If you’re the owner of a pharmacy, and you’re looking to retire, move onto a new venture, or anything else that requires you to make an exit, selling the business is going to be your best bet.
Not only that, but it’s probably going to be the biggest earning event of your life. Pharmacies tend to be extremely profitable, and a middle-market pharmacy can easily set you up for a long retirement with a little planning.
Luckily, learning how to sell a pharmaceutical company isn’t much different than selling any other type of business. It’s extremely niche, but at its core, it’s a retail business with a medical focus.
How do you do it, though?
If you’ve never sold a business or looked into how it is done, then you’re probably more than a little overwhelmed with all that the process can entail.
After all, you can’t just slap a for-sale sign on the window and transfer a deed when someone with enough money comes along. There’s a long, complicated process that comes with selling a business.
Today, we want to take some of the burden off your shoulders and give you a simple, easy-to-understand, yet comprehensive guide to selling your pharmacy at the best price possible.
Let’s get started.
1: Handling the Valuation
You can’t sell anything if you have no idea how much it’s worth. That’s what a valuation is for.
If you’ve gotten curious about your company’s value over the years you’ve been operating it, then you’ve probably learned that you can perform a valuation on your own.
At its core, it’s really just adding up all the money you earn, how much you have to spend, and accounting for non-financial factors such as IPs you own, physical assets such as equipment and inventory, and similar things.
However, the valuation process is extremely serious. The valuation does two things.
First, it gives you a good idea of how much you should get for your business. It’s not a final number because you will have to pay taxes on the money gained from the sale, and you have to account for the negotiation process.
Your buyer will attempt to get a lower price via several different methods, and in some cases, it’s perfectly fine to agree to a deal like that. However, you still need to know where to start.
Second, it gives your buyer a starting point. They know how much it’s worth, what’s reasonable to negotiate, and whether or not the deal will be a good one. Of course, they’ll perform their own valuation, and they’ll stack it up against yours.
This is why you shouldn’t rely on a DIY valuation when selling your company. If the buyer thinks you’re hiding details or your valuation is invalid, they can just walk away from the deal. It doesn’t look good.
Instead, hire a professional to handle the business valuation. They have a lot more experience, don’t have a stake in the sale of your business to encourage biased results, and have insider knowledge about recent sales in your industry that can greatly improve the accuracy of the result.
This helps you get a more accurate understanding of your business’s value, and it ensures that everything checks out when the buyer goes to determine how much your company is worth.
2: Organize Your Documentation
A business is a massive investment. You built the business you’re selling. So, you know that.
When a buyer is making such a large purchase, especially in the world of mergers and acquisitions, they’re not just going to take a look around, listen to your story about how great it is, and hand over a bunch of cash.
They will want the hard evidence that your business is a good investment that will pay off in the future.
This is provided via your business’s documentation.
Primarily, your focus will be on your financial documents. Your earnings reports, annual financial breakdowns, etc.
You’ll need quite a bit of documentation as well. Anyone can have a great year after several horrible years and decide to sell while the business is at its peak, and buyers know that.
So, they’ll want at least 4 years of documentation proving how well your business has been doing. In many cases, it’s better to have 7 years of documentation.
You can’t just put together a pile of documents, either. You need to have everything organized and easy to go through, and if there are any gaps in your documentation, you should be able to explain those, or it looks like you’re trying to hide something.
A good way to handle this phase without driving yourself insane is to have your accounting department handle it since they handle all your money or hire an accounting service to put it together and organize it for you.
This is a crucial part of the process, and it needs to be handled properly to prevent issues or liabilities later on. So, it’s certainly a good idea to get professional help. Whether that’s your internal accounting team or if you have to outsource it to a trustworthy professional.
3: Market Your Business
You can’t get a buyer if no one knows your business is for sale. Now, unlike selling anything else, you can’t just put out an ad in the newspaper or put a sign on the window. This is particularly true when considering how to sell a pharmaceutical company.
Instead, this is usually handled by getting into contact with a broker.
It will be necessary to contact a broker at some point because they help mediate the deal. However, they also help with finding people who want to buy the business.
Brokers have tons of connections, and they can help bring in buyers who otherwise wouldn’t know your business was up for sale. This also helps keep the sale quiet. This is a key concept to prevent unexpected staff, supplier, or investor behaviors from ruining a deal.
However, that’s not the only way to find a buyer.
You can also offer to sell the business to family, friends, or even your trusted employees with a seller’s note.
This is a great way to keep the business “in the family” to continue your legacy, but it also requires you to know someone who either has the money to facilitate the deal or doesn’t mind paying out of profits until they pay off the full amount of the transaction.
You can also approach potential buyers and let them know. If you have a competitor who has wanted to purchase the business in the past, or you know a local business in the industry that is looking to expand, letting them know directly can be a quick route to find a buyer.
Of course, there are other methods, such as press releases, but those are fairly public, and as we noted, that can cause unexpected consequences.
4: Screen Your Potential Buyers
Once you have potential buyers interested, you have to screen them. A business is a huge investment, and not everyone is going to have the funds available to make that investment.
Unfortunately, if you waste time going through the whole negotiation process just to find out the buyer has plans to get funding but no guarantee, you will probably miss out on a ton of great deals.
You primarily want to know that the potential buyers have the ability to buy the business and a general understanding of how to operate it. However, their ability to make the most of the purchase is not really your problem unless you care about the business’s future.
5: Have Potential Buyers Visit
Having buyers visit your business at this stage is a great way to draw them into the deal and get them more serious about it. At this phase, it’s all still talk. There is no commitment.
If you can get them to visit, they can see how it operates, think about the possibilities, and see if it fits into their own planned goals.
6: Get a Letter of Intent from Every Potential Buyer
Now, you need to know that buyers are serious before you waste any more time on them, especially if your goal is to sell your business fast. This comes in the form of a letter of intent.
A letter of intent is how a potential buyer expresses their offer, lets you know they’re committed and the deal will likely go through and gives you a bit of peace of mind. You’ll need to look over each letter of intent you get before deciding which one you’ll pursue.
You have to be careful with this, though.
Most buyers will put an exclusivity clause in their letter of intent. That means if you sign that letter and accept the offer, you will not pursue any other deals unless the deal falls through. This is a legal agreement, and it must be honored.
Essentially, that clause makes you commit to the buyer, as well. If someone else comes up and says they’ll offer twice as much, you can’t even humor it unless you walk away from the deal.
This is both a good thing and a bad thing. It’s good because you’re both committed to the deal and ready to move into the final stages, but it can bite you if the deal falls through.
The other buyers won’t sit around forever, and they might pull their offers before you ever get a chance to pull them back in.
Make sure you pick the one that makes the most sense.
7: Accept a Letter of Intent and Offer
This is simple. Once you decide which deal you want to go with, simply sign the letter of intent, accept the offer, and notify all the potential buyers of your decision.
8: Negotiations
The negotiation table is where the deal comes together. At this point, you have both given each other your basic expectations, but there are other aspects of the transaction to discuss beyond hard numbers.
How are you going to structure the deal? How long do you have to inform employees? What clauses are there that you’ll need to weigh the risk of accepting? Are there any price changes that need to be made to reflect various decisions made at the negotiation table?
This is where you hash out the details of the deal and try to come to a mutually beneficial agreement. Notice that we said it’s mutually beneficial.
You don’t want to get bullied at the negotiation table and suddenly have to discount your business by millions of dollars for no reason, and they don’t want to have to deal with unreasonable expectations or a prolonged exit period.
The decisions need to be made with the best interests of both parties at heart.
Failing to approach negotiations with mutual benefits in mind is how a lot of deals fall through without any chance of recovery.
This is another reason it’s crucial to get a professional negotiator on your team. They know how to push for a good deal without being greedy and running the buyer off, and they certainly won’t get bullied around the negotiation table.
It can be expensive, but it can save you a ton in the long run, and it’s worth it.
8: Finalizing the Deal
Finally, you’re done. All that’s left to do is sign off on the agreement and sign over the business. From this point on, you’re no longer the business owner.
You might still stick around for a short period if the agreement included that, but you no longer own the business, and you’ll be paid according to the agreement.
Get Start-to-Finish Consultation for Selling Your Business
If all this sounds complicated, that’s because it is. A lot of things can go wrong, and it can cost you a ton of money and opportunities. Even if everything goes right, what happens if you retire without a plan and end up outliving what you earned on the sale?
Final Ascent can help with all that, especially if you’re looking to sell a pharmaceutical company.
We can walk you through the valuation process and give you critical insight into negotiations, and yes, we can even help you plan out your retirement to ensure you live a comfortable life moving forward.
Contact Final Ascent today to make sure your exit is done effectively.