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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