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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