Current Pharmacy Industry Market Conditions in Connecticut

By Brad MacLiver
Authorship and profile at Google


There are currently a number of factors impacting the current market conditions of the U.S. pharmacy industry in CT. These factors affect the pharmacy business valuations of pharmacies and drug stores locally and all across the U.S.

    
Local demographics:

The valuation process includes local market conditions and local demographics. Smaller communities have less growth potential, so buyers will need to purchase at a lower value due to declining profits. This is because they must service the debt from a business loan and still try to make a living. The same is true for communities that have lost population due to economic conditions, or have a high rate of unemployment. Fewer people, or fewer customers with the ability to purchase, will mean fewer sales and less chance of any substantial improvement in the near term. This results in a lower pharmacy business value in Connecticut.

Pharmacists Shortage in Connecticut:

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

Fewer Buyers:

There are also fewer corporate buyers. Some of the largest pharmacy chains 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 should not be fooled by inexperienced Brokers claiming grand outcomes and over stating pharmacy business values in Connecticut 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 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 CT 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 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 Connecticut 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 a pharmacy. Complex methods are used to derive the value of a pharmacy.

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

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Buy-Sell Agreement for Connecticut Pharmacy owners

By Brad MacLiver
Authorship and profile at Google


When a Connecticut 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 Connecticut pharmacy business.

                
Pharmaceuticals buy-sell agreements shelter the interest of the parties who own Connecticut a 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 Connecticut pharmacy.

Buy-sell agreements are important because the various elements of a future sell is 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 Connecticut 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 Connecticut 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 Connecticut pharmacy owners occurs, the life insurance settlement provides funding for the remainder of the Connecticut 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 a Connecticut pharmacy business.

Pharmacy buy-sell agreements are exceedingly important papers 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 for Connecticut Drug Store Owners:

1 Buy-sell agreements are important papers 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.

 

Pharmacy Transactions and Capital Gains Tax in Connecticut

By Brad MacLiver
Authorship and profile at Google


Almost everything you own and use for personal, or business, purposes is a capital asset. When CT pharmacy owners sell a capital asset, the difference between the amounts you sell it for and the amount you paid for it (the basis), is a capital gain, or a capital loss.

Capital gains also refer to investment income that arises in relation to real assets, like property or financial assets, and intangible assets, like goodwill.  In the United States, all capital gains are required to be reported and its appropriate tax paid.

There are, however, specific tax strategies that can be used to help offset any tax liabilities when selling a pharmacy or a drug store, but unless you consult a professional that handles a large number of Connecticut pharmacy acquisitions, they will be unaware of these federal regulations that allow for reduction of tax liability for the pharmacy owner.

In the current state of the economy where it is more difficult to finance a business, a pharmacy seller could already be required to lower their asking price so pharmacy buyers can easily qualify for the financing required.  In addition to having lower offers they will be required to pay out a higher percentages in taxes.

This is a serious problem for the pharmacy seller in Connecticut who wants to make as much money out of the deal as possible.  For most drug store owners, their pharmacy is the biggest asset they will ever own, so when selling the business, they expect a certain dollar amount as 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 CT 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 (pharmacy owner in CT 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 pharmacy business owners in Connecticut 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 Connecticut pharmacy and drug store acquisitions. Firms that have the knowledge and expertise to structure the transaction appropriately, for tax considerations, can save a pharmacy owner large sums of money when a pharmacy is sold.

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