Estate Planning for South Dakota Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many South Dakota (SD) pharmacy owners are experiencing lower profit margins and have considered selling. A pharmacy industry roll-up has been occurring for a number of years, consolidating the pharmacy seller’s customer traffic into fewer South Dakota 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, 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 a topic many people, in all industries, shy away from. For the pharmacy owner in South Dakota who works 6 days a week, takes very few vacations, fills scripts all day, then mops the floor and does the books at night, there usually isn’t much time to consider additional things such as estate planning. However, knowing that there will eventually be a transfer of the business, it is important for the pharmacy owner to consider a proper succession plan for the pharmacy business.

Developing a plan to transfer the business will be time consuming, but done correctly will allow the business to be successfully transferred in an acceptable manner. An estate plan for a pharmacy owner does not need to be changeless process. Fine-tuning, updating, and amendments are recommended as government regulations, economic conditions, and personal expectations change.

Estate planning allows a South Dakota independent drug store owner to anticipate and arrange for the transfer of the drug store. The plan will be formatted in attempts to eliminate 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 in SD 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 South Dakota 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.

The transfer of the pharmacy, estate planning, and buy-sell agreements should incorporate a pharmacy business valuation performed by a third party that has expertise in the pharmacy industry, performs several pharmacy business valuations every year, and has up-to-date industry data as a foundation for the conclusions. Relying on simple accounting formulas, multipliers, or valuators without experience in South Dakota pharmacy will not provide an accurate business valuation.

Most SD pharmacy owners spend a significant part of their life building the business. Their efforts should not be torn down because the pharmacy owner refuses to accept their own mortality and plan accordingly. Sometimes, the only pharmacist in small pharmacies is the owner. If a licensed pharmacist can't fill the scripts, the customer files are required to be transferred to another pharmacy by law. Because of this, a pharmacy’s business value may plunge downward to a negligible figure in a matter of days after the passing of the owner. An estate plan outlines contingencies that should address this issue. It is unfortunate that due to not having an effective plan in place, a number of pharmacy owners in South Dakota die every year and their family is left with an asset that has very little value.

Additional Tips for Estate Planning: 1. When the sole means of income for several family members is family drug store, it becomes even more necessary to have a plan for succession in place.
2. By developing estates with clear directives, disputes can be avoided.
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 South Dakota pharmacy owner especially if there are some family that work in the business and others that don’t.

Pharmacy Franchise Financing in South Dakota

By Brad MacLiver
Authorship and profile at Google


SD pharmacy franchises are contractual relationship between two parties known as the Franchisor and Franchisee.  The Pharmacy Franchisor is the party who has developed their drug store business model, branded all pharmacy-related products, and produced the system in which their pharmacy franchisees operate. The second party, the Pharmacy Franchisee, purchases a franchise license from the South Dakota 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.

Quite a bit of options for financing a pharmacy franchise business are available. 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 South Dakota pharmacy franchise models won’t possess these two traits and will be considered more risky.

Traditional Bank Financing used to fund a pharmacy franchise will be available when a pharmacy franchise has both a long 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 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 South Dakota.

SD Pharmacy Franchise Funding Tips:

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 have an accountant or attorney that is familiar with South Dakota pharmacy franchise financing to review the pharmacy business loan documents.

3. There are pharmacy consulting services and franchise associations who can help guide a prospective pharmacy franchisee or borrower or a drug store loan.

4. New pharmacy owners need to make sure their funding request is enough to get the SD pharmacy running and profitable. Less than ample funding for the initial stages may put the drug store in a position of needing additional funding. Smaller working capital loans that would be in a subordinated position will be more difficult to obtain at a later date.

When 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 South Dakota pharmacy industry specialist who can provide quality answers and sound advice.

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