Merry Christmas - new Jersey Pharmacy Owners

To all of the hard working New Jersey (NJ) pharmacy owners and their staff we want to wish you a very Merry Christmas.

There are expectations that the coming year will bring new challenges to the pharmacy industry. We are here to assist all pharmacy and drug store owners.

Watch our Christmas video: http://youtu.be/Lm-6ls-rzrY

11 Questions to Consider When You Are Thinking of Selling Your NJ Pharmacy Business This Year And 8 Tips When You Have Made the Decision to Sell Your Drug Store

By Brad MacLiver
Authorship and profile at Google


1. Government regulations continue to be imposed at increasing depths for all businesses. Will increased regulations affect your independently owned New Jersey pharmacy over the next few years and sour the milk for a future drug store buyer?

2. New taxes, or cuts in deductions, are going to happen. If changes in the tax code will negatively affect the cash flow of your drug store, or the cash flow of your customers, should you sell sooner than later?

3. There are a larger number of uncertainties that are coming with the new healthcare reform. How will the changes affect the profitability of your New Jersey pharmacy business, and should you sell before any negative affects arrive?

4. An optimal employment rate, and insured customers, that would increase demand for independently owned drug store services will not occur for a number of years. Can you really wait for the economy to fully recover and the demand to increase – before deciding to sell your New Jersey pharmacy location?

5. Pharmacy financing is available for financially sound transactions. However, many potential acquisitions, partner buy-outs, and franchise buy-outs are not completed due to a lack of knowing where to find drug store financing for New Jersey drug stores. Are you familiar with the lenders who will consider financing your pharmacy transaction?

6. Tax for capital gains is currently at 15%. When the Bush tax cuts expire the rate will move to 20%. There is discussions the rate could be moved to 30%. This could mean as much as $150,000 in additional taxes for a $1 million transaction. Since a pharmacy buyer will not offer a purchase price for the current business value + your increased tax liabilities, should you sell your NJ drug store before taxes are increased?

7. Thousands of baby boomers are retiring each day and many of these have businesses they will be selling. Will an influx of businesses for sale reduce the chances of selling your New Jersey drug store at top dollar?

8. Included in the new healthcare act is a new property tax. If you are considering selling your drug store business so you can retire, or invest in other opportunities, what is the total effective tax you can pay and still net enough cash out of the business to meet your desires?

9. In a good economy you should expect that selling your independently owned pharmacy business to take 6-12 months. How long will it take to sell your drug store in the current economic conditions?

10. Many pharmacy buyers, who are not properly financed, will request that you carry part of the financing if they offer to purchase your New Jersey drug store. Are you familiar with carrying and selling a pharmacy business note?

11. Is selling now, or waiting to see what happens, the best strategy to maximize the purchase price of your NJ drug store?

8 Hints for Preparing to Sell Your Pharmacy:

1. Be prepared. It is amazing how many drug store owners don’t have their monthly financial statements and other reports up-to-date. Have at least 2 years of tax returns and monthly financial statements, along with 2 years of your monthly prescription reports copied and ready so that a package can be prepared for a qualified pharmacy buyer.

2. Work with a drug store valuation company that is an expert in the pharmacy industry, to determine the current value of your business. Don’t use simple valuation formulas that might not realistically present the current value of your NJ drug store, or the competitive pressures of the geographic area where your drug store is located.

3. You can’t sell your New Jersy pharmacy business if the buyer doesn’t have an avenue to finance the transaction. If you don’t have a previous lender to direct a drug store buyer toward, start working with finance consultants who have funding sources that have experience in providing business loans in the pharmacy industry.

4. A quality pharmacy business broker will also be able to bring in a higher purchase price than you can get by yourself. When you attend to the day to day activities of running the independently owned pharmacy business and maintaining profits, while not diluting your time with attempting to broker the business yourself, you should net more money even after paying the pharmacy broker commissions.

5. Since most New Jersey drug store acquisitions are financed, if you have received any type of drug store financing in the past, reconnect with the lender so that you can direct a pharmacy buyer to a lender that knows your business.

6. You know “curb appeal” works for selling a home. Make sure your business property, equipment, and work areas provide an appearance that will attract the pharmacy buyer.

7. The various taxes you will be required to pay will have a huge impact on how much you are able to deposit from the purchase price of your independently owned pharmacy. Work with a knowledgeable tax advisor to assist in the development of your best tax strategy when considering the impacts and affects in how you structure the transaction.

8. Confidentiality can be a concern when drug store sellers don’t want their employees and customers to be in a position where they will fear the coming change. Use a pharmacy business broker that has both Pharmacy Purchase & Sale Agreement experience and contacts with qualified drug store buyers. A broker with New Jersey pharmacy expertise should be able to bring qualified buyers to the table without running public advertisements.

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Estate Planning in New Jersey for Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many NJ pharmacy owners are experiencing lower profit margins and have considered selling. A pharmacy industry roll-up in New Jersey has been occurring for a number of years, consolidating the pharmacy seller’s customer traffic into fewer pharmacy locations. However, there are a number of pharmacies that are not in a geographic location with other nearby pharmacies, so consolidation can’t take place. Some pharmacy and drug store owners in New Jersey, despite where they are located or what is happening in the industry, have taken a stance and won’t consider selling. However, just like paying taxes, an exit of the business, is eventually inevitable.

Estate Planning is, to many people in all industries, a topic which tends to be avoided.  Pharmacy owners that work 6 days a week, do not take many vacations, fill scripts all day, then mop the floor and do the books at night usually don’t have much time to consider additional things such as estate planning.  However, acknowledging that there will inevitably be a transfer of the business, it is important for the pharmacy owner to complete a proper succession plan for the New Jersey pharmacy business.

Developing a plan for transfer of the business will be time consuming, but when correctly it will allow the business to be successfully transferred in an acceptable manner. It is not necessary that an estate plan for a pharmacy owner be a changeless process. Making fine-tuned adjustments, updates, and amendments are advised as government regulations, personal expectations, and economic conditions change.

Estate planning enables a pharmacy owner in New Jersey to anticipate and arrange for the transfer of the drug store. The plan will be formatted in an attempt to eliminate any uncertainties, assist the transfer by trimming expenses, and reduce taxes.

The process may involve Trusts, Wills, Living Wills, Power of Attorney, Medical Power of Attorney, Business Valuations, Life Insurance, Charitable Remainder Trusts, Buy-Sell Agreements, and other legal documents. All of the different aspects of the estate planning are to provide the pharmacy owners coordinated directives.

When there are non-family members as partners in the drug store business, it is essential that the estate planning incorporate a Buy-Sell Agreement. A buy-sell agreement, governs the transfer of the business between NJ pharmacy partners. The agreement may also be known as a partner buyout agreement, or a business will. To help protect the family in the event of a partner’s death, the buy-sell agreement may be funded with a life insurance policy.

Estate planning, buy-sell agreements, and the transfer of the pharmacy should incorporate a pharmacy business valuation completed by a third party that has expertise in the pharmacy industry, performs a large number of pharmacy business valuations each year, and has current industry data as a basis for the conclusions. Using simple accounting formulas, multipliers, and valuators inexperienced in pharmacy will not provide an accurate business valuation.

Most pharmacy owners spend a major part of their life building the business. The efforts should not disappear because the pharmacy owner refuses to accept their mortality and plan accordingly. The only pharmacist in some small New Jersey pharmacies is the owner. If the scripts can’t be filled by a licensed pharmacist then by law the customer files must be transferred to another pharmacy. Due to this, a pharmacy’s business value may drop to a negligible figure in just a few days after the passing 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 family is left with an asset with very little value.

Tips for NJ Pharmacvy Onwers:        

1. When the family drug store is the sole means of income for several family members it becomes even more crucial to have a succession plan in place.

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

3. Minimizing tax liabilities is a major objective for most completing an estate plan, therefore expert tax advice should be sought.

4. Many on-line documents and books are available that provide advice and documents for developing an estate plan. When going the self-help route, it is advisable to have a paid expert review the completed documentation to ensure that it can be legally complied with when the time comes.

5. While developing the estate plan it is essential to talk with children and other family members of the NJ pharmacy owner especially if there are some family that work in the business and others that don’t.

Financing Pharmacy Franchises in New Jersey

By Brad MacLiver
Authorship and profile at Google


A NJ pharmacy franchise is a contractual relationship between two parties. One, the Pharmacy Franchisor in New Jersey is the party that developed their drug store business model, branded the pharmacy related products, and produced the system the pharmacy franchisees will operate under. The second party, the Pharmacy Franchisee, purchases a franchise license from the Pharmacy Franchisor, and usually pays an ongoing pharmacy franchise fee, or royalty fees, to use the name, products, systems, trade secrets, etc., created by the Pharmacy Franchisor.

There are a number of options for financing a New Jersey 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 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 New Jersey pharmacy loan. Community drug stores typically have very little traditional assets to offer as security. Lenders for pharmacy 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 loan.

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 in New Jersey.

Tips for NJ Pharmacy Franchise Funding:

1. Because there are many pharmacy franchise financing options available, pharmacy owners should perform proper due diligence then obtain the pharmacy funding that best suits their situation.

2. It is advisable to consult either an attorney or accountant familiar with financing pharmacy franchises and have them review the pharmacy business loan documents.

3. To help guide a prospective New Jersey pharmacy franchisee or borrower for a drug store loan, there are pharmacy consulting services and franchise associations available.

4. New pharmacy owners in New Jersey need to ensure that their funding request is enough to get the pharmacy running and profitable. Funding that is less than ample for the initial stages potentially put the drug store in a position of needing more funding. It will be more difficult to obtain smaller working capital loans that would be in a subordinated position at a later date.

When NJ 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 New Jersey pharmacy industry specialist who can provide quality answers and sound advice.

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Pharmacy Financing Types Available in New Jersey

By Brad MacLiver
Authorship and profile at Google


There are a number of different options available for funding NJ pharmacy franchises, specialty pharmacies, and traditional community drug stores.

SBA Financing for NJ Pharmacy Business Loans

The U.S. Small Business Administration (SBA) partially guarantees loans for 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 in New Jersey will be located, property improvements, working capital, and pharmacy related equipment.

Borrowers for the New Jersey pharmacy franchise 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 pharmacy transaction.

There are SBA fees for guaranteeing pharmacy business loans in New Jersey. 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 ofr NJ Drug Stores

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 New Jersey pharmacy loan process.

New Jersey 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.

NJ Funding for Pharmacists 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.

NJ 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 New Jersey pharmacy franchisees. Preferred lenders will already be familiar with the 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

It is not the case that all prospective pharmacy franchise owners in New Jersey have enough readily available.  A portion of the drug store business financing may need the borrower to liquidate some personal stocks as well as provide personal assets as collateral.  They may also refinance their home or use their 401k to assist the lenders security to make the pharmacy business loan.

If the borrower still can't make the loan, a friend or family member may be required as a partner in the NJ pharmacy.  However, now that the pharmacy partner’s cash and assets are also at risk of loss, your partner may require some controlling interest in the pharmacy.

Retirement Accounts Used for New Jersey Pharmacy Finance

It is possible to self-direct Retirement Plans can use them to invest into a pharmacy franchise. Retirement plans can purchase stock in the pharmacy franchise similar to how they may currently be investing in publicly traded stocks and mutual funds. Lower debt service and higher profit potential may result when incorporating this option that uses less external financing in funding the franchise.

The downside is, if the pharmacy in New Jersey crashes, so does the retirement fund. The method of providing less expensive financing for the NJ pharmacy needs to be weighed against the risk of failure.

Because of the factors involved such as deferred taxes, early or improper distributions, and IRS involvement, funding a pharmacy transaction with a retirement account should be handled by a company who has expertise in this arena. Pharmacists and investors interested in using this financing structure should research the Employee Retirement Income Security Act of 1974 (ERISA).

Pharmacy Franchise Agreement Buyout Funding

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

Buying out the franchisor allows the New Jersey pharmacy 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 New Jersey. 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 pharmacy is requesting. To assist the successful funding process a NJ pharmacy owner is advised to use a pharmacy industry specialist to capitalize on the funding opportunities that are available.

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Pharmacy Sellers/Buyers: New Jersey Sale & Purchase Agreements

By Brad MacLiver
Authorship and profile at Google


A Pharmacy Listing Agreement is a contract that provides pharmacy brokers with the business seller’s permission to sell their New Jersey drug store. In the midst of the process of presenting the business being sold to qualified drug store buyers, there will be crucial negotiations and preliminary offers.

After preliminary stages have been negotiated, it will then be time to put the details of the potential pharmacy transaction forth in the form of a contract. This contract is traditionally called the Purchase and Sale Agreement, but it may also be referred to as a Pharmacy Asset Purchase Agreement, an Asset Purchase and Sale Agreement, Asset Purchase Agreement, or any other variation of these contract titles. Whatever the title is on the contract, this document should be considered the “blueprint” for transferring the pharmacy business to the new owner.  

The Pharmacy Purchase and Sale Agreement details how much the buyer agrees to pay and what assets the New Jersey seller is conveying to the buyer. When the agreement is put in writing and it describes the transaction in some detail then is accepted and signed by both parties, this contract is now a legally binding agreement. So, during the phase of negotiation, the Pharmacy Purchase and Sale Agreement should be developed with proper diligence.

Due to liability issues it is seldom that a pharmacy’s corporate stock will be purchased. Therefore, these transactions almost always are only asset purchases.

Elements of the Pharmacy Purchase and Sale Agreement include, but are not limited to: assets being purchase, assets being excluded, aspects of counting and purchasing the inventory, both electronic and hard copies of pharmacy customer files, liabilities, purchase price, closing date, transferring title of the assets being purchased, pharmacy customer file conversion, representations and warranties, non compete, restrictive covenants, transferring the phone, notifying customers, signs, Board of Pharmacy notification, accounts receivables, employment of business seller and pharmacy employees, confidentiality, counting the pharmacy’s inventory, costs associated with the closing, lien searches, actions to be taken before the date of closing, along with the pharmacy’s computers, office equipment, and any automated filling machines.

Although it covers many aspects of transferring the business assets from the New Jersey pharmacy seller to the new owner, it should be understood that the Purchase & Sale Agreement does not provide tax and legal guidance for the seller. Those issues do not pertain to the buyer of the assets. Therefore, the pharmacy seller should be well advised by a knowledgeable pharmacy broker, accountant, or attorney regarding tax consequences, restrictive covenants, the pharmacy valuation, and the structure of the deal. These aspects of the deal may not have any impact from the buyer’s point of view, but if not considered carefully may have affects to the seller’s financial position after the transaction is closed.

New Jersey pharmacy owners that are considering to sell their drug store will benefit when working with specialists who operate exclusively in the pharmacy industry.  They can provide expert guidance when bringing about transactions that provide the most benefits regarding the seller’s family and estate planning and tax consequences. A blueprint and proper planning that structures transactions appropriately will increase the net amount of money the seller in New Jersey receives for the pharmacy’s assets.

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Bridge Loans and New Jersey Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


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

Bridge Loans are a short-term financing option and are used while waiting for permanent financing, or the next stage of financing to be obtained. Bridge loans provide funding to "bridge" the gap between a company’s current needs and their long term financing requirements.  The bridge loan is generally "taken out," or paid back, with traditional financing.

One characteristic that a bridge loan has is that they can close quickly, which in turn allows a company to capitalize on a timely acquisition or another business opportunity. This sort of quick access to cash alsos businesses the chance to avoid temporoary problems like penalties or bankruptcy. If there are  longer term issues that need to be dealt with, this form of “transitional financing” can provide the company with time until longer term financing can be secured.

Another characteristic that bridge loans have is that the process will usually require less documentation than conventional financing. Bridge loan lenders typically don't have the same government regulations to follow, so they tend to have more flexibility with their lending criteria and documentation they require. However, less documentation doesn't mean they will fail to perform due diligence to have a comfort level with the transaction before they fund.

Examples of using Bridge Loans in NJ Pharmacy Transactions:

1. An independent New Jersey pharmacy owner learns of health issues and decides to quickly sell the family owned pharmacy to an employee or local competitor. Traditional financing for the NJ pharmacy buyer may require a time line that is not acceptable when considering the circumstances. Bridge loans can be used to quickly accomplish the transaction in these scenarios.

2. In order to expand their business, a small pharmacy chain needs $1 million. 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 in New Jersey 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 New Jersey pharmacy owner 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 NJ 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 New Jersey 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 NJ 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 pharmacy bridge loans in New Jersey:

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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