The importance of succession planning for owners of pharmacies.
Many pharmacists who have been in business for a while may be considering retirement or selling their pharmacy and preparing a post-work nest egg. Because of recent legislation alterations, making it more difficult to satisfy customer’s changing demands, a new approach to business is required. To ensure you maintain and grow the value of what may be your primary retirement vehicle, you need to start considering changes now and build a robust business regardless of market forces. This article outlines a few things for pharmacists to consider now and into the future to nurture your retirement plans.
What is my business worth?
This is quite possibly the most critical question to ask yourself right now, as you may have an idea in your mind that supports possible succession or retirement plans, but what if there’s a shortfall? What if your business may in fact not be worth what you anticipate, leading to a considerable impact on your future plans? The first step is to take a look at your overall financial position, what your plans are for retirement, what assets you have available to help achieve those retirement plans, and what shortfalls you may have. If your business is the primary driver of your retirement plan then it’s critical to get an understanding of its current value. If there’s a shortfall you need to consider now what options you have to bridge the shortfall.
Some options include undertaking a sensitivity analysis, which with the help of your accountant will identify how small changes in a certain area of your business can have significant long-term impact. For example a 1% change in your working capital can have a dramatic impact on your cash flows, which is ultimately the measure of your business worth. A sensitivity analysis can be applied across all areas of your business, with a number of small changes to the way you do things, having a long-term impact on your business value, and ultimately the achievement of your retirement plans
How can I exit from my business?
Working in your business day after day, or in many cases several years, it’s sometimes hard to see through the day to day grind to see what options you may have to help with exiting from your business. Working with your accountant is a great way to review ideas that you may not have considered; options that an external set of eyes may see that you just didn’t think were available. Apart from someone walking in the door and offering you a suitcase full of cash, some other options to assist with your exit may include selling part of your business, whether to a family member or your management team, then consider the sale of the remainder of the business down the track.
Introducing a young vibrant partner into the business to help revitalise the operation and to assist with embracing legislative and general market and consumer changes. The growth of on-line marketing is obvious and presents options too, with a new, younger partner bringing an understanding of how to leverage the existing business through the development and operation of an on-line arm.
Vendor finance is a great way to achieve greater sale value whilst managing your risk and exit over a longer period of time. A great option if you’re not quite ready to exit the business and still want to be around to share your experience and wisdom to help the new owner transition successfully. At Godbee Favero, we specialise in assisting clients with vendor and standard finance options for the sale of their business.
Amalgamation may also be an option, whether joining a large buying or retail group or simply joining forces with other Independents. This would allow you to rationalise your business through cost synergies and efficiencies and improve profitability through an increased buying power. This would be a medium to long-term process, with the ultimate goal of redefining your business to meet changing market conditions, whilst continuing to grow and add value for your ultimate goal of a sale.
A further and less attractive option may be to accept a lower price for your business and reinvest your funds in areas that may have a better chance of bridging your retirement gap. Taking less than the desired price to meet the market may not be ideal, but freeing your cash for other opportunities may help achieve your goals sooner.