Is it Worth Selling a South Dakota Pharmacy Note at a Discount?

By Brad MacLiver
Authorship and profile at Google


When a SD pharmacy acquisition has been accomplished by using the private financing method of a pharmacy business note, the holder of the pharmacy note has the option of selling the pharmacy business note for a lump sum of cash instead of waiting for the monthly payments and taking the risk those payments will always be made. Pharmacy business notes can be sold by using a discounting method. Instead of buying a pharmacy note at its face value, the South Dakota pharmacy note will be discounted. Meaning the Investor will pay less than face value due to the risk being transferred from the Pharmacy Note Holder (the note seller) to the Pharmacy Note Investor (the note buyer).

Most pharmacy business note sellers only look at the discount rate and quickly calculate in their head that they are giving up too much money to make the selling of the South Dakota pharmacy note an attractive proposition. However, further analysis needs to be completed before a final decision is made by weighing the discounted amount with the benefits of a lump sum of cash.

1. What is the motivation for selling the SD pharmacy note? What are the desired goals? Is lessening the exposure to risk something to consider? Are there any financial reasons to pay off debt? Do you need capital for a new venture? Do you have any dreams of exotic vacations or world travel that could only 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 actually willing to pay for the business instead of a simply “earnings times x” formula. The real aspects of what is happening in the South Dakota pharmacy industry must be considered and it is advantageous to have a pharmacy industry specialist calculate the pharmacy business valuation.

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

4. A pharmacy note in South Dakota 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 SD Pharmacy Note Investor is not holding all the risk.

Understanding the Risk for the Note Buyer:

1. SD Pharmacy Buyer Competency - There is the risk that the 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. SD 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 pharmacy competition either building in the neighborhood or through mail order.

4. Loan to Value - When originating a South Dakota pharmacy business note you may be creating financing where there is a “negative loan to value.” Example: the pharmacy business note is for $150,000, but there is only $50,000 of tangible assets for collateral.

5. Title Insurance – Pharmacy business notes 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 South Dakota 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 SD 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 South Dakota Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


When acquiring or selling a SD pharmacy or drug store, one alternative is to have the seller originate the financing and carry back a business note. At first glance many pharmacy owners will not want to take this approach. They want their cash and their exit. When a pharmacy owner is considering selling their drug store, looking at the benefits of originating a business note and not just the perceived costs, they may find that offering Private Finance in the form of a Pharmacy Business Note in South Dakota will provide them an alternative course of action.

Advantages of Creating and Selling a Pharmacy Business Note in South Dakota

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

2. By offering Seller Carryback Financing, often referred to as Private Finance, a pharmacy business owner in South Dakota can greatly increase the number of potential buyers for their business, and most likely sell the business at a higher price.

3. When pharmacy business notes are created, several options exist, such as keeping it for monthly income, selling just a part of the SD pharmacy business note to meet current financial needs and keeping the remainder for future income, selling the entire pharmacy note for a large lump sum.

4. By selling either the entire or a portion of the SD pharmacy business note, you can free up capital to use for new ventures or pay off old debt.

5. When a South Dakota 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 in South Dakota, the 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 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 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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Should a Broker be Used When Buying a South Dakota Pharmacy

By Brad MacLiver
Authorship and profile at Google


When deciding between using a SD pharmacy broker, or pursuing the acquisition of a pharmacy yourself, buyers of South Dakota pharmacies and drug stores need to weigh several factors including skills, knowledge, and time.

Many South Dakota pharmacy buyers are experts behind the counter, but many who have never bought a pharmacy in the past, don’t have the complete understanding of all the variables including negotiation for the best price, State and Federal Regulations, the best options for financing the acquisition, and structuring the deal. These are skills that many pharmacy buyers believe they possess, but pharmacy buyers need to recognize how many times they have actually purchased a pharmacy compared to a pharmacy industry expert.

Knowledge is power and using a pharmacy broker with extensive know how in valuing and transferring pharmacies will save a pharmacy buyer in SD considerable time and headaches resulting in a more cost efficient transaction. The cost of acquisition must be considered in the analysis of Return on Investment (ROI). If the acquisition will benefit the buyer, then any additional time spent with a stagnant transaction will be benefits lost.

Transactions are definitely time consuming. When handling a transaction yourself, how many additional hours will you need to work to complete the South Dakota pharmacy acquisition and then still not be certain if all the details were done correctly?

Just finding the appropriate pharmacy to buy can be an expensive, laborious, and time consuming process. If the pharmacy’s numbers appear to provide the ROI the pharmacy buyer requires, is the pharmacy seller in South Dakota both cooperative with the buyer and knowledgeable about the transaction process?

Pharmacy sellers in SD, their attorney, their CPA, and even their families can slow the process. Pharmacy buyers need to understand this and have the credentials that all of the various parties can have faith in while undergoing the many steps of the acquisition.

After a pharmacy has met the buyer’s preliminary requirements, a current market pharmacy business valuation based on a sound financial and market analysis, and not just a simple accounting or multiple formula, needs to be completed to verify the current value of the pharmacy. In today’s market, pharmacy sellers usually want a higher acquisition price for their family owned pharmacies, than what the current market is willing to pay. A certified valuation completed by a third party who possesses extensive experience in the South Dakota pharmacy industry will help guide the buyer and seller in their negotiations.

Buying a SD pharmacy business is not like buying a used car. There are many steps that must be taken. Pharmacy buyers who are not discussing an acquisition with a pharmacy seller who will actually move forward with providing all the documentation and financial statements will be losing valuable time in their acquisition search. Both the seller and buyer need to have a meeting of the minds and provide a collective effort in pursuing the closing of the pharmacy acquisition. By the time a closing occurs and all aspects of the transaction have been completed, substantial cash and time will have been invested.

When inexperienced parties are undergoing the acquisition process it can be a draining experience full of headaches and worries. A smoother and more confident process can be accomplished when a pharmacy industry expert is involved in the transaction. A pharmacy broker in South Dakota will take steps to pre qualify the buyer. This allows the seller the knowledge they are working with a real buyer and not a tire kicker.

If the buyer will need financing to complete the deal they will find many banks will not finance a pharmacy acquisition. A broker working exclusively in the SD pharmacy industry will have sources of funding who understand the industry and will fund pharmacy acquisitions.

In South Dakota pharmacy mergers and acquisitions it is important to understand confidentiality, and how the perceived changes may affect employees and customers. A broker acting as the middle man between the buyer and seller can assist the confidentiality of the transaction.

There are many things to consider when purchasing a pharmacy. Using a South Dakota pharmacy business broker who specializes in the pharmacy industry will benefit both parties involved in the buying and selling of a pharmacy.

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