Merry Christmas Wyoming Pharmacy Owners

The staff at www.pharmacyvaluations.com want to wish all Wyoming (WY) pharmacy and drug store owners a Merry Christmas and a Happy New year.

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Estate Planning in Wyoming for Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


Given the current market conditions, many WY pharmacy owners are experiencing reduced profit margins and are considering to sell.  For a number of years, a Wyoming pharmacy industry roll-up has been happening, 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 Wyoming 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 in Wyoming 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 in Wyoming 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 Wyoming pharmacies should incorporate a pharmacy business valuation executed by a third party that has expertise in the pharmacy industry, performs a large amount of pharmacy business valuations every year, and has current industry data as a solid foundation for their conclusions. Applying simple accounting formulas or multipliers or using valuators inexperienced in pharmacy will not provide an accurate business valuation.

Pharmacy owners typically spend a major part of their life building the business. Their efforts should not be in vain because they refuses to accept their mortality and plan accordingly. The only pharmacist in some small pharmacies is often the owner. If their scripts cannot be filled by a licensed pharmacist then the customer files must be transferred to another pharmacy according to law.  A pharmacy’s business value potentially drops to a negligible figure in just a few days after the passing of the owner because of this.  The 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 WY 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. A major objective for most completing an estate plan is to reduce tax liabilities as much as possible.  Expert tax advice should be sought.
4. There are many online sites and books available to provide advice and documents when developing an estate plan.  It is advisable to have a paid expert review the completed documentation when going the self-help route to ensure that it can be legally complied with when the time comes.
5. It is essential to talk with children and other family members of the pharmacy owner in WY while developing the estate plan, especially if there are some family who work in the business while others don’t.


 

Financing Wyoming Pharmacy Franchises

By Brad MacLiver
Authorship and profile at Google


A WY pharmacy franchise is a contractual relationship between two parties. One, the Pharmacy Franchisor is the party that developed their drug store business model, branded the pharmacy related products, and produced the system the pharmacy franchisees will operate under. Two, the Pharmacy Franchisee will purchase a franchise license from the Pharmacy Franchisor.  They usually pay an ongoing pharmacy franchise fee or royalty fees to use the systems, products, name, trade secrets, etc., that were created by the Pharmacy Franchisor in Wyoming.

There are a number of options for financing a pharmacy franchise business. All pharmacy franchise funding sources, for drug stores, prefer lending to a pharmacy franchisee who will be working with a nationally recognized name and long track records. These two traits are not possessed by newer pharmacy franchise models and will be considered more risky.

Traditional Bank Financing used in funding a pharmacy franchise is available when a Wyoming pharmacy franchise has the track record and pharmacy name recognition. Many of the banks will show interest in this type of funding opportunity. Unfortunately once the bank reviews the loan documents, many of these banks decline the funding request because they don’t understand the security provided for the pharmacy loan. Community drug stores typically have very little traditional assets to offer as security. Lenders for pharmacy will use traditional methods for analyzing the cash flow available to service to the debt, and they will also need to understand the nontraditional collateral that will secure the loan.

As a borrower, even when incorporated, the independent drug store owner’s personal credit rating will be a factor, along with personal tax returns, and financial statements. The amount of actual cash on hand and the verification of the source of the down payment will be critical factor in qualifying for a pharmacy business loan in Wyoming.

WY Pharmacy Franchise Funding Tips:

1. Because there are many pharmacy franchise financing options available, pharmacy owners in Wyoming should perform proper due diligence then obtain the pharmacy funding that best suits their situation.

2. It is advisable to have an accountant or attorney that is familiar with pharmacy franchise financing to review the pharmacy business loan documents.

3. There are pharmacy consulting services and franchise associations who can help guide a prospective pharmacy franchisee or borrower or a drug store loan.

4. New pharmacy owners in WY need to make sure their funding request is enough to get the pharmacy running and profitable. Less than ample funding for the initial stages may put the drug store in a position of needing additional funding. Smaller working capital loans that would be in a subordinated position will be more difficult to obtain at a later date.

When pharmacy owners have questions and need information regarding pharmacy franchise business loans in Wyoming, or any types of funding for community drug stores and pharmacies, they should contact a pharmacy industry specialist who can provide quality answers and sound advice.

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Types of Available Financing for Pharmacies in Wyoming

By Brad MacLiver
Authorship and profile at Google


There are a number of different options available for funding WY pharmacy franchises, specialty pharmacies, and traditional community drug stores.

SBA Financing for Pharmacy Business Loans

Partially guarantees for loans by the U.S. Small Business Administration (SBA) for Wyoming pharmacy franchise lenders reduce the risk exposure for the lender. There is a loan program called 7(a) that is a standard for pharmacy franchise funding.  These loans provide needed funds for pharmacy franchise entry fees, real estate for the pharmacy's location, improvements to any property, working capital, and equipment the pharmacy requires.

Borrowers for the Wyoming pharmacy franchise must be creditworthy, without any bankruptcies, have ample down payment, but there are variations here, and the business must be able to repay the loan from the cash flow of the pharmacy.

Terms can range from 5 to 20 years. Within SBA standards interest rates may be adjustable or fixed and will be negotiated by the lender dependent on the financial strength of the pharmacy transaction.

There are SBA fees for guaranteeing Wyoming pharmacy business loans. These fees, which are paid to the government and not kept by the bank, can be rolled into the pharmacy financing.

Patriot Express Business Loan Program

This is another SBA loan program that can be used for pharmacy franchise business loans and is reserved for military veterans, active service members, their spouses, and survivors. The Department of Veterans Affairs would be involved in the Wyoming pharmacy loan process.

Pharmacy funding from the Patriot Express program in Wyoming can furnish relatively fast approval times, may accept a smaller down payment from the borrower than traditional business loans, and lower credit scores may also be accepted. Patriot Express business loans provide opportunities for lower interest rate pharmacy business loans.

Funding for Pharmacists Who Are Veterans in WY

There are specific franchise loan programs available for honorably discharged veterans and these Vet programs can be considered for Wyoming pharmacy franchise loans.

Pharmacy Financing From the Franchisor

Financing a pharmacy franchisee is a usual topic in discussions with a pharmacy franchisor. Franchisors should be able to direct potential drug store franchisees toward funding programs that have previously been successful for their other Wyoming pharmacy franchisees. Preferred lenders will already be familiar with the pharmacy franchisor and their systems.

Pharmacy franchisors may also provide some funding internally. Lower collateral will be offset by higher interest rates. This may help with qualifying for a pharmacy acquisition of a franchise, but may hurt the franchisee’s long term cash flow. Due diligence of Wyoming pharmacy franchisor funding should be completed before any final decisions are made.

Personal Assets Used in Pharmacy Finance

Not all prospective pharmacy franchise owners have enough cash on hand. Part of the drug store business financing may require the borrower to liquidate personal stocks, provide personal assets as collateral, refinance their home, or use their 401k to assist the lenders security for making the Wyoming pharmacy business loan.

If the borrower still does not have enough personal assets then a family member or a friend may be required as a partner in the Wyoming pharmacy. Since the pharmacy partner’s cash and assets will also be at risk of loss, these partners may require some controlling interest in the drug store.

Retirement Accounts Used in Wyoming Pharmacy Finance

Retirement Plans can be self-directed and used to invest into a pharmacy franchise. The retirement plan can purchase stock in the pharmacy franchise. This is similar to how the retirement plan currently may be investing in publicly traded stocks and mutual funds. Lower debt service and higher profit potential may result when incorporating this option that uses less external financing in funding the franchise.

The downside is, if the pharmacy in Wyoming crashes, so does the retirement fund. The method of providing less expensive financing for the pharmacy needs to be weighed against the risk of failure.

Because of the factors involved such as deferred taxes, early or improper distributions, and IRS involvement, funding a pharmacy transaction with a retirement account should be handled by a company who has expertise in this arena. Wyoming pharmacists and investors interested in using this financing structure should research the Employee Retirement Income Security Act of 1974 (ERISA).

Pharmacy Franchise Agreement Buyout Funding

Understand that pharmacy situations are changing, economic factors are a concern, mail order pharmacy is growing, and market shares are shifting. All of these can have a negative impact on the cash flow of a Wyoming pharmacy franchise. Drug store owners paying franchise royalty payments may not survive the tightening profit ratios. Due to this, these pharmacy franchises may only have the options of bankruptcy, or buying out the franchise agreement when allowable.

Buying out the franchisor allows the pharmacy to remove the franchisor from the equation. This in turn allows the pharmacy owner more flexibility in their business decisions. The pharmacy franchisor sold the drug store franchise with expectations of earning income from the cash flow their pharmacy franchisees. Due to their long term plan, Franchisors may not be willing to allow the Wyoming pharmacy franchisee to remove itself from the franchisor. However if a Franchise Agreement Buyout can be negotiated, the buy-out transaction can also be financed.

Unfortunately many banks don’t understand the dynamics of the pharmacy industry. This lack of Wyoming pharmacy knowledge results in the banks looking at the funding request and all they see is a business that has very little collateral compared to amount of financing the pharmacy is requesting. To assist the successful funding process a pharmacy owner is advised to use a WY pharmacy industry specialist to capitalize on the funding opportunities that are available.

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Wyoming Pharmacy Cash Flow Instruments and Financial Discount Rates

By Brad MacLiver
Authorship and profile at Google


When a WY pharmacy is considering selling a cash flow instrument such as the pharmacy’s receivables, or a pharmacy business note, the price the Wyoming pharmacy owner receives will reflect how much time is involved before the Buyer/Investor/Funder of the cash flow instrument will recoup his principal investment and the desired rate of return the Investor needs to make it desirable to take the risk of buying the pharmacies cash flow instrument.

To entice an Investor to shift the risk of holding the cash flow instrument from the pharmacy owner in Wyoming to the Investor, there is typically a financial incentive for the Investor. The incentive is the rate of return, which is required to compensate for the Investors perceived risk. The risk is based on the credit of the cash flow instrument’s Payor, previous payment history, seasoning, interest rate, and other variables. Discount rates may change depending on the circumstances of the cash flow instrument, the economy, etc.

If the WY pharmacy owner or an investor could take the cash flow instrument to the bank and cash it in at face value, the asset would hold more value. However, since this can’t happen the risk of holding the cash flow instrument makes it worth less than face value.

Time Value of Money:
The concept of cash having a greater value as a dollar today instead of tomorrow is based on the Time Value of Money (TVM). Most businessmen are aware of the TVM and how it is invaluable in both personal and corporate decision making.  However, to be perfectly clear, let's take a look at the basics of TVM.

TVM makes the assertion that money will earn interest over time. This means that time is money, as the old cliché goes. Because of this, it is possible to compare money at different points in time that have different values and call them equal.

Here is an example: If $1.00 today earns 5% interest, it will be worth $1.05 at the same time next year. This means that $1.00 today equals $1.05 the next year, equals $1.63 ten years from now.

Within the same reasoning the reverse is true. An investor will not pay $1.00 today for a dollar that won’t be collected until next year, or 10 years from now. Today’s dollar will be discounted to reflect risk, inflation, the strength of the economy, etc.

Along with interest rates and principal amounts, a cash flow instruments such as Wyoming Pharmacy Business Notes, are originated with a certain time period. The TVM can be looked at, as if it were on a sliding scale. The earlier in time the Note is paid off, the smaller the amount becomes. When the Note is paid early, you don’t get to collect the compounded interest amount, which would have accumulated if you had waited the full time period. The Note has already been written and the terms set. Unlike a loan where the rate of return needed to cover the risk is added to the loan amount. An investor cannot go back to the buyer of your business and change the terms of the note. Therefore, the investor looks at the portion of the note, which is going to be purchased and subtracts the rate of return needed to justify the risk. This is called Discounting. The amount of the discount is contingent on the risk.

Example:

If you sell something for a $1.25 with 10% interest, equal payments received over a 18 year period, you would expect to receive $6.95. However, should the note be paid in full in 9 years you will only have collected $2.95. You are not collecting the other $4.00 because you are no longer risking anything (you are not earning it). If you want an investor to advance you the $6.95, you will no longer have any risk because you have transferred it to the Investor. To compensate the Investor for accepting the risk of holding the note, the Investor will discount the note, and pay you an amount equivalent to the time and risk involved.

The price you receive when selling your note will be the discounted rate according to the basic TVM principals minus the amount that allows an investor to justify the risk.                                
If a note is a length of 3, or more years, it may be beneficial for you to sell only a portion of the note. Because the payments from a month in the 5th year will hold less value than payments collected this year, it is beneficial to you to only sell the number of months that you need to obtain the cash that meets your current financial needs. You can always sell more payments at a later date if you need additional funds. Determine what cash you really need and we will calculate the number of months we will purchase to meet your needs.

Although it involves a much shorter period of time, understanding discount rates is the same when selling a WY pharmacy’s accounts receivables.


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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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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.