Estate Planning for Pharmacy Owners in North Dakota

By Brad MacLiver
Authorship and profile at Google


With the current market conditions many ND pharmacy owners are experiencing lower profit margins and have considered selling. There has been a pharmacy industry roll-up has occurring for many years, and it has been consolidating the pharmacy seller’s customer traffic into fewer pharmacy locations. Nevertheless, there are a number of pharmacies in North Dakota that are not in a geographic location near other pharmacies so consolidation isn’t taking place. Some drug store and pharmacy owners have taken a stance and won’t consider selling despite their location or what is happening in the industry.  However, just as they must inevitably pay taxes, the business will inevitably need an exit.

                                          
Estate Planning is a topic that people in all industries tend to avoid. For the pharmacy owner working at least six days a week, seldom taking vacations, filling scripts all day, mopping the floor and then doing 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 North Dakota 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 ND 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 permits a drug store owner to arrange and anticipate for the transfer of the pharmacy. 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 North Dakota pharmacy owners 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 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.

Estate planning, buy-sell agreements, and the transfer of the pharmacy in North Dakota 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 North Dakota 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 in North Dakota. 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 ND 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 ND pharmacy owner especially if there are some family that work in the business and others that don’t.

Financing Pharmacy Franchises in North Dakota

By Brad MacLiver

Authorship and profile at Google

A ND 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 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 in North Dakota. 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 North Dakota 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. However, many of these banks decline the funding request once they review the loan documents 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 a buyer that has incorporated, the personal credit rating of an independent drug store owner is a factor, as well as their 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 North Dakota pharmacy business loan.

ND Pharmacy Franchise Funding Tips:

1. Because there are many pharmacy franchise financing options available, pharmacy owners in ND 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 and franchise associations who can help guide a prospective North Dakota 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 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 North Dakota pharmacy franchise business loans, or any types of funding for community drug stores and pharmacies, they should contact a pharmacy industry specialist who can provide quality answers and sound advice.

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