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Arizona (AZ) pharmacy and drug store owners.... Merry Christmas!

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When you have questions about the value of your drug store, need pharmacy financing, or want to either sell a location or expand into a new store we can assist you. Contact www.PharmacyValuations.com.

Arizona Pharmacy Franchise Financing

By Brad MacLiver
Authorship and profile at Google


Arizona (AZ) pharmacy franchises are contractual relationships between two parties. First is the Pharmacy Franchisor.  They are the party that developed their drug store business model, branded pharmacy related products, and produced the system under which pharmacy franchisees will operate. 

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

There are a number of options for financing an Arizona 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. Newer pharmacy franchise models won’t possess these two traits and will be considered more risky.

Traditional Bank Financing used in funding a pharmacy franchise is available when a pharmacy franchise in Arizona 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 Arizona retail and specialty pharmacies 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 loans. 

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.

Pharmacy Franchise Funding Tips:

1. Because there are many pharmacy franchise financing options available, AZ pharmacy owners 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 Arizona 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 Arizona 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 a pharmacy industry specialist who can provide quality answers and sound advice.

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Types of Available Pharmacy Financing in Arizona

By Brad MacLiver
Authorship and profile at Google


There are a number of different options available for funding Arizona (AZ) 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 Arizona pharmacy franchise lenders reducing the risk exposure for the lender. A loan program called 7(a) is a standard for funding 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 in Arizona 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 AZ 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 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.

Arizona Pharmacy funding 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 in AZ Who Are Veterans

There are specific franchise loan programs available for honorably discharged veterans and these Vet programs can be considered for 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 pharmacy franchisees. Preferred lenders will already be familiar with the AZ 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 pharmacy franchisor funding should be completed before any final decisions are made.

Personal Assets Used in Pharmacy Finance

Not all prospective pharmacy franchise owners in Arizona 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 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 AZ 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 Arizona Pharmacy Finance

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

The downside to this is that if the Arizona pharmacy crashes, so does the retirement fund. The method of providing more inexpensive financing for pharmacy needs to be weighed against the risks of failure.

Because of various factors involved like deferred taxes, improper or early distributions, or IRS involvement, funding pharmacy transactions in Arizona with a retirement account should be handled by a company that is an expert in this arena. Investors and pharmacists interested in using this type of financing structure should research the 1974 Employee Retirement Income Security Act (ERISA).

Pharmacy Franchise Agreement Buyout Funding

Understand that Arizona 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 AZ pharmacy franchises may only have the options of bankruptcy, or buying out the franchise agreement when allowable.

Buying out the franchisor allows the pharmacy in Arizona 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 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 in AZ. 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 Arizona 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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Financial Discount Rates in Arizona for Pharmacy Cash Flow Instruments

By Brad MacLiver
Authorship and profile at Google


When an Arizona (AZ) retail or specialty drug store is considering selling a cash flow instrument such as the pharmacy’s receivables, or a pharmacy business note, the price the pharmacy owner in Arizona 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 Arizona to the Investor, there is usually a financial incentive for the Investor. This incentive is the rate of return, something that is required to compensate for the Investors perceived risk. This risk is based on the credit of the cash flow instrument’s Payor, the previous payment history, seasoning, the interest rate, and any other variable. These discount rates may also change depending on the circumstances of the cash flow instrument, the state of the economy, etc.

If the Arizona 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 being more valuable to have a dollar today instead of tomorrow is based on the Time Value of Money (TVM). Most business people are aware of the TVM and how it is fundamental to both personal and corporate decision making, but to make sure we are on the same page, we will cover the basics of TVM.

TVM assumes that money earns interest over time. Therefore, as the cliché says time is money, and because of this we can compare money at different points in time that have different values and call them equal.

Along with interest rates and principal amounts, a cash flow instruments such as AZ 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.

If you sell something 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 over a period of time, 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 an Arizona pharmacy’s accounts receivables.

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Is it Worth Selling a Pharmacy Note at a Discount in Arizona?

By Brad MacLiver
Authorship and profile at Google


When an Arizona (AZ) pharmacy acquisition has been accomplished by using the private financing method of a Arizona pharmacy business note, the pharmacy note holder has the option of selling the pharmacy business note for a lump sum of cash rather than waiting for the monthly payments and taking the risk those payments will always be made. Pharmacy business notes can be sold using a method of discounting; instead of buying a pharmacy note at face value, the pharmacy note is discounted, which means that the Investor pays less than face value due to risks transferred from the Pharmacy Note Holder (the note's seller) to the Pharmacy Note Investor (the note's buyer).

Most pharmacy business note sellers will look only at the discount rate and then quickly calculate in their head that they are giving up too much money to make the selling of the Arizona pharmacy note an attractive proposition. Further analysis needs to be performed, however, before a final decision can be made by weighing the discounted amount against the benefits of a lump sum of cash.

1. What is the motivation for selling the AZ pharmacy note? What are the goals? Is reduction of exposure to risk worth considering? 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 accomplish these goals? What are the opportunity costs if you don’t have the lump sum of cash to achieve your goals, or invest in something that pays a higher return? Determine investment and family priorities.

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 pharmacy industry must be considered and it is advantageous to have an Arizona pharmacy industry specialist calculate the pharmacy business valuation.

3. How much cash is immediately required by the holder of the  pharmacy note?

4. A pharmacy note in AZ 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 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 Arizona pharmacy buyer 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. AZ Pharmacy Industry Changes - Changes caused by influences either within the industry, or regulations governing the industry, can make it increasingly difficult for the pharmacy business buyer to meet the contractual financial obligations.

3. Future Competition - Sales and income of the store may be affected by yet unforeseen Arizona pharmacy 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 Arizona pharmacy business note is for $300,000, but there is only $100,000 of tangible assets for collateral.

5. Title Insurance – Pharmacy business notes in AZ 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 Arizona pharmacy business note 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 Pharmacy Business Note Investor before the Purchase and Sale Agreement is finalized for the acquisition of the pharmacy. This provides the AZ 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 for Financing a Pharmacy Acquisition in Arizona

By Brad MacLiver
Authorship and profile at Google


When acquiring or selling an AZ pharmacy or drug store, an alternative to normal acquisition is to have the seller originate the financing and carry back a business note. Many pharmacy owners will not want to take this approach at first glance because they want their cash and their exit. When an Arizona pharmacy owner considers selling their drug store, by looking at the benefits of originating a business note instead of just the perceived costs, they may discover that by offering Private Finance in the form of a Pharmacy Business Note, they may find an alternative course of action.

The Advantages of Creating and Selling an AZ Pharmacy Business Note

1. The process of selling a pharmacy or drug store to an individual can be easier and less time consuming when the Arizona pharmacy seller agrees to carry a business note, rather than a buyer pursuing traditional financing methods.

2. By offering Seller Carryback Financing, often referred to as Private Finance, a pharmacy business owner in Arizona 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 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 Arizona pharmacy business note to meet current financial needs and keeping the remainder for future income.

4. Selling either a portion, or the entire pharmacy business note, frees up capital that can be used for new ventures, or paying off old debt.

5. When an Arizona pharmacy business note is created and sold, with the proper professional guidance, a transaction can be structured that allows the pharmacy business seller the biggest advantage in achieving the seller’s goals.

When originating a pharmacy business note the valuation, purchase price, terms, and interest rate are set and agreed upon between the seller and buyer of the business. 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 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 in AZ 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 Arizona 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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Using Tax Strategies When Selling a Pharmacy in Arizona

By Brad MacLiver
Authorship and profile at Google


Industry Roll-Ups are when an industry’s players are consolidated into smaller groups for economic benefits. AZ pharmacy buyers participate in the Arizona pharmacy industry roll-up to achieve economies of scale in purchasing, marketing, information systems, logistics, top management, and distribution. 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 Arizona 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 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 an AZ 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 Arizona pharmacy owner.

Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a pharmacy in Arizona will result in tax consequences. However, most of these professionals do not handle the buying and selling of pharmacies on a daily basis and may not realize the different aspects of structuring an AZ pharmacy transaction allowing the reduction of the tax burden to the pharmacy owner.

There are some capital gain tax strategies that must be implemented before any obligation to sell the Arizona pharmacy. When a drug store owner is considering selling their 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 a pharmacy in Arizona 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 in AZ is nearing a retirement age, or will be working as an Arizona pharmacist for another company, 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 Arizona pharmacy owners along with small and regional pharmacy chains in AZ will be considering selling their pharmacies and drug stores. Tax considerations should be a paramount part of the decision process.

Arizona pharmacy owners should consult with a pharmacy industry expert for advice on structuring the sale of their pharmacy. Someone with extensive experience in pharmacy in Arizona 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 Arizona pharmacy owners when a pharmacy is sold.

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Acceleration Clauses in Arizona Pharmacy Business Loans and Commercial Leases

By Brad MacLiver
Authorship and profile at Google


A provision of many AZ pharmacy business loans and commercial leases is an acceleration clause. This clause in the loan/lease agreements will allow the lender to accelerate their collection of payments contingent on an event occurring. Events may include lack of payment by the borrower, a failure to keep the property adequately insured, failure to pay tax assessments, failure to maintain the property, the selling of the property/asset, etc.
             
Lenders look at the acceleration clause as an important tool in business loan and commercial lease programs. Loan and lease documents may not address the foreclosure of a property specifically, or the repossession of an asset, but this is where the acceleration clause comes into effect. Without the clause the lender would only be able to foreclose on one missed payment at a time. With the acceleration clause, despite whatever event kicks the clause into gear, the lender can demand immediate and full payment of all remaining balances and fees.

The Arizona pharmacy business loan or lease documents provided to the pharmacy owner will describe the rights, conditions, and obligations relevant to the acceleration clause. When the pharmacy owner (the borrower) doesn’t meet their obligations then the loan or lease goes into default. A payment that is even one day late can cause a default. Due to this, pharmacy business loans and commercial lease documents should be thoroughly read and understood before signing.

Tips:
1. If a pharmacy in Arizona's’s slowing cash flow is going to cause a business loan default, but the pharmacy owner has additional unencumbered assets they may be able to negotiate with the lender by offering additional collateral.

2. If a pharmacy can catch up on their payments they can reinstate the business loan before the acceleration starts.

3. States have different rules requiring notification of an acceleration clause being exercised. Pharmacy owners in AZ should understand the laws in the state where they operate. Lack of knowledge is not an excuse.
                                 
4. When an acceleration clause is exercised on a commercial lease, there is the possibility the landlord cannot collect rent from both the defaulting tenant and a new tenant at the same time. To save themselves some money, pharmacy owners should help the process by assisting the landlord re-lease the property. However, please note, should the Arizona pharmacy be in the process of being sold and the files and inventory moved to a competitor’s location, the pharmacy buyer will require restrictions in the Purchase and Sale Agreement  that the new tenant cannot be another pharmacy.

5. Lenders prefer not to have to go through the foreclosure process, so if your Arizona pharmacy is headed in that direction start talking with the lender about finding a solution. Communication with the lender is a good thing.

6. Some pharmacy business loans in AZ and commercial leases require a “personal” guarantee from the business owner. This means that the business owner’s personal assets and credit will become involved in the event of a default. The “corporate” status of the business will not keep the lender from seizing the personal assets.

When considering financing a Arizona pharmacy for acquisition, or expansion, due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide a pharmacy owner through the maze of details will benefit the pharmacy owner in Arizona in making the best business decision.

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Pharmacy Acquisitions and Bridge Loans in Arizona

By Brad MacLiver
Authorship and profile at Google


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

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

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

Another property of bridge loans is that the whole process usually requires less documentation than conventional financing. Bridge loan lenders don’t typically have the same government regulations to adhere to, which means they tend to have more flexibility in their lending criteria and the documentation they require. Less documentation, however, does not necessarily mean they won’t perform due diligence to have a comfort level with the transaction before they fund.

Examples of using Bridge Loans in AZ Pharmacy Transactions:

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

2. A small pharmacy chain needs $1 million to expand their business. They have 3 new equity investors who will be investing in the firm over the next 6 months, but at different intervals. However, the business has opportunities which require action sooner than 6 months. The quick closing bridge loan allows the pharmacy chain access to the needed funds so they can complete their expansion and increase profits. Money from the 3 new equity investors will pay off the bridge loan.

3. A pharmacy owner in Arizona in a leased location has an opportunity to quickly acquire a commercial property that would be a great pharmacy location, but the property is in disrepair. A bridge loan provides the needed funds to acquire and rehab of the property and once that is complete conventional long term financing can be obtained.

4. A pharmacy group developing new Arizona 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 allows the project to move into the construction phase and then qualify for other forms of financing.

5. When a pharmacy in AZ is owned by two or more partners and one of the partners is ready to exit the business, a bridge loan can help ensure the 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 to quickly respond to the opportunity.

When there are business opportunities, buying Arizona pharmacies, selling 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 AZ 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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Pharmacy Acquisition Finance in Arizona

By Brad MacLiver
Authorship and profile at Google


When an AZ pharmacy or drug store is being sold, a buyer will seldom pay “out of pocket” cash for the acquisition. Even in the event that cash is available, Arizona pharmacy acquisition strategies usually involve financing the transaction.

Because acquisitions typically take 6-9 months to complete, the pharmacy seller in Arizona will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions involve many hours of negotiation and due diligence, which means the process should involve qualified parties.

The acquisition will involve attorneys, accountants, lenders, valuation companies, industry specialists, and others in addition to the buyer and seller. No one wants to pursue 6-9 months of work with this many highly paid professionals without having some confidence of the AZ pharmacy buyer’s ability to close the deal.

The process begins with determining the business' value. Although there are many companies that offer valuation services, pharmacies are a special kind business. There are several aspects to valuing a pharmacy that are unique to the industry, so generic valuations or simple accounting formulas should not be used. An industry specialist should be used for valuing the Arizona pharmacies instead of a valuation company that has a broader spectrum.

In order to complete a valuation the selling company needs to provide up-to-date data. Lenders will not accept old data, or a sellers “gut feeling.” Lenders need to make a decision to finance based on sound and verifiable information.                

Structuring the transaction is extremely important. The seller of course wants as much money as possible and wants cash. The buyer needs to spread out the debt service and wants to have as little cash as possible invested in the acquisition.

Pharmacies and drug stores are in an industry where it is more difficult to obtain business loan due to the majority of the value in a pharmacy in Arizona is the customer files and not hard assets. Therefore, for the acquisition to be financed a lender will need a strong understanding of the industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

Pharmacies have typically been known for generating profits and to be stable businesses. However, they are usually in leased locations, and their furniture, fixtures, and computers will only provide $15-20,000 of collateral for a buyer possibly requesting a million dollar loan. A lot of money is tied up in inventory, but the small pills are considered by a lender to easy to move out the door in the event of default. Due to these circumstances many lenders will not loan money to these traditional money making businesses. A successful transaction takes a lender that understands the Arizona pharmacy industry.

Tips regarding pharmacy acquisitions and finance:

1. Attorneys and CPAs who have been representing the pharmacy seller in AZ for many years may see the transaction as putting themselves in a position of losing a client when the business is sold. Make sure they are working diligently on the transaction and are not slowing or undermining the process

2. Since pharmacy acquisitions involve 6-9 months of work to complete , all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All financial information needs to be current. Over the lengthy process the data supplied to both the buyer and the lender will need to be updated on a continuous basis. Things can change drastically during a nine month period and the Arizona pharmacy seller will need to continually prove the financial condition of the company.

When pursuing “pharmacy acquisition finance,” for the best chance of success, make sure the valuation company and the lender have expertise in that industry. Choose a company that has the pharmacy experience and expertise, and is a direct correspondent with lenders who understand AZ pharmacy.

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Arizona Pharmacy Industry: Current Market Conditions

By Brad MacLiver
Authorship and profile at Google


Currently there are a number of factors that are impacting the current market conditions of the U.S. pharmacy industry in AZ. These factors are affecting the Arizona pharmacy business valuations of pharmacies and drug stores all across the U.S.

Local demographics:

The valuation process includes local market conditions and local demographics. Smaller communities have less potential for growth and with declining profits a buyer will need to purchase at a lower value because they will have to service their debt from a business loan and still be able to make a living. This is also true for communities that have lost population due to economic conditions, or communities with a high rate of unemployment. Less people and less customers with the ability to purchase means fewer sales and less chance of any substantial improvement in the near term. The result of this is a lower pharmacy business value.

Arizona Pharmacists Shortage:

AZ Pharmacies and pharmacies across the country have had difficulties in finding pharmacists.  This shortage of pharmacists affects not only employee opportunities but also the number of potential independent buyers. 

Fewer Buyers:

There are also fewer corporate buyers. Some of the largest pharmacy chains in Arizona have been purchased and consolidated in the pharmacy industry roll up. Many smaller chains have run into financial difficulties and have stopped their expansion. It is more difficult to drive a price higher when there are fewer willing, or capable, to purchase.

Current Market Conditions Requires Industry Roll-up:

The consolidation of the pharmacy industry is required to get more traffic into a single store.  Due to simple economics, when any business has a reduction in profits they are less attractive to a buyer and pharmacy business values drop. There are many factors contributing to the downward pressure of pharmacy values and there is not any expectation of a turn around. Pharmacy owners in Arizona should not be fooled by inexperienced Brokers claiming grand outcomes and over stating pharmacy business values not based on realistic market conditions.

With the consolidation of the pharmacy industry that has been happening for several years, many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have AZ pharmacy related experience, nor do they use current market conditions when they value a pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current pharmacy market conditions. Due to this many brokers are valuing pharmacies 2 to 3 times more than what the market is really willing to pay. Any inexperienced person can quote a high value to capture a listing.  However, that does not mean the over inflated asking price is what the business will actually sell for.

Mail Order:

Some insurance companies are designating a noticeable amount of pharmacy patients in Arizona as “long-term medications” and require they only purchase the medications from mail order pharmacy companies who provide products at lower prices. This results in local pharmacies not only missing out on prescription sales, but front-end sales will also decline since the customer is not entering the store. Pharmacy mail order sales have now surpassed sales from independent retail pharmacies.

Choose a firm that provides pharmacy business valuations based on real market conditions and does not use a simple formula for calculating the value of an Arizona pharmacy. Complex methods are used to derive the value of a pharmacy.

It is best to use a company that specializes in pharmacy and has extensive and current industry data.  Choose pharmacy specialists who have been working in the AZ pharmacy industry long enough to have extensive pharmacy experience and an excellent reputation.  A company with good credentials possesses large amounts of national data.  The largest financial institutions, national chain pharmacies, regional pharmacy chains, independently owned drug stores, and pharmacy equity investment groups use the services of companies fitting this description.

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Estate Planning for Arizona pharmacy owners

By Brad MacLiver
Authorship and profile at Google


With the current market many Arizona pharmacy owners are experiencing lower profit margins, and have considered selling. A pharmacy industry roll-up has been going for years, consolidating the pharmacy seller's customer traffic into fewer pharmacy locations. There are however a number of pharmacies that are not in a geographical location with other nearby pharmacies, such consolidation can not take place. Some Arizona drug store owners, despite their location or what is happening in the industry, has taken a stand and will not consider selling. But like paying taxes, an exit of the company is ultimately inevitable.

Estate Planning is a subject that many people, in all industries, timid. The Arizona pharmacy owner who works 6 days a week, taking very few vacations, fill scripts all day, then mops the floor and makes the books at night, it usually is not much time to consider additional things like estate planning. But, knowing that it will be a transfer of business, it is fundamental for pharmacy owners to consider a proper succession plan for the pharmacy business.

Develop a plan to transfer operations will be time consuming, but done correctly allows the Arizona company to be successfully transferred in an acceptable manner. An estate plan for a pharmacy owner need not be immutable process. Fine-tuning, updating, and changes recommended by government regulation, economic conditions and personal expectations change.

Estate planning allows a pharmacy owner to anticipate and provide for the transfer of the drug store. The plan will be formatted in an attempt to eliminate uncertainty, to assist the transfer by trimming costs and cutting taxes.

Process may involve Trusts, wills, living wills, Power of Attorney, Medical Power of Attorney, Business Valuation, Life Insurance, a charitable remainder Trusts, Buy-Sell Agreements and other legal documents. All aspects of estate planning for the pharmacy owners coordinated guidelines.

If there are non-family members as partners in the Arizona drug store business, it is fundamental that estate planning include a Purchase-Sale Agreement. A buy-sell agreement, governs the transfer of business between the pharmacy partners. The agreement may also be known as a partner buyout agreement, or a company wants. To protect the family in the event of death of a partner, buy-sell agreement funded with life insurance.

Estate planning, buy-sell agreements, and transferring of a pharmacy requires an accurate pharmacy valuation. This should be completed by a third party who has expertise in the pharmaceutical industry. Using simple accounting formulas, multipliers, and a valuator inexperienced in pharmacies will not provide an accurate business valuation.

Most Arizona pharmacy owners spend a large part of their lives to build the business. The effort should not disappear because the pharmacy owner refuses to accept their mortality, and plan accordingly. The only pharmacist in a small town is usually the pharmacy's owner. If the script can not be filled by a licensed pharmacist since the law the client files must be transferred to another pharmacy. Because of this, a pharmacy business value fall to a negligible figure in just a few days after the death 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 families are left with an asset with very little value.

Tips for Pharmacy Owners Doing Estate Planning:

1. When the family pharmacy is the only means of income for many families it becomes more fundamental to have a set plan in place.

2. To avoid disputes should estate plans should be developed with clear directives.

3. Minimize tax liabilities is an fundamental goal for most people to complete an estate plan should be an expert tax advice should be sought.

4 Many online documents and books are available that provide advice and documents to develop an estate plan. When you go to self-help route, it is advisable to have a paid expert review the completed documentation to ensure that it can be legally respected when the time comes.

5. While developing the farm plan, it is fundamental to talk with children and other family members of the pharmacy market owner especially if there are any family members who work in business and others do not.

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Pharmacy Transactions and Capital Gains Tax in Arizona

By Brad MacLiver
Authorship and profile at Google


Almost everything one owns and uses for personal or business purposes is a capital asset. When AZ pharmacy owners sell capital assets, the difference between the amount you sell it for and the amount initially paid (the basis) is known as a capital gain or a capital loss.

Capital gains also refers to "investment income" that comes up in relation to real assets such as financial assets, property, or intangible assets such as goodwill. In the United States, all capital gains must be reported and the appropriate tax must be paid.

When selling Arizona pharmacies or a drug stores, you can utilize specific tax strategies to help offset the tax liabilities.  If you aren't being handled by a professional who handles a large number of pharmacy acquisitions, you'll find most companies usually do not know these federal regulations that allow for reducing the tax liability for the pharmacy owner.

During this period in our economy where it is more difficult to finance businesses, pharmacy sellers may already be obligated to lower their asking price so a pharmacy buyer can qualify for the financing required. On top of the lower offers they will be required to pay higher percentages in taxes.

This is a dilemma for the pharmacy seller in Arizona who wants as much money out of the deal as possible. For most pharmacy owners their business is the largest asset they will ever own and selling the business at a certain dollar amount has been part of their retirement and estate planning. Knowing they will need to cut out a larger chunk of the proceeds to give to the government will cause some pharmacy owners to reconsider their retirement plans. The good news is there are financial tools and strategies that allow the pharmacy owner to proceed with their plans.

Family Foundations are tax exempt/nonprofit organizations, which provide tax advantages and control over philanthropic activities. Family foundations are typically private foundations that are funded by a small number of sources, and do not conduct widespread fund-raising activities. They may receive gifts from friends and limited sources. Family members serve as trustees, directors, and officers. As private foundations they can make grants, or donations to other organizations. Having a Family Foundation provides a number of benefits including, income tax deductions, exemptions from estate and gift taxes, along with the reduction or elimination of other taxes.

One strategy, but not the only one, that is currently available to assist the capital gains tax burden is the Charitable Remainder Trust (CRT). CRT’s are legally described as Split Interest Trusts. The term is used because of the blend of philanthropic motivations and personal financial aspects. CRT’s can decrease tax liabilities, increase a business owner financial wealth, and at the same time provide a vehicle for charitable giving.

CRT’s are formed when a person donates assets to this special type of Trust. Assets can be cash, stocks, real estate, etc. The CRT is set up for a set period of time, or until the donor’s (pharmacy owners) death. An individual (the AZ pharmacy owner or family member) can receive income from the Trust’s assets. Upon the donor’s death the assets go to a designated charity. Part of the income from the Trust can be used to purchase life insurance on the donor. The proceeds of the life insurance go to a designated heir(s) who receive the money without incurring any estate tax liability.

Some tax strategies including the use of CRTs are not widely known. It would be advisable for Arizona pharmacy business owners to be aware of the different tools that are available in structuring a business transaction. They should also be aware that only a professional with vast experience in CRTs should be used to setup a Charitable Remainder Trust. Not following the strict IRS guidelines could be cause for increased taxes, penalties, and in some cases criminal charges.

Over the years there have been unscrupulous individuals who have tried using CRTs and similar financial tools in illegal scams. With the increase in capital gains taxes there are expectations more scams will be floating around out there. Be knowledgeable about the possibilities, but be confident you are working with experts in your industry.

You should consult a firm with extensive experience in Arizona pharmacy and drug store valuations and acquisitions. Firms that have the knowledge and expertise to structure the transaction appropriately, for tax considerations, can save a pharmacy owner in AZ large sums of money when a pharmacy is sold.

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Buy-Sell Agreement for Arizona Pharmacy owners

By Brad MacLiver
Authorship and profile at Google


When an Arizona pharmacy is owned by two or more shareholders partners should have a Purchase-Sale Agreement. A buy-sell agreement is a written document that contains procedures and controls the future sale of the Arizona pharmacy business.

Pharmaceuticals buy-sell agreements guard the interest of the parties who own pharmacy and control the actions triggered by a shareholder to leave the business because of death, disability, divorce, dissolution, or retirement. Agreement will control how and when the shares of the pharmacy business is sold or transferred. It will also provide guidance on how the pharmacy will be evaluated together with the obligations of the remaining shareholders in the Arizona pharmacy.

    
Buy-sell agreements are important because the various elements of a future sell are predetermined, and does not need to be negotiated during a heated conflict, or during a grieving period. It offers both the shareholder and the family a comfort level that when the inevitable time comes for an exit strategy that the process was carefully considered in advance.

 

Disadvantages of not having a buy-sell agreement between Arizona pharmacy owners is that a disability can leave a partner who works more and another does not add to productivity. In the event of a death, without an agreement, one party will have a nonproductive heir, or a new partner can be inserted that has personality conflicts with the surviving partner. The wrong partner can be calamitous for the Arizona pharmacy business.

 

There are various types of buy-sell agreements: Entity Buy-Sell Agreement, Cross-Purchase Buy-Sell Agreement, wait and see Buy-Sell Agreement, Disability Buy-Sell Agreement. Buy-sale agreements are also known as a company will or a buyout agreement.

Possible elements of a buy-sell agreement:

1. Shareholders name and number of shares and voting rights of each.

2 Guide for certified pharmacy valuation and purchase of shares a shareholder.

3 Mutual covenants and considerations.

4. Restrictions on the transfer, purchase or encumber the company stock.

5. Protocol in case of a shareholder's divorce or termination of a shareholders' agreement of employment.

6. Obligation to purchase   sale of shares from an estate.

7 Purchase of insurance to ensure the ability to meet obligations.

8. Purchase of shares paid in lump sum or in installments.

9 Remedies for breach of contract or non-payment.

10 Until the transfer is complete, the right to inspect books and records.

11. Amendments and notices of promotions or legal issues.

12. Enforcement of the agreement, the binding effects and arbitration procedures for disputes.

13. Process for the dissolution or liquidation of the company.

14 Maintenance of the property for a transitional period.

15. Preserve the representations and warranties.

16 The conditions for transfer.

17. Bill of Sale.

To ensure that the necessary funds available, buy-sell agreements are often funded with life insurance. If the death of one of the Arizona pharmacy owners occurs, the life insurance settlement provides funding for the remainder of the Arizona pharmacy owner to buyout partners share of the estate.

Life insurance for each partner must be in place, because without a way to gain purchase of the pharmacy's share buy-sell agreement will not be functional. As the business grows and develops how much insurance must be adapted to provide adequate coverage. Without insurance, the surviving shareholders may not have enough money to buy the required amount of the estate to meet - leaving the survivor with an unwanted partner.

To have adequate insurance coverage and to determine the details of the buy-out terms, is a certified pharmacy business valuation necessary. There are a large number of companies offering business valuations. Because of the dynamics and the current market of the pharmacy industry, a valuation firm should have extensive pharmacy experience. Accounting Simple formulas and multipliers will be adequate or realistic valuation does not provide for an Arizona pharmacy business.

Pharmacy buy-sell agreements are very important documents that must be completed with care and seriousness. Even with a long term partnership, it's just too late to create a buy-sell agreement, when an event has already happened that would require the document.

Tips:

1 Buy-sell agreements are important documents that should not be taken lightly. Consult a licensed professional.

2 Documents must take the appropriate laws and regulations that vary from state to state. Search the right guidance.

3. Premiums for insurance that the buy-sell agreement, the Fund will be deductible.

4 Ensure that the pharmacy valuation performed by an established pharmaceutical industry expert.

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