Speaker 1:
You're listening to the Pharmacy Podcast Network.
Speaker 2:
Compliance is hard, but finding the answers doesn't need to be. Join Jeff Hedges and the staff on the Pharmacy Compliance Guide, as they help you and your pharmacy staff navigate through some of the complexities to help you stay stress-free and in compliance. The Pharmacy Compliance Guide, is a proud member of the Pharmacy Podcast Network.
Becky:
Welcome to another edition of the Pharmacy Compliance Guide, here on the Pharmacy Podcast Network. I'm Becky Templeton with R J Hedges & Associates. Today we're going to be talking about business sales and acquisitions. Some point in your life you probably thought about selling your business. Maybe you want to expand your business, maybe you want to just start the succession planning on how you're going to pass it to the next generation of pharmacists, coming in from behind you. Today I'm joined by Jeff Hedges. Hello. How are you?
Jeff:
I'm doing very good and hello everyone?
Becky:
Today we're going to be talking about a couple of different things people should consider when maybe looking at selling their business. So Jeff, when should someone consider selling their business? Are there certain milestones that get achieved? Are there certain things that happen within a business, that helped to preemptively help a business owner or an entrepreneur down this path of considering selling their business? What are your thoughts?
Jeff:
When is the right time to start thinking about selling your business, and finding out the evaluations and everything, is when you first think about it. That's when you should start considering, because you're always going to be wondering when is the right time? What's the value? I think it might be worth a lot more than what the actual price may be. And that's where we come in and help.
Becky:
All right. So now I've got this idea that's popped into head that maybe someday, I want to sell my business, maybe someday, I want to hand it on to my children, my grandchildren, nieces, or nephews, who might also be pharmacists. Do I want to actually need a broker to sell my business? And hopefully you can break this into two parts. Do I need a broker if I'm selling it generationally within my family? And do I need a broker if I'm selling it to a total stranger? Maybe the independent pharmacists, the next County over, but I'm selling it to someone outside of my family. So those are my two areas. Do I need to have a broker to actually sell my business?
Jeff:
Well, the simple answer for both questions is no. You can work with the other party to help negotiate the terms. This can be done through a CPA, or attorney, but that presents a additional problem. Also, if you're selling to a family member, there's IRS rules that you have to sell it at the fair market price, and the broker is going to be able to help you do that.
Becky:
So Jeff, whenever you're looking at working with a broker, you said you don't have to have a broker. So what about an attorney or CPA? Are they good choices to work with when you're selling a business?
Jeff:
Both are very familiar with selling businesses. But one of the things you have to realize is a regular business such as a hardware store, is very easy, you can do it in a month or so, get everything taken care of. There's no problems here whatsoever. However, a pharmacy is totally different. It is actually the hardest and most complex business to sell, because we have to follow state rules, we have to follow DEA rules, and other federal rules that we have to go through. And an attorney will be familiar with it. A CPA definitely is not going to be familiar with anything. So that's where a broker who has the experience can come in and help.
Becky:
Are there any ways that you can guide someone who's trying to go back and forth with, do I use a broker, or do I use a CPA, do I use my attorney? Maybe a couple of questions that we can ask to help us guide to the correct person, to help transition our business to new ownership.
Jeff:
First thing you want to look at, is do you as the owner have time to work on the sale. This is not a five or 10 minute job, this is actually days of work. Do you have the knowledge to go through the sale to ensure the best terms are obtained? Because the devil's in the details. Who do you go to when issues arise for help? Attorney or CPA probably is not going to be able to help on specific pharmacy matters.
Jeff:
Those of attorney actually represent themselves in a legal manner. So the same question applies to you. You really want to represent yourself going through the whole process of acquisition itself. If you cannot answer these questions, then you should consider looking at a broker.
Becky:
So Jeff, I'm sure you've seen it many times where it's that generational sale going from father to son, or grandparents to grandchild, or maybe we're selling to a friend who's a pharmacist in another town or County. Can you share how the broker can actually serve as liaison between family members, between friends, to help keep things amicable and moving forward in a pleasant manner?
Jeff:
Yes. The broker is a key in this portion, because buying or selling to a family member, the simplest thing can be misconstrued by the other party. Especially when you're talking about loans and dollar amounts. The broker is the liaison between everybody. So they come everybody vents or has frustrations, it goes to the broker. If there's questions for clarification, it comes to the broker. And a broker is not going to be emotional, they're going to be straightforward and be able to explain everything.
Jeff:
And then with those questions, they can state them in a way that's not going to be upsetting to either party, get the answer and have that discussion to make it happen and they go back to the other party. It sounds simple, but just think about how many times a family argument starts over the simple step. Don't want to ruin a friendship, or family relationship by someone misunderstanding the statement.
Becky:
Thank you for that information. Let's talk about the actual selling preparation. So can you share with us a couple of items that we need to start thinking about, having in place when we're actually selling.
Jeff:
The first item is the most important and that's getting the business valuation. Once you get the valuation of the business, which is the true market value, then the broker and the seller sit down and figure out what the asking price is going to be. The asking price should always be higher than what the valuation is. This allows the negotiations to occur. The buyer is always going to want to drive the price down, the seller is always going to want to drive price up, and the brokers they're in the middle to navigate through that and negotiate those terms.
Jeff:
And this where the broker start standing out. The broker markets the business. You can put it in newspaper, which is almost obsolete or put it up on LinkedIn, but a broker, what they do, they bring in a host of resources, both local, regional, and national. So you're going to get a wide range of buyers that are interested in your business.
Jeff:
Once this is all done and you've got those buyers there, and it could be one, it could be two, or even three. They're very interested. The broker then negotiates with all the buyers to see who is going to be the actual person that's going to purchase the pharmacy. Once that's done, then the broker comes in and starts preparing all the purchase agreements, and the support documentation and it sounds easy.
Jeff:
Going back to the attorney, they don't know about the NCPDP, the NPI number, the DEA number number, they don't understand what a limited power of attorney is, but they can do the bill of sale. Then you have documentation you have submit down to that NCPDP. Once that's all prepared, then we have to coordinate inventory and set the closing date.
Becky:
So those are the things that we need to consider when we're selling. So let's turn the tables and pretend that I'm using a broker, but I'm buying the pharmacy. So what are some things that a broker can help me with when I'm the one who's looking to buy a new business, specifically buying a new pharmacy?
Jeff:
For the broker, he's working with the buyer. A lot of things can be done and not everybody does everything. But one of the items, is an SBA loan application. Sounds simple, but it goes back to all those due diligence documents so you've got earlier, you need to prepare a letter of intent, you also work with the buyer to find out what is the best option. Whether it's going to be an asset sale, or a stock sale, and then either prepare or review those documents.
Jeff:
Bill sell comes into play, or make sure that is all correct. The limited power of attorney. As a buyer, you're not going to be able to start using your own numbers, until we get the bill to sell because we have to first get the state pharmacy license changed or updated depending on the state, the next thing we have to do is go to DEA and get a new DEA number. And then once you get those items done, then you can pick your PSCO and start working with demo contracts.
Jeff:
Coordinating the inventory. The seller may say, "I want to close on the 15th." But you're out of town. A broker again is working those dates out between both parties. Also, with documents, we have guarantee agreements, promissory notes, and this real estate's involved. We need to do the real estate sale and prepare a deed, but only if you're licensed to do that in that state.
Becky:
There's obviously a lot of great benefits for having a broker help someone both on the seller side and the buyer side. So by now people listening are probably going, "So how much is this going to cost me?" Are there normal fees that go into a brokerage sale?
Jeff:
Yeah. So the normal fee that most brokers follow, it should be around 10% of the final settlement paperwork for the pharmacy. This is also processed during the closing, so the broker is paid at that moment.
Becky:
Now, who pays? Does the seller pay? Does the buyer pay? Is it split these in between?
Jeff:
Again, that comes down to the broker and how he, or she's working this. We have many cases where the buyer and the seller share the fees. We also have items where the buyer's going to pay the commissions and some cases where the seller is going to pay the commissions. It's not only going to be the seller, but it doesn't have to be.
Becky:
What about in an instance where I'm the buyer and I have my own broker that was trying to help me find a pharmacy? And you're the seller and you had your own broker who was helping to sell your pharmacy? So we've got two brokers involved in the transaction. How did the fee splits work in that instance?
Jeff:
It's simple, the 10% rule still stands. But that is split 50, 50 between the buyer's broker and the seller's broker.
Becky:
What would you say to somebody that is a prospect brokerage client who says, "I've just worked 30 years building this business, and now you're going to try to take 10% in commission. That seems a little bit high."
Jeff:
Yes. For someone that's never used a broker or sold anything, it is going to be high, but it's a normal price. So whether you're selling timber, or whether you're selling real estate, there's always commission there. The broker will earn his or her money if they do everything correctly. And at the end of the day, you're going to probably have a higher sell price, and you're also going to have no hiccups during or after the sell.
Jeff:
So there are a lot of things that a broken and it doesn't matter who those brokers are, everybody has all these processes they have to do behind the scenes. If you'd only used a broker, that's why. You have to do it all yourself. And you're dealing with a lot of people who are looking at their interests and not your interests. And that's where the broker comes in.
Becky:
Can you elaborate a little bit on how someone might be able to weave patch to find the best broker?
Jeff:
So the basic question is, are all the brokers the same? And that's absolutely no. There are 1000s of brokers out there, but you need to find the right one. You need to find the broker that has experience in selling pharmacies. And how do you find them? Well, the first item is, is talk to different colleagues, get references, and you got to get the references to check out all the fee schedules and all the requirements for it.
Jeff:
And then also you check the Better Business Bureau, see what the business or the pharmacy has on their rating. That's a good sign as far as whether they are in trouble, whether they're reputable, and the eyes of the community. So it's very important to check all these items before you select the correct broker for you.
Becky:
I've decided to sell my pharmacy, I have done my due diligence, I have found my broker, and we've worked this whole process. What happens after I close my pharmacy? The checks have slid in across the table, the keys are now in the new owners hands, now what?
Jeff:
There are two different actions, depending on who the buyer is. So first we'll talk about selling to another pharmacy, or to another pharmacist. One of the things there after the closing, most brokers are done. They walk away. And that's what's different with R J Hedges & Associates. We're staying with both the buyer and the seller because there are a lot of actions to do.
Jeff:
First, the limited power of attorney permits the buyer to use the numbers until they obtain their own numbers. That could take anywhere from three to six months. Also, during this transition period, both the buyer and the seller has to reconcile the accounts payable and accounts receivable. Because the seller should be responsible up to the closing day, and the buyer should be responsible for the closing date forward. That is a very important. I will make sure everybody gets the proper funds that they're due.
Jeff:
Also, the broker ensures that the seller is available. As the sell process goes through and the change over goes through, the seller has to be available to sign documents like changing over the contracts for the pharmacy software. Whole sellers, PSAOs, everybody's going to require signatures that come up. And seller has to sign a document that they provide so the sales transition can happen. A lot of folks won't accept just a bill of sell.
Jeff:
Now, if you're selling it to a chain, they have a very set process on what they have to do. Preparing to close the business at the state level. Could be the whole corporation, it could be just that DBA. You got to notify all of the agencies of the closing and again, we're talking to state board, DEA, PSAO, whole sellers, and then a host of people to notify.
Jeff:
Then there're requirements that the pharmacy's going to have to do under their chain requirements, is that everything's going to have to be out of the pharmacy. So that whole clean-out needs to be done. And especially if there's a lease involved. Ensuring that the pharmacy signage is down, and getting those pictures and submitting them back to the chain. Chains are very set on their process. Going to another pharmacist or pharmacy owner, it's not as sterile, it's more free flowing and negotiating going back through, beyond the sell date. So you never know what to expect, but that that broker is going to guide you.
Becky:
So what are some of the biggest misconceptions owners may have about selling their business with a broker?
Jeff:
The biggest misconception, is that the brokers are going to take all the money. That a lot of folks are just scared to use a broker because they get paid. But they're going to get paid based off of the work that they're doing. And that's where that commission is set upfront.
Becky:
Jeff, do you have any stories or examples that you can share with us of someone who didn't work with a broker, that later regretted it and maybe wished they would have used a broker?
Jeff:
Yes. There are several that come to mind. Most common, is when the pharmacy owners use an attorney. What happens is, is everybody's going through the process, everything sounds good, and I get a call a week before the closing. Person will say, "Can you review our documentation to make sure it's correct?" We'll review that. We do that under our hourly rate process, but we'll go into these and I'll find that they're having 100 page document for the sell.
Jeff:
And it has everything you would need, except for your pharmacy requirements. And then at that point in time, everybody gets a little upset because you have to change the sales agreement, you have to change the bills of sell, you may have to create a limited power of attorney. All of these things have to be done and you have a week before closing. Everybody gets upset with that, especially the attorneys, because they are always right. Just ask them.
Jeff:
Other items is the close has already happened and the pharmacy's been sold, and either party will come back and ask for opinion and we'll find the key elements will not be there. For example, one, if the buyer's keeping the NPI and the NCPDP number, there are notarized documents that need to be done at closing, to permit or not permit or the buyer to go forward. And parties go away, you may not be able to get ahold of them. And if they're gone on vacation and they're going to be gone and you can't get a hold of them, you're stuck. You can't get these documents signed.
Jeff:
And you don't want to mess up any of the billing processes, you don't want to mess up all your flow of inventory coming and going. And it's just a whole host of items that can go wrong, if the paperwork is not done correct. And it all comes back to that sales script.
Becky:
Are there any normal hangups during a sale of a pharmacy, or transfer of ownership, that maybe the owner thinks is terrible, horrible, awful, I can't believe this happened, but as the broker, you say, "No, don't worry. This is actually a normal thing. And these are the types of hangups that can happen."
Jeff:
Hangups. We tell everybody at the beginning that someone or some entity between now and the closing day, is going to try to throw a wrench into the whole process. We plan for them and then we recognize when they come up and we keep the buyer and the word of the seller calm and say, "Remember I told you that these hiccups will happen." Number one item right now, is the pharmacy license.
Jeff:
In most States, when you have a change of ownership, the DBA and a pharmacy license number are going to stay the same, but you have to wait for the state board of pharmacies. And right now, most of them were working from home, they were slow before, but now we've seen six months on some States to get the pharmacy change of ownership, paperwork approved by the state board. That's one of the most common ones.
Jeff:
DEA has been a challenge, because if you're a new pharmacy owner, sometimes it'll take up to eight weeks to get that application processed. DEA is really working good with the buyer, to make sure that the processes get turned around, and it can be anywhere from 48 hours to a week, to get that new permit. And that's a key item, but there's always a DEA office that'll slow the process down.
Jeff:
Then you get the whole seller and PSAO, they always have their requirements or they change your requirements and everybody's looking at their best interest and not at the best interest of the buyer.
Becky:
So I know one of the services that you offer is actually representation. We talked a little bit about it earlier, where you can help review things, you can look at items. Usually there's an hourly rate that's involved in it. Can you share some instances maybe where you started helping someone in a representation case, but it ended up moving full onto brokerage.
Jeff:
We've had several instances where this has happened. Where the seller has gone through the process and got almost everything done, and they want us to review. And again, that's under our hourly rate. But when I review these documents and I find out it doesn't seem right, it seems low. So I'll talk to the seller I say, "Who came up with this price?" And they'll say, "Oh, the buyer came up with this. He's given me a really great deal."
Jeff:
And I'll look at it and I say, "Are you sure?" I say, "Can I see your financial documents?" And we'll do a quick valuation just it's not the exact valuation, but a quick valuation just to see if the selling price is where it should be in relationship to the actual value of the business. And a lot of times in these cases, we find that the buyer has really done a good job talking to the seller, about how they need to do things, how they need destruction to sell, and it could be significantly lower.
Jeff:
In one instance, it was 25% lower than what the asking price should have been. The fair market price. At that point, the seller is in a quandary, they don't know what to do. So the first question we're asking is, "Have you signed anything?" And if they did, we need to review it to see what's signed. But at that point they say, "Well, I don't want to do to still." And we verify that that can happen, because there's all kinds of legal requirements.
Jeff:
But if it does move over to us in these cases, we've sold the business a lot higher at what the initial buyer was offering for the business. And the owner will say, "How in the world did I come that close from losing all this money?" And you never know until you have someone who's familiar with pharmacy, to actually do the evaluation.
Becky:
Well, Jeff, I want to thank you for sharing so much great information with us today. We've certainly covered a wide variety of topics from, how can we figure out when we want to sell our business? Do we want to work with a broker or not? What are some of the benefits, and some of the negative things that an owner might be going through, if they're making those decisions on their own.
Becky:
Hopefully this information will help business owners and entrepreneurs out there in the future. Now, if somebody is interested in working with R J Hedges & Associates, what should they do to get started?
Jeff:
The first thing is to call us. We will work through the process and explain everything to seller, and make sure they're comfortable with everything. And I also enclose commissions. I have to be upfront. We start a dialogue and if the seller feels that this is the right broker, then they move forward. And hopefully that's with us, but whether you're using us or any other broker, it's the same process. You've got to vet the broker, make sure that they can do it, make sure they're not unreasonable.
Jeff:
And it's okay to shop around multiple brokers and ask them, "Okay, what's the fees, what's your process?" No problem with that question at all. And if a broker doesn't want to answer the question, well, obviously they're the ones that you're going to leave and move on to another one.
Becky:
Sounds good. Well, folks, I hope you got some great information today as we talked about some of the processes you might want to consider if working with a broker, or finding a broker, going through the whole sales and acquisitions process. At R J Hedges & Associates, we do have a sales and acquisitions department. They would be more than happy to talk to you, and it's all about your comfort level.
Becky:
So we want to make sure that the sellers and the buyers are all comfortable in working with us. So if you'd like to give us a call, we would be more than happy to chat with you and talk about what the options look like for you, moving to your next adventure in life. Whether it's moving into retirement, moving into maybe a new business venture, et cetera.
Becky:
So Jeff, thank you very, very much for joining us today. And everybody, we hope you have a wonderful day and you tune in on an upcoming podcast with us, here at the Pharmacy Compliance Guide, or listen to one of the many great podcasts that are hosted on the Pharmacy Podcast Network. Until the next time have a good afternoon and a good day.
Speaker 2:
Thanks for listening to another episode of the Pharmacy Compliance Guide, sponsored by R J Hedges & Associates. Be sure to search the entire library of podcast, helping you stay informed on the latest Pharmacy Compliancy issues by visiting pharmacycomplianceguide.com.
