Estate Planning for Pharmacy Owners in Montana

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many MT 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 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 Montana 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 Montana 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.

It will be time consuming to develop a plan to transfer the business, but it will allow the business to be successfully transferred in an acceptable manner when done correctly. An estate plan for a Montana pharmacy owner does not need to be changeless process. As government regulations, economic conditions, and personal expectations change, it is recommended to fine-tune, update, and make amendments.

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

It is a possibility that the process will 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 documentation.  The various aspects of estate planning are aimed to provide the Montana pharmacy owners with coordinated directives.

When the drug store business has non-family members as partners, it is necessary that the estate planning incorporate a Buy-Sell Agreement. A buy-sell agreement will govern the transfer of the business between MT pharmacy partners.  This agreement is also known as a partner buyout agreement or a business will. By funding it with a life insurance policy, the buy-sell agreement helps protect the family in the event of a partner’s death.

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 in Montana 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 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 MT pharmacy owners die and their family is left with an asset with very little value.

Tips:        
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 MT pharmacy owner especially if there are some family that work in the business and others that don’t.


 

Montana Pharmacy Franchise Financing

By Brad MacLiver
Authorship and profile at Google


A MT pharmacy franchise is a contractual relationship between two parties. One, the Pharmacy Franchisor 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 Montana 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 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 Montana 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 pharmacy loan. Community drug stores typically have very little traditional assets to offer as security. Lenders for the pharmacy in Montana 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.

MT Pharmacy Franchise Funding Tips:

1. Because there are many Montana 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 pharmacy franchise financing to review the pharmacy business loan documents.

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

4. It is important that new pharmacy owners make sure their funding request is enough to get the pharmacy running and profitable. Insufficient funding for the initial stages puts the drug store in a position where they require additional funding. Smaller working capital loans that would be in a subordinated position will then be harder to obtain at a later date.

Pharmacy owners with questions who need information regarding pharmacy franchise business loans, or any other type of funding for pharmacies and community drug stores, should contact a Montana pharmacy industry specialist who can provide quality answers and sound advice.

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