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Estate Planning for Pharmacy Owners in Oklahoma

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many OK pharmacy owners are experiencing lower profit margins and have considered selling. For a number of years, a pharmacy industry roll-up has been occurring that has been consolidating the pharmacy seller’s customer traffic into fewer pharmacy locations. There are, however, several pharmacies in Oklahoma that are not in a geographic location with other nearby pharmacies, so consolidation doesn't take place. Despite what is happening in the industry or where they are located, some pharmacy and drug store owners have taken a stance and won’t consider selling. However, as it is with paying taxes, the exit of the business is eventually inevitable.

Estate Planning is a topic that many people in all industries tend to shy away from. For Oklahoma pharmacy owners who work 6 days a week, seldom takes a vacation, spends all day filling scripts, then mops the floor before doing the books at night, there typically isn’t much time to consider additional things such as estate planning. However, with knowledge that that there will be a transfer of the business eventually, it is important for the pharmacy owner to consider a proper plan of succession for the OK pharmacy business.

Developing a plan to transfer the business can be time consuming but, if done correctly, it will allow the business to be successfully transferred in a satisfactory manner. An estate plan for a pharmacy owner does not need to be changeless process. Fine-tuning, updating, and amendments are recommended as government regulations, economic conditions, and personal expectations change.

Estate planning allows a pharmacy owner to anticipate and arrange for the transfer of the drug store. The plan will be formatted in attempts to eliminate uncertainties, assist the transfer by trimming expenses, and reduce taxes.

The process may involve Trusts, Wills, Living Wills, Power of Attorney, Medical Power of Attorney, Business Valuations, Life Insurance, Charitable Remainder Trusts, Buy-Sell Agreements, and other legal documents. All of the different aspects of the estate planning are to provide the pharmacy owners in Oklahoma coordinated directives.

When there are non-family members as partners in the drug store business, it is essential that the estate planning incorporate a Buy-Sell Agreement. A buy-sell agreement, governs the transfer of the business between pharmacy partners. The agreement may also be known as a partner buyout agreement, or a business will. To help protect the family in the event of a partner’s death, the buy-sell agreement may be funded with a life insurance policy.

Estate planning, buy-sell agreements, and the transfer of the Oklahoma  Apharmacy should incorporate a pharmacy business valuation completed by a third party that has expertise in the pharmacy industry, performs a large number of pharmacy business valuations each year, and has current industry data as a basis for the conclusions. Using simple accounting formulas, multipliers, and valuators inexperienced in Oklahoma pharmacy will not provide an accurate business valuation.

Most pharmacy owners spend a major part of their life building the business. The efforts should not disappear because the pharmacy owner refuses to accept their mortality and plan accordingly. The only pharmacist in some small OK pharmacies is the owner. If the scripts can’t be filled by a licensed pharmacist then by law the customer files must be transferred to another pharmacy. Due to this, a pharmacy’s business value may drop to a negligible figure in just a few days after the passing of the owner. Contingencies outlined in an estate plan should address this issue. Unfortunately due to not having an effective plan in place, each year a number of pharmacy owners die and their family is left with an asset with very little value.

Tips OK drug store owners can use for estate planning:
        
1. When the family drug store is the sole means of income for several family members it becomes even more crucial to have a succession plan in place.
2. To avoid disputes, estate plans should be developed with clear directives.
3. Minimizing tax liabilities is a major objective for most completing an estate plan, therefore expert tax advice should be sought.
4. Many on-line documents and books are available that provide advice and documents for developing an estate plan. When going the self-help route, it is advisable to have a paid expert review the completed documentation to ensure that it can be legally complied with when the time comes.
5. While developing the estate plan it is essential to talk with children and other family members of the Oklahoma pharmacy owner especially if there are some family that work in the business and others that don’t.


 

Financing Pharmacy Franchises in Oklahoma

By Brad MacLiver
Authorship and profile at Google


An OK 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. The second party, the Pharmacy Franchisee, purchases a franchise license from the Pharmacy Franchisor, and usually pays an ongoing pharmacy franchise fee, or royalty fees, to use the name, products, systems, trade secrets, etc., created by the Pharmacy Franchisor.

There is a wide variety of options for financing Oklahoma pharmacy franchise businesses. 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. Newer pharmacy franchise models typically do not possess these two traits and will therefore be considered more risky.

Traditional Bank Financing used in funding a pharmacy franchise is available when an Oklahoma 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 quantity of actual cash available and the source of the down payment's verification is also a critical factor in qualifying for a pharmacy business loan in Oklahoma.

OK Pharmacy Franchise Funding Tips:

1. Because so many pharmacy franchise financing options are available, proper due diligence should be performed by pharmacy owners in order to obtain the pharmacy funding that best suits their situation.

2. It is advisable to have an attorney or account already familiar with Oklahoma pharmacy franchise financing to review all pharmacy business loan documents.

3. Pharmacy consulting services and franchise associations are also available.  They can help guide prospective pharmacy franchisees or borrowers with a drug store loans.

4. New pharmacy owners in Oklahoma must make sure that their funding request will be enough to get the pharmacy both running and profitable. Inadequate funding for the initial stages can put the drug store in a position of needing further 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, or any types of funding for community drug stores and pharmacies, they should contact an OK pharmacy industry specialist who can provide quality answers and sound advice.

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Oklahoma Pharmacy Financing Tips

By Brad MacLiver
Authorship and profile at Google


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

SBA Financing for Pharmacy Business Loans

The U.S. Small Business Administration (SBA) partially guarantees loans for pharmacy franchise lenders reducing the risk exposure for the lender. A loan program called 7(a) is a standard for funding Oklahoma pharmacy franchises. These loans can provide funds for pharmacy franchise entry fees, real estate where the pharmacy will be located, property improvements, working capital, and pharmacy related equipment.

Borrowers for the 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 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 Oklahoma 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 pharmacy loan process.

Pharmacy funding in Oklahoma from the Patriot Express program 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 OK

There are a few specific franchise loan programs that are available for honorably discharged veterans. These programs for Vets are considerable for pharmacy franchise loans.

Pharmacy Financing From the Franchisor

Finding the financing for a pharmacy franchisee is a usual topic in discussions with pharmacy franchisors in Oklahoma. Franchisors have the capability to direct potential drug store franchisees towards funding programs that have been successful for their other pharmacy franchisees previously. Preferred lenders should already be familiar with the pharmacy franchisor and the systems used.

Pharmacy franchisors could provide some funding internally as well. Higher interest rates will offset lower collateral, which may help with qualifications for an Oklahoma pharmacy acquisition of a franchise. However, this could possibly hurt the franchisee’s cash flow in the long term.  Due diligence of pharmacy franchisor funding should be completed before making any final decisions.

Personal Assets Used in Pharmacy Finance

Not every prospective pharmacy franchise owner in OK will have enough cash readily on hand. Some of the drug store business financing could require the borrower to liquidate some personal stocks, provide some personal assets as collateral, refinance their home, or use their 401k in order to assist lenders security to make the 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 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 Oklahoma 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 Oklahoma 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. Pharmacists and investors in Oklahoma 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 pharmacy franchise. Drug store owners paying franchise royalty payments may not survive the tightening profit ratios. Due to this, these pharmacy franchises in Oklahoma 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 in OK 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 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 Oklahoma pharmacy industry. This lack of 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 pharmacy industry specialist to capitalize on the funding opportunities that are available.

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If you are a pharmacy owner and are thinking of either selling your pharmacy, or expanding your market share, there are a number of financing solutions available to you. Learn more at www.BuyingAndSellingPharmacies.com.

You can also receive a free pharmacy business valuation at www.PharmacyValuations.com.

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Oklahoma Pharmacy Sale & Purchase Agreements

By Brad MacLiver
Authorship and profile at Google


A Pharmacy Listing Agreement is the contract that provides a pharmacy broker the business seller’s permission to sell their drug store in Oklahoma. During the process of presenting the business being sold to qualified drug store buyers there are negotiations and preliminary offers.

Once the preliminary stages have been negotiated it is time to put forth the details of the potential pharmacy transaction in contract form. This contract is usually called the Purchase and Sale Agreement, but it may also be referred to as an Asset Purchase and Sale Agreement, Pharmacy Asset Purchase Agreement, Asset Purchase Agreement, or variations of these contract titles. Whatever the title is on the contract, this document should be considered the “blueprint” for transferring the pharmacy business to the new owner.  

The Pharmacy Purchase and Sale Agreement details how much the buyer agrees to pay and what assets the seller in Oklahoma is conveying to the buyer. When the agreement is put in writing, describes the transaction in some detail, and is accepted and signed by both parties, this contract becomes a legally binding agreement. Therefore, during the negotiated development of the Pharmacy Purchase and Sale Agreement proper diligence should be taken.

Because of liability issues, it is rare that an Oklahoma pharmacy’s corporate stock is purchased. These transactions are therefore almost always only asset purchases.

Elements of the Pharmacy Purchase and Sale Agreement include, but are not limited to: assets being purchase, assets being excluded, aspects of counting and purchasing the inventory, both electronic and hard copies of pharmacy customer files, liabilities, purchase price, closing date, transferring title of the assets being purchased, pharmacy customer file conversion, representations and warranties, non compete, restrictive covenants, transferring the phone, notifying customers, signs, Board of Pharmacy notification, accounts receivables, employment of business seller and pharmacy employees, confidentiality, counting the pharmacy’s inventory, costs associated with the closing, lien searches, actions to be taken before the date of closing, along with the pharmacy’s computers, office equipment, and any automated filling machines.

Although it covers several aspects of transferring business assets from the Oklahoma pharmacy seller to the new owner, it should be understood that the Purchase & Sale Agreement will not provide any tax and legal guidance for the seller; these issues are not relevant for the buyer of the assets. For these reasons, the pharmacy seller in Oklahoma should be well-informed by a knowledgeable pharmacy broker, an accountant, or an attorney regarding the tax consequences, structure, and restrictive covenants of the deal. These aspects of the deal might have no impact from the buyer’s point of view, but if they are not carefully considered, they may affect the seller’s financial position after the transaction has closed.

Oklahoma pharmacy owners that are considering to sell will benefit when working with specialists who operate exclusively in the pharmacy industry and also provide expert guidance when bringing about transactions that provide the most benefits for the seller’s tax consequences, estate and family planning. Proper planning along with a blueprint that structures transactions appropriately will increase the net amount of money the seller will receive for the pharmacy’s assets.

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Using Tax Strategies When Selling a Pharmacy in Oklahoma

By Brad MacLiver
Authorship and profile at Google


Industry Roll-Ups are when the many players of an industry consolidate into smaller groups for economic benefits. OK pharmacy buyers participate in the Oklahoma pharmacy industry roll-up to achieve economies of scale in purchasing, marketing, information systems, distribution, top management, and logistics. 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 in Oklahoma 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 Oklahoma 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 Oklahoma 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 Oklahoma pharmacies 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 in OK.

There are some strategies for capital gain taxes that must be implemented before any obligation to sell the pharmacy. When a drug store owner is considering selling their OK 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 an OK 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 pharmacist for another company in Oklahoma, 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 will be considering selling their pharmacies and drug stores in Oklahoma. Tax considerations should be a paramount part of the decision process.

Pharmacy owners should consult with a pharmacy industry expert for advice on structuring the sale of their Oklahoma pharmacy. Someone with extensive experience in pharmacy and drug store acquisitions will have the knowledge and expertise to structure the transaction for tax considerations. Like all tax planning issues, waiting 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 pharmacy owners when an Oklahoma pharmacy is sold.

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Oklahoma Bridge Loans and Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


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

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

One of the characteristics of a bridge loan is that they can close quickly, which in turn allows a company to capitalize on a timely business opportunity, or acquisition. The quick access to money can also allow a business the chance to avoid penalties, bankruptcy, or other temporary problems. If longer term issues need to be dealt with, this “transitional financing” provides the company time until longer term financing can be secured.

Another characteristic of bridge loans is that the process usually requires less documentation than conventional financing. It is often the case that bridge loan lenders don’t have the same government regulations to adhere to.  This means they can have more flexibility in their lending criteria and the documentation they require, but less documentation does not mean they won’t perform due diligence to have a level of comfort with the transaction before they fund.

Scenarios of using Bridge Loans in Oklahoma Pharmacy Transactions:

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

2. A small pharmacy chain in Oklahoma requires $1 million for their business to expand. They have 3 new equity investors that will be investing in the firm over a period of 6 months, but each at different intervals.  The business has opportunities that require action before 6 months. The bridge loan closes quickly and allows the Oklahoma pharmacy chain access to the needed funds so they can complete their expansion and increase profits and the money from the 3 new equity investors will pay off the bridge loan.

3. A pharmacy owner in a leased location has the opportunity to acquire a commercial property quickly.  It would be a great Oklahoma pharmacy location, but the property is badly in need of repair. A bridge loan can provide the needed funding to acquire and rehab of the property. Once that is complete, more conventional long term financing can be obtained.

4. An OK pharmacy group developing new 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 enables the project to move into the construction phase, then qualify for other forms of financing.

5. When a pharmacy is owned by at least two partners and one of the partners is ready to exit the business, a bridge loan helps to ensure both 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 Oklahoma to quickly respond to the opportunity.

When there are business opportunities, buying pharmacies, selling Oklahoma pharmacies, 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 Oklahoma 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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