity for additional front end sales along with the Rx sales.

Pharmacy owners participating in a 340B pharmacy program need to manage their business consistent with customary business practices. In the event of an audit the Wyoming pharmacy should have dispensing and inventory records, billing statements, etc. Business records should show that drugs purchased by customers, under the 340B Drug Pricing Program, were not diverted to people who are not part of the program.

Along with the additional record keeping a pharmacy owner will need employees who understand the various state and federal rules and regulations, which govern the 340B program. The pharmacy in WY will also need to have a location for the 340B inventory, which is separate from their normal inventory, or have a software management system to track the separate inventories.

A system of separating the inventory is required due to the drug inventory used for the 340B pharmacy program is owned by entity that contracted the pharmacy. Since the 340B inventory is not “owned” by the Wyoming pharmacy this inventory will be treated differently for tax purposes. The pharmacy generates income from dispensing fees they are paid instead of a mark-up or profit margin on the inventory.

Since customers participating in a 340B program can only purchase the designated medications from a pharmacy contracted with a 340B entity, this allows a pharmacy to have a market niche. A contracted pharmacy servicing 340B customers benefit from additional customer traffic visiting the store.
 
With the current economic situation and high unemployment, many people have lost their insurance benefits. This will likely expand the need for 340B pharmacy programs and provide additional 340B customers to a participating pharmacy.

However, when a WY pharmacy owner is weighing the potential benefits of a 340B program, they should also consider other aspects of their business and the current market conditions of the pharmacy industry. What are the pharmacy’s goals over the next couple years? A younger pharmacy owner with long term objectives can benefit for many years from the added customers. However, a pharmacy owner considering selling the business in the next couple years should be aware that acquisition values are based on the customer files, and many buyers are not currently willing to include 340B customer files in their offers. This results in a lower pharmacy business valuation and market price for the Wyoming pharmacy despite the volume of business. Also, due to the current economic conditions there are some 340B customers who despite the deeply discounted prices, have chosen not to purchase medications. Pharmacy owners need to consider the added costs and time of 340B inventory and customer tracking and reporting, may not be offset by the fees received.

If a pharmacy owner is considering the benefits of participating in a 340B program, or is considering selling the WY pharmacy in the couple years, it is advisable to discuss the options with the pharmacy industry expert.



 

Pharmacy Acquisitions and Wyoming Bridge Loans

By Brad MacLiver
Authorship and profile at Google


With the changes in the WY pharmacy industry independent drug store owners, regional or small pharmacy chains and pharmacy equity investment groups are acquiring Wyoming pharmacies to obtain a larger competitive footprint in a geographic area. During the acquisition phase of the business expansion, opportunities may exist which require quick action that is faster than the traditional funding process.

Bridge Loans are a type of short-term financing  used while waiting for either permanent financing or the next stage of financing to be obtained.  These loans provide funding necessary to "bridge" the gap between a company’s current needs and their long term financing requirements.  Permanent financing is utilized used to "take out," or pay back, the bridge loan.

One particular characteristic of bridge loans is that they can close quickly, which in turn permits companies to capitalize on a timely business opportunities or acquisitions. This fast access to money can also allow a business the chance to avoid penalties, bankruptcy, or other problems that are temporary. If there are more longterm issues to be dealt with, this form of “transitional financing” provides the company time until longer term financing can be secured.

Another characteristic of a bridge loan is that the process usually doesn't require as much documentation as conventional financing. Typically, bridge loan lenders also don’t have the same government regulations to adhere to.  This allows them to have more flexibility in their lending criteria and the documentation they require. However, reduced documentation does not mean they won’t perform due diligence to have a comfort level with the transaction before they fund.

Examples of using Bridge Loans in Pharmacy Transactions in WY:

1. An independent pharmacy owner learns of health issues and decides to quickly sell the family owned Wyoming pharmacy to an employee or local competitor. Traditional financing for the pharmacy buyer may require a time line that is not acceptable when considering the circumstances. A bridge loan can be used to quickly accomplish the transaction.

2. A small WY pharmacy chain needs $1 million to expand their business. They have 3 new equity investors who will be investing in the firm over the next 6 months, but at different intervals. However, the business has opportunities which require action sooner than 6 months. The quick closing bridge loan allows the pharmacy chain access to the needed funds so they can complete their expansion and increase profits. Money from the 3 new equity investors will pay off the bridge loan.

3. A pharmacy owner in a leased location has an opportunity to quickly acquire a commercial property that would be a great pharmacy location, but the property is in disrepair. A bridge loan provides the needed funds to acquire and rehab of the property and once that is complete conventional long term financing can be obtained.

4. A pharmacy group developing new Wyoming pharmacy locations can receive bridge loan funding to get through the permitting process of a project when conventional financing isn’t available at this early stage due to there is still too much risk. A bridge loan allows the project to move into the construction phase and then qualify for other forms of financing.

5. When a pharmacy is owned by two or more partners and one of the partners is ready to exit the business, a bridge loan can help ensure the cash flow and uninterrupted operation of the business during the partner buyout.

6. Real estate, or equipment bought at auction may have a narrow window for closing the deal and timing of traditional financing would keep the buyer from proceeding with the opportunity. Benefits of a bridge loan will permit the pharmacy owner to quickly respond to the opportunity.

When there are business opportunities, buying pharmacies in Wyoming, selling pharmacies in WY, quick deadlines, an old loan maturing before a new loan can be put in place, funding needs during the permit, planning, or evaluating stages, etc., bridge loans can be an essential financial tool.

Tips regarding Wyoming pharmacy bridge loans:                        

1. Bridge loans are quick to obtain, but quick to expire.

2. A bridge loan is similar to a hard money loan and the terms are often used interchangeably in conversations. Both are short-term, higher interest rate, non-standard loans, but in some circles hard money refers to the lending source and a bridge loan refers to the duration of the loan.

3. Because bridge loans usually come with higher interest rates than traditional financing a larger down payment, meaning a lower Loan to Value (LTV) and a lower level of risk and provides an opportunity for lower interest rates.

4. With the shorter time period of bridge loans borrowers will need to be aware that fees for valuations, legal, dues diligence, etc., will be amortized over a shorter period than traditional financing transactions.

Understand the types of deals that require a bridge loan may be considered speculative in nature, or have higher risk factors. Due to this many banks do not offer bridge loans. Banks must meet government regulations and need to justify their lending practices. Riskier bridge loans do not usually fall within the lending parameters of many banks. Therefore a majority of the bridge loans will come from private investment firms.  It is best to consult a company that has access to a number of funding sources who provide bridge loans.

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Acceleration Clauses in Commercial Leases and Wyoming Pharmacy Business Loans

By Brad MacLiver
Authorship and profile at Google


A provision of many WY pharmacy business loans and commercial leases is an acceleration clause. The acceleration clause in the loan/lease agreements allows the lender to accelerate their collection of payments contingent on an event occurring. These events may include lack of payment by the borrower, failure to keep the property adequately insured, failing to pay tax assessments, not maintaining the property, selling the property/asset, etc.

Lenders view the acceleration clause as an important tool in their business loan and commercial lease programs. Loan and lease documents might not specifically address the foreclosure of a property, or repossession of an asset, but this is where the acceleration clause comes into effect. Without the clause the lender would only be able to foreclose on one missed payment at a time. With the acceleration clause, despite whatever event kicks the clause into gear, the lender can demand immediate and full payment of all remaining balances and fees.

The Wyoming pharmacy business loan or lease documents provided to the pharmacy owner will describe the rights, conditions, and obligations relevant to the acceleration clause. When the pharmacy owner (the borrower) doesn’t meet their obligations then the loan or lease goes into default. A payment that is even one day late can cause a default. Due to this, WY pharmacy business loans and commercial lease documents should be thoroughly read and understood before signing.

Tips:
1. If a pharmacy’s slowing cash flow is going to cause a business loan default, but the Wyoming pharmacy owner has additional unencumbered assets they may be able to negotiate with the lender by offering additional collateral.

2. If a WY pharmacy can catch up on their payments they can reinstate the business loan before the acceleration starts.

3. States have different rules requiring notification of an acceleration clause being exercised. Pharmacy owners should fully comprehend the laws in the state where they operate because a lack of knowledge will not be an excuse.
                                 
4. When an acceleration clause is applied to a commercial lease, the possibility exists that the landlord cannot collect rent from both the defaulting tenant and a new tenant at the same time. In order to save themselves some cash, pharmacy owners in Wyoming should help the process by assisting the landlord with releasing the property. However, should the pharmacy be in the process of being sold and the files and inventory moved to a competitor’s location, the pharmacy buyer will then require restrictions in the Purchase and Sale Agreement that prevent the new tenant from being another pharmacy.

5. Lenders prefer not to have to go through with the foreclosure process, so should your pharmacy in Wyoming be headed in that direction, start talking with the lender about coming up with a solution because communication with the lender is a good thing.

6. Some WY pharmacy business loans and commercial leases require a “personal” guarantee from the business owner. This means that the business owner’s personal assets and credit will become involved in the event of a default. The “corporate” status of the business will not keep the lender from seizing the personal assets.

When considering financing a pharmacy for acquisition, or expansion, due diligence and understanding of all aspects of the transaction should be considered. Using the services of a Wyoming pharmacy industry expert to guide a pharmacy owner through the maze of details will benefit the WY pharmacy owner in making the best business decision.

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Pharmacy Industry in Wyoming: Current Market Conditions

By Brad MacLiver
Authorship and profile at Google


Currently there are a number of factors that are impacting the current market conditions of the U.S. pharmacy industry. These factors are affecting the pharmacy business valuations of pharmacies in WY and drug stores all across the U.S.

Local demographics:

The valuation process also includes local market conditions and local demographics. Smaller communities have less growth potential and with the declining profits a buyer will need to purchase at a lower value because they will have to service the debt from a business loan and still try to make a living. The same is true for communities that have lost population due to economic conditions, or have a high rate of unemployment. Fewer people, or fewer customers with the ability to purchase, will mean fewer sales and less chance of any substantial improvement in the near term. This results in a lower pharmacy business value.

Pharmacists Shortage in Wyoming:

Pharmacies across the United States are having difficulties in finding pharmacists.  This shortage of pharmacists in Wyoming not only affects employee opportunities it also affects the number of potential independent buyers. 

Fewer Buyers:

There are also fewer corporate buyers. Some of the largest pharmacy chains in Wyoming have been purchased and consolidated in the pharmacy industry roll up. Many smaller chains have run into financial difficulties and have stopped their expansion. It is more difficult to drive a price higher when there are fewer willing, or capable, to purchase.

Current Market Conditions Requires Industry Roll-up:

The consolidation of the pharmacy industry is required to get more traffic into a single store.  Due to simple economics, when any business has a reduction in profits they are less attractive to a buyer and pharmacy business values drop. There are many factors contributing to the downward pressure of Wyoming pharmacy values and there is not any expectation of a turn around. Pharmacy owners should not be fooled by inexperienced Brokers claiming grand outcomes and over stating pharmacy business values not based on realistic market conditions.

With the consolidation of the pharmacy industry that has been happening for several years, many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have pharmacy related experience, nor do they use current market conditions when they value a WY pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current pharmacy market conditions. Due to this many brokers are valuing pharmacies 2 to 3 times more than what the market is really willing to pay. Any inexperienced person can quote a high value to capture a listing.  However, that does not mean the over inflated asking price is what the business will actually sell for.

Mail Order Medication:

Some insurance companies are designating a significant amount of pharmacy patients in WY as “long-term medications.”  They require that they purchase their medications only from mail order pharmacy companies who provide products at lower prices. This has the result of local pharmacies not only missing out on prescription sales, but also suffering a decline in front-end sales since the customer is not entering the store. Pharmacy mail order sales have surpassed sales from independent retail pharmacies at this point.

Use a firm that provides Wyoming pharmacy business valuations based on real market conditions and does not use simple formulas when calculating the value of a pharmacy. Experienced companies use complex methods to derive the value of a pharmacy.

It is best to use a company with a specialty in pharmacy and has current and extensive industry data.  Choose pharmacy specialists who have worked in the pharmacy industry for enough time to have extensive Wyoming pharmacy experience and an excellent reputation.  Companies that have good credentials possess a large amount of national data.  The largest financial institutions, national chain pharmacies, regional pharmacy chains, independently owned drug stores, and pharmacy equity investment groups use the services of companies fitting this description.

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Using Multiples with Wyoming Pharmacy Business Valuations

By Brad MacLiver
Authorship and profile at Google


If you have purchased a residence, you should be familiar with real estate appraisals. With a WY pharmacy business there are times an appraisal of both the real estate the business itself is needed. The pharmacy business appraisal, which does not include the real estate, is more commonly called a Pharmacy Business Valuation.

Pharmacy Business Valuations in Wyoming are part of the due diligence that will be conducted when there is a possible acquisition of the pharmacy business, or pharmacy financing is needed. Wyoming Pharmacy Business Valuations place a reasonable market value on the drug store various factors have been examined.  These factors include, but aren't limited to: assets, financial statements, tax returns, goodwill, customer lists, licensing, competitive advantages, regulatory concerns, management team, inventories, and industry comparisons.

There are many acceptable methods for valuing a retail drug store business. Each of these methods has its own perspective and the business owner should have a clear understanding of the method they are using.

One of these methods is to use “multipliers”, which involves someone taking the net profit, gross sales, or some other figure from financial statements and then multiplying that number by 3, 5, 8, or however many times is necessary. However, when using simple methods such as multipliers you need to understand a few points:

1. Financial statements are typically prepared to justify the lowest possible taxes.

2. Stated profits are not usually the actual cash flow of the company.

3. Due to tax reasons company assets probably have a different value than what is on the books.

Understanding the above points, you can understand that a simple Wyoming pharmacy valuation based on multiples may not reflect the true market value of the drug store.

When financing is involved simple multiplier methods will not be acceptable. Banks and finance companies will require a third party unbiased pharmacy valuation completed using advanced calculations, knowledge of the industry, and sound financial reasoning.

When a company specializes in a specific industry, that company will be able to offer a more precise and credible valuation. Specialists usually have more industry data than someone who does not normally value businesses in that industry. The results of not having the proper industry data will result in a more ambiguous valuation.

Due to the aging population sales are increasing as the older generations are purchasing more prescriptions. However at the same time, government and insurance reimbursements have been drastically reduced causing a major decline in nets profits for the pharmacy industry in Wyoming. Lower profits means it is harder for the business to service debt. That in turn means it is harder to obtain funding, and when there is funding it will be in lower amounts. Someone who is not a pharmacy specialist and used a gross sales multiplier would be way off in their calculation compared to other WY pharmacy valuations. A banker that sees valuations that are not within realistic industry comparisons is not going to fund the deal and fees paid for the business valuation will have been wasted.

When it is necessary to have a pharmacy business valuation completed, it is strongly advised to pay more for a specialist that can provide a banker realistic and current information. Don’t try and save a few bucks by cutting corners, and then end up wasting time, money, and possibly even ruin a chance of obtaining funding that either the Wyoming pharmacy business owner, or pharmacy buyer was seeking.

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Wyoming Pharmacy Transactions and Capital Gains Tax

By Brad MacLiver
Authorship and profile at Google


Almost everything you own and use for personal, or business, purposes is a capital asset. When WY pharmacy owners sell a capital asset, the difference between the amounts you sell it for and the amount you paid for it (the basis), is a capital gain, or a capital loss.

Capital gains may also refer to "investment income" that arises in relation to real assets, such as property, financial assets, and intangible assets such as goodwill. In the U.S., all capital gains must be reported and the appropriate tax paid.

When selling a pharmacy or a drug store in Wyoming, there are specific tax strategies that can be used to help offset the tax liabilities. Unless a professional is handling a large number of Wyoming pharmacy acquisitions, they usually do not know these federal regulations that allow for reducing the tax liability for the pharmacy owner.

During this period of history where it is more difficult to finance a business, WY pharmacy sellers may already be required to lower their asking price, so a pharmacy buyer can qualify for the financing required. On top of the lower offers they will be required to pay higher percentages in taxes.

This is a dilemma for the pharmacy seller who wants as much money out of the deal as possible. For most pharmacy owners their business is the largest asset they will ever own and selling the business at a certain dollar amount has been part of their retirement and estate planning. Knowing they will need to cut out a larger chunk of the proceeds to give to the government will cause some pharmacy owners to reconsider their retirement plans. The good news is there are financial tools and strategies that allow the pharmacy owner in Wyoming to proceed with their plans.

One method to reduce taxes is the Family Foundation, a tax exempt/nonprofit organization which provides both tax advantages and control over philanthropic activities. Family foundations are traditionally private foundations get their funding from a small number of sources while they do not conduct widespread fund-raising activities. They may, however, receive gifts from friends and other limited sources. Family members will serve as the foundation's trustees, directors, and officers.  They can make grants or donations to other organizations as private foundations.  Forming a Family Foundation provides a number of advantages, including deductions in income tax, estate and gift tax exemptions, and the reduction or the elimination of other taxes altogether.

Another strategy currently available to reduce the capital gains tax burden is the Charitable Remainder Trust (CRT). CRT’s are legally described as Split Interest Trusts. The term is used because of the blend of philanthropic motivations and personal financial aspects. CRT’s can decrease tax liabilities, increase a business owner financial wealth, and at the same time provide a vehicle for charitable giving.

CRT’s are formed when a person donates assets to this special type of Trust. Assets can be cash, stocks, real estate, etc. The CRT is set up for a set period of time, or until the donor’s (Wyoming pharmacy owners) death. An individual (WY pharmacy owner or family member) can receive income from the Trust’s assets. Upon the donor’s death the assets go to a designated charity. Part of the income from the Trust can be used to purchase life insurance on the donor. The proceeds of the life insurance go to a designated heir(s) who receive the money without incurring any estate tax liability.

Some tax strategies including the use of CRTs are not widely known. It would be advisable for pharmacy business owners to be aware of the different tools that are available in structuring a business transaction. They should also be aware that only a professional with vast experience in CRTs should be used to setup a Charitable Remainder Trust. Not following the strict IRS guidelines could be cause for increased taxes, penalties, and in some cases criminal charges.

Over the years there have been unscrupulous individuals who have tried using CRTs and similar financial tools in illegal scams. With the increase in capital gains taxes there are expectations more scams will be floating around out there. Be knowledgeable about the possibilities, but be confident you are working with experts in your industry.

You should consult a firm with extensive experience in pharmacy and drug store acquisitions. Firms that have the knowledge and expertise to structure the transaction appropriately, for tax considerations, can save a pharmacy owner large sums of money when a pharmacy in Wyoming is sold.

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Wyoming Buy-Sell Agreements for Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


When a WY pharmacy is owned by two or more people the stockholders/partners should have a Buy-Sell Agreement. A buy-sell agreement is a written document that provides the procedures and governs the future sale of the pharmacy business.

Pharmacy buy-sell Agreements protect the interest of the parties who own the Wyoming pharmacy and directs the actions triggered by a stockholder leaving the business due to death, disability, divorce, dissolution, or retirement. The agreement will govern how and when the shares of the pharmacy business in Wyoming can be sold, or transferred. It will also provide guidance as to how the pharmacy will be valued along with the obligations of the remaining shareholders of the pharmacy.

Buy-sell agreements are important because the different elements of a future sell are predetermined and won’t need to be negotiated during a heated dispute, or during a grieving period. It provides both the stockholder and the family a comfort level that when the inevitable time comes for an exit strategy that the process was thoroughly thought out in advance.

Disadvantages of not having a buy-sell agreement between pharmacy owners is that a disability may leave one partner working more and another not adding to the productivity. In the event of a death, without an agreement, one partner may be left with a nonproductive heir, or a new partner may be inserted that has personality conflicts with the surviving partner. The wrong partner could be devastating for the Wyoming pharmacy business.

There are various types of buy-sell agreements such as: Entity Buy-Sell Agreement, Cross-Purchase Buy-Sell Agreement, Wait and See Buy-Sell Agreement, Disability Buy-Sell Agreement. Buy-sell agreements are also known as a Business Will or a Buyout Agreement.

Potential elements of a WY Buy-Sell Agreement:

1. Stockholders names and the number of shares and voting rights of each. 

2. Guidance for the certified pharmacy valuation and purchase of a stockholder’s shares.

3. Mutual covenants and considerations.

4. Restrictions on transferring, purchasing or encumbering the company’s stock.

5. Protocol in the event of a shareholder’s divorce or termination of a shareholders employment.

6. Obligation to buy/sell shares from an estate.

7. Purchase of insurance to ensure ability to meet obligations.

8. Purchase of stock paid in lump sum or by installments.

9. Remedies for breach of the agreement or default of payment.

10. Until transfer is complete the right to inspect books and records.

11. Amendments and notices for offers or legal matters.

12. Enforceability of the agreement, the binding effects, and arbitration procedures for disputes.

13. Outlined process for the dissolution or liquidation of the corporation.

14. Maintaining the premises during transitional periods.

15. Preserving both warranties and representations.

16. Established terms of transfer.

17. Bill of Sale.

To make certain that the money required is available, it is common for buy-sell agreements to be funded with a life insurance policy. Should the death of a pharmacy owner in Wyoming occur, the life insurance settlement provides necessary funding for the remaining pharmacy owner to buyout the partner's shares from the estate.

Each partner needs to have life insurance coverage in place because without a plan to accomplish the purchase of the Wyoming pharmacy shares the buy-sell agreement serves no purpose. As the business develops and grows, the amount of insurance will need adjusting to provide adequate coverage. Without proper insurance, the surviving stockholder will potentially not have enough cash to satisfy the amount needed to buy out the estate, leaving the survivor stuck with an unwanted partner.

In order to have adequate insurance coverage and determine the details of the buy-out terms, it is necessary to perform a certified pharmacy business valuation.  There are quite a few companies that provide standard business valuations, but due to the dynamics and current market state of the WY pharmacy industry, a valuation firm should have extensive experience with Wyoming pharmacies. Simple accounting formulas and multipliers will not provide an adequate, or realistic, valuation for a pharmacy business.

Pharmacy buy-sell agreements are extremely important documents that need to be completed with seriousness and care. Even with a long standing partnership, it is only too late to create a buy-sell agreement when an event has already occurred....that would require the document.

Tips:

1. Buy-Sell Agreements are critical documents that should not be taken lightly. Consult a licensed professional.

2. Documents must address the proper laws and regulations which vary from state to state. Seek the proper guidance.

3. Premiums for insurance that will fund the buy-sell agreement might be deductible.

4. Ensure that the Wyoming pharmacy valuation is performed by an established WY pharmacy industry expert.