Selling your business is likely to be one of the biggest financial transactions you will undertake.
The ideal outcome would be for a purchaser to pay top price and the sale to progress smoothly and quickly to conclusion. Unfortunately this does not always happen. Pharmacies are often sold at less than the market price, sales can take many months to progress due to poor professional advisers, confidentiality is breached and purchasers try to renegotiate the price just before exchange of contracts. All of these problems can be avoided if you are in control of the sale. The aim of this article is to provide a brief guide to help make your business sale successful.
What is the pharmacy worth?
If you have been approached privately by a local independent or one of the multiples, be aware that their price objective is different to yours. You want to sell for the maximum price and they want to buy for the minimum price.
To obtain the best price for your pharmacy you must know what it is worth. Ask an experienced pharmacy agent for a valuation. Pharmacy valuation is very specialised and unlike other business sales. For example, a general business transfer agent recently valued a pharmacy at over £100,000 less than our market valuation. On a sale, which was worth about £500,000, this difference represented a substantial sum and illustrates the importance of using a pharmacy valuation expert.
Pharmacists often think that their business is valued at pence in the pound. This is not an accurate method because so many factors affect the value. A few of these are:
- Location, particularly in relation to doctors’ surgeries;
- Security of income, with regard to doctors relocating, competition, 100-hour pharmacies etc.;
- Nursing home income forming a significant proportion of turnover;
- NHS/counter mix;
- Shop rent and terms of the lease;
- Opening hours;
- Business profits.
For example a pharmacy with a turnover of £1.5 million, which ticks all the right boxes, could sell for, say, £2 million while another with the same turnover but with high nursing home income, very long hours and poor profits could sell for £1 million.
If you are aware of something that could affect the saleability of your pharmacy, such as the local doctors moving, it is advisable to deal with this at the outset by assessing how it will affect your business and factoring this into the asking price. You can be sure that potential purchasers will carry out their own due diligence and find out what is happening in the location. If there is something that could have a negative impact on the business it is preferable to pre-empt the situation, rather than be confronted with a difficult situation later, which could result in the sale falling through.
Once you have established what the pharmacy is worth, the next question to ask is:
How much tax will I have to pay?
In many cases the tax liability may affect your decision to sell. You should discuss this with your accountant or tax adviser. If you are trading through a limited company you will need to establish at the outset whether the sale should be structured as a company share sale or asset sale. Getting this wrong could be costly. Many accountants are still telling their clients that it will be difficult to persuade a purchaser to buy the company shares. This is not true; over 50 per cent of the sales we deal with are company share sales and, these days, purchasers accept this.
Prepare for the sale
You will need to supply prospective purchasers with sufficient information to enable them to decide whether to make an offer on your pharmacy and, if so, how much they are prepared to pay. Your information pack should include:
- Three years’ up-to-date business accounts;
- 12 months’ copies of PPA statements;
- 12 months’ copies of VAT returns;
- Copy of the premises lease if applicable;
- If you own the premises, get an up-to-date market valuation of the freehold if this is to be sold or market rent if you intend to create a lease.
How should I sell the pharmacy?
The choice is whether to try to sell privately or to use a reputable pharmacy agent.
Private sales
The problems with trying to negotiate a sale yourself are:
- The risk of selling your business for less than it is worth – by only negotiating with one or two purchasers you will not create the competitive environment needed to obtain the best price.
- Inexperience – you have probably not sold a business before. Do you think your negotiating skills can match those of the acquisitions manager of a group
- or multiple who are carrying out these negotiations every day? If you are selling to a first-time buyer, how will you vet them and check their financial position?
- The purchaser will be in control if you are negotiating only with one party. This increases the chance of the purchaser trying to renegotiate the price just before exchange of contracts.
- Breach of confidentiality – you may find it difficult to maintain confidentiality when trying to deal with the sale directly.
- Delays in completion of the sale can occur through inexperience of how the sale process works. The more protracted a sale is, the more likely it is to fall through.
Using a pharmacy agent
A good agent should:
- Get the best price for you – the difference between you selling privately and using an agent should far exceed the agent’s fee. A recent example of this was a pharmacy owner who had negotiated the best price he could with a pharmacy group. He asked an agent’s opinion on the pharmacy value, resulting in the agent selling the business for an increase of over £2 million after allowing for fees;
- Introduce you to genuine buyers after eliminating time wasters;
- Create a competitive environment between the purchasers so as to maximise the price achieved – the objective should be to obtain several genuine offers;
- Vet the purchasers and check their financial ability to buy the pharmacy;
- Obtain signed confidentiality agreements before releasing any details of your business to prospective purchasers;
- Control the sale by setting time limits for offers and final bids;
- Recognise and deal with frivolous offers;
- See the sale through to a speedy conclusion by dealing with solicitors, financial advisers and accountants, minimising the time you need to spend and allowing you to concentrate on your business;
- Minimise the risk of a purchaser trying to renegotiate the price after the sale has been agreed;
- Help you choose a good commercial solicitor experienced in pharmacy
- sales.
How long should the sale take?
From start to completion allow a minimum of five months. Realistically allow between five and nine months. The two main problems that delay sales are:
- Inexperienced solicitors – this is one of the biggest problems that we come across. Using the wrong solicitor can double, treble or even quadruple the sale time. It can also prove costly as most solicitors charge on a time basis. Check that your solicitor has the necessary experience and the time and resources to handle your sale effectively.
- Property leases – if the lease needs to be renewed at the time of the sale this can result in considerable delays because the landlord and their solicitors become involved. You may also find that the purchaser wants to take part in the lease negotiations.
Providing information
Throughout the sale process you will be asked to provide information about the business. Be prepared for this. If someone is paying a substantial amount of money, they and their financial backers and solicitors will want to be sure that the investment is sound. To speed up the sale try to provide information as soon as it is requested.
Summary
You will probably sell only one business in your lifetime. Ensure you make the most of it. If I were asked to give just one piece of advice, it would be appoint experts to help you achieve a successful sale:
- Pharmacy agents to value and sell your pharmacy;
- Accountants or tax advisers who can advise you of the tax implications;
- Solicitors who are experienced in pharmacy sales.
Once the sale has completed, enjoy the rest of your life.
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