To all of the North Dakota (ND) pharmacy and drug store owners, along with their staff, MERRY CHRISTMAS!
Watch our Christmas video: http://youtu.be/Lm-6ls-rzrY
The new year may bring new challenges to the pharmacy industry, www.PharmacyValuations.com is here to assist North Dakota pharmacy owners with pharmacy business valuations, pharmacy finance, and drug store acquisitions.
Showing posts with label north dakota. Show all posts
Showing posts with label north dakota. Show all posts
Monday, December 9, 2013
Wednesday, February 8, 2012
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 inNorth Dakota
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
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
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
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
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.
Friday, February 3, 2012
Financing Pharmacy Franchises in North Dakota
By Brad MacLiver
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
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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Tuesday, January 17, 2012
North Dakota Pharmacy Funding Types Available
By Brad MacLiver
There are a number of different options available for funding ND pharmacy franchises, specialty pharmacies, and traditional community drug stores.
SBA Financing for North Dakota Pharmacy Business Loans
The U.S. Small Business Administration (SBA) partially guarantees loans for pharmacy franchise lenders reducing the risk exposure for the lender. A loan program called 7(a) is a standard for funding pharmacy franchises. These loans can provide funds for pharmacy franchise entry fees, real estate where the pharmacy will be located, property improvements, working capital, and pharmacy related equipment.
Borrowers for the North Dakota pharmacy franchise must be creditworthy, without any bankruptcies, have ample down payment, but there are variations here, and the business must be able to repay the loan from the cash flow of the pharmacy.
Terms can range from 5 to 20 years. Within SBA standards interest rates may be adjustable or fixed and will be negotiated by the lender dependent on the financial strength of the pharmacy transaction.
There are SBA fees for guaranteeing pharmacy business loans. These fees, which are paid to the government and not kept by the bank, can be rolled into the North Dakota pharmacy financing.
Patriot Express Business Loan Program
This is another SBA loan program that can be used for pharmacy franchise business loans and is reserved for military veterans, active service members, their spouses, and survivors. The Department of Veterans Affairs would be involved in the pharmacy loan process.
Pharmacy funding from the Patriot Express program can furnish relatively fast approval times, may accept a smaller down payment from the borrower than traditional business loans, and lower credit scores may also be accepted. Patriot Express business loans provide opportunities for lower interest rate North Dakota pharmacy business loans.
Funding for Pharmacists Who Are Veterans in ND
There are specific franchise loan programs available for honorably discharged veterans and these Vet programs can be considered for pharmacy franchise loans.
Pharmacy Financing From the Franchisor
Financing a pharmacy franchisee in North Dakota
Pharmacy franchisors may also provide some funding internally. Lower collateral will be offset by higher interest rates. This may help with qualifying for a pharmacy acquisition of a franchise, but may hurt the franchisee’s long term cash flow. Due diligence of pharmacy franchisor funding should be completed before any final decisions are made.
Personal Assets Used in Pharmacy Finance
Not all prospective pharmacy franchise owners have enough cash on hand. Part of the drug store business financing may require the borrower to liquidate personal stocks, provide personal assets as collateral, refinance their home, or use their 401k to assist the lenders security for making the North Dakota pharmacy business loan.
If the borrower still does not have enough personal assets then a family member or a friend may be required as a partner in the pharmacy. Since the pharmacy partner’s cash and assets will also be at risk of loss, these partners may require some controlling interest in the drug store.
Retirement Accounts Used in ND Pharmacy Finance
Retirement Plans can be self-directed and used to invest into a pharmacy franchise. The retirement plan can purchase stock in the North Dakota pharmacy franchise. This is similar to how the retirement plan currently may be investing in publicly traded stocks and mutual funds. Lower debt service and higher profit potential may result when incorporating this option that uses less external financing in funding the franchise.
There is, unfortunately, a downside. In the event that the ND pharmacy crashes, the retirement fund crashes as well, so this tactic of providing less expensive financing for the pharmacy should be weighed against risks of failure.
Because of the factors involved such as deferred taxes, early or improper distributions, and IRS involvement, funding a pharmacy transaction in ND with a retirement account should be handled by a company who has expertise in this arena. Pharmacists and investors interested in using this financing structure should research the Employee Retirement Income Security Act of 1974 (ERISA).
ND Pharmacy Franchise Agreement Buyout Funding
Understand that pharmacy situations are changing, economic factors are a concern, mail order pharmacy is growing, and market shares are shifting. All of these can have a negative impact on the cash flow of a pharmacy franchise. Drug store owners paying franchise royalty payments may not survive the tightening profit ratios. Due to this, these pharmacy franchises may only have the options of bankruptcy, or buying out the franchise agreement when allowable.
Buying out the franchisor allows for the North Dakota pharmacy to take the franchisor out of the equation altogether. This will allow the pharmacy owner increased flexibility when making business decisions. The pharmacy franchisor has sold the drug store franchise with expectation that they will earn income from the cash flow of their pharmacy franchisees. Following their long-term plan, Franchisors may not wish to allow the North Dakota pharmacy franchisee to completely remove itself from the franchisor, but if a Franchise Agreement Buyout can be negotiated first, the buy-out transaction is also financeable.
Unfortunately many banks don’t understand the dynamics of the pharmacy industry. This lack of pharmacy knowledge results in the banks looking at the funding request and all they see is a business that has very little collateral compared to amount of financing the North Dakota pharmacy is requesting. To assist the successful funding process a pharmacy owner is advised to use a pharmacy industry specialist to capitalize on the funding opportunities that are available.
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Thursday, December 29, 2011
Is it Worth Selling Pharmacy Notes at a Discount in North Dakota?
By Brad MacLiver
When a ND 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
Most pharmacy business note sellers in
1. What is the motivation for selling the
2. What is the Current Fair Market Value of the pharmacy business? This is what someone is really willing to pay for the business, and not just an “earnings times x” formula. Real aspects of what is happening in the
3. How much cash is immediately required by the holder of the ND pharmacy note?
4. A pharmacy note 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 Pharmacy Note Investor is not holding all the risk.
Understanding the Risk for the Note Buyer:
1. Pharmacy Buyer Competency in ND - 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. North Dakota 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
5. Title Insurance – Pharmacy business notes in ND 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
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
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Wednesday, December 21, 2011
Using Business Notes for Financing a Pharmacy Acquisition in North Dakota
By Brad MacLiver
When acquiring or selling a ND 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 in
Advantages of Creating and Selling a
1. The process of selling a pharmacy or drug store in ND to an individual can be easier and less time consuming when the pharmacy seller 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 North Dakota pharmacy business owner can greatly increase the number of potential buyers for their business, and most likely sell the business at a higher price.
3. When a pharmacy business note is created there are the options of keeping it for monthly income, selling the entire pharmacy note for a large lump sum, or selling part of the pharmacy business note in
4. Selling either a portion, or the entire pharmacy business note in ND, frees up capital that can be used for new ventures, or paying off old debt.
5. When a
When originating a pharmacy business, take note that the terms and interest rate are set and agreed upon by both the seller and buyer of the business. The business seller will accept the promissory note, which is secured by including any inventory and equipment by the the business that belongs to them. The pharmacy business seller sells the business note to an Investor who is willing to hold the pharmacy note in exchange for compensation. Since Investor can’t go back to the
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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Saturday, November 26, 2011
Using Tax Strategies in North Dakota When Selling Pharmacies
By Brad MacLiver
Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. ND pharmacy buyers participate in the pharmacy industry roll-up in ND to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. North Dakota pharmacy sellers both independent owners and drug store chains must consider their current market value, recognize the narrowing of profit margins, and realize what their tax consequences will be if they sell.
When pharmacy owners in ND sell their pharmacy it is considered a capital asset. The difference between the amounts it is sold for and the amount spent to either purchase or start the pharmacy is a capital gain, or a capital loss. In the
Specific tax strategies can be used to help offset the tax liabilities when selling a pharmacy or a drug store. Unless a professional is handling a large number of
Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a pharmacy will result in tax consequences. However, most of these professionals do not handle the buying and selling of pharmacies in ND on a daily basis and may not realize the different aspects of structuring a pharmacy transaction allowing the reduction of the tax burden to the pharmacy owner.
There are some capital gain tax strategies that must be implemented before any obligation to sell the pharmacy in
Estate planning when selling a
As reimbursements are cut, more regulations are applied, and
Pharmacy owners should consult with a pharmacy industry expert for advice on structuring the sale of their
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Monday, November 21, 2011
EBITDA and Pharmacy Acquisitions in North Dakota
By Brad MacLiver
EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization and is often used to measure the value of some businesses. It can also be used in the comparison of similar companies.
Generally, EBITDA makes it easier to evaluate various companies and to compare them against industry averages by removing the non-core and irregular operating costs, such as interest, which can vary depending on the management’s choice of financing, taxes which can fluctuate depending on acquisitions or losses from prior years, and arbitrary factors of depreciation and amortization.
The EBITDA formula can be used as a guideline when valuing larger companies, or when comparing the profitability of large similar companies in the same industry.
For the effective use of EBITDA, these larger companies should possess significant assets, have heavy amortization schedules, or bear substantial amounts of debt. Considering independent pharmacies in
EBITDA is derived by: 1. First calculating net income by obtaining total income and subtract total expenses.
2. Determining the total amount of taxes paid to local, federal, and state governments.
3. Establishing interest fees paid to individuals or companies for the use of credit or capital.
4. Determining depreciation expenses, which are expenses recorded to allocate a tangible asset's cost over its useful life.
5. Calculating amortization expenses, which are expenses for the consumption of the value of intangible assets over a specific period of time or the asset's expected life. These assets include goodwill, copyrights, and patents.
6. Add the values from #1 through #5.
EBITDA calculation example:
1. Net Income 2,050
2. + Taxes paid 610
3. + Interest Expenses 407
4. + Depreciation 240
5. + Amortization 102
6. = EBITDA 3,409
There are some drawbacks to EBITDA: 1. The number can be misleading when it is confused with cash flow.
2. It can also make even completely unprofitable firms appear to be financially healthy.
3. It it too easy to manipulate the numbers.
4. This value can overlook cash requirements for growth in accounts receivable.
5. It can also miss cash requirements for growth in inventories.
6. When valuing small companies, EBITDA is not factual number.
7. This number is ineffective for companies with few assets, small amounts of debt, or low depreciation or amortization schedules.
In the past, EBITDA was used as a proxy for cash flow in leveraged buyouts to calculate whether companies could service their debt. Factoring out interest, taxes, depreciation, and amortization can allow an unprofitable business to appear financially healthy. This method of valuation was used extensively during the dotcom era to value unprofitable businesses, with few assets, little earnings, and the results from that method caused many to go bust. This was a blaring example of misapplying EBITDA.
Knowledgeable North Dakota pharmacy specialists performing pharmacy business valuations will use EBITDA in pharmacy valuations, but only as part of a larger formula when computing values for specialty pharmacies in
The EBITDA number for a specific existing
Buyers may not have the same tax base, interest expense, or the same depreciation schedule, thus it is important that the buyer calculate an estimated EBITDA that is specific to their operating model, business systems, buying power, cost of operations, etc., not the sellers. It should also be noted that EBITDA assumes that the buyer will acquire all of the assets, working capital, accounts receivable, and liabilities. Those assumptions do not hold true regarding an acquisition of a pharmacy in
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Thursday, October 27, 2011
Acceleration Clauses for Commercial Leases and North Dakota Pharmacy Business Loans
By Brad MacLiver
A provision of many ND pharmacy business loans and commercial leases is an acceleration clause. Acceleration clauses in loan/lease agreements allows the lender to accelerate their collection of payments contingent on an event occurring. These events may include a lack of payment by the borrower, a failure to keep the property insured adequately, a failure to pay for tax assessments, not maintaining the property, selling the property/asset, etc.
Lenders view the acceleration clause as an important tool in their business loan and commercial lease programs. Loan and lease documents might not specifically address the foreclosure of a property, or repossession of an asset, but this is where the acceleration clause comes into effect. Without the clause the lender would only be able to foreclose on one missed payment at a time. With the acceleration clause, despite whatever event kicks the clause into gear, the lender can demand immediate and full payment of all remaining balances and fees.
The pharmacy business loan or lease documents provided to the
Tips:
1. If a pharmacy’s slowing cash flow is going to cause a business loan default, but the ND pharmacy owner has additional unencumbered assets they may be able to negotiate with the lender by offering additional collateral.
2. If a
3. States have different rules requiring notification of an acceleration clause being exercised. Pharmacy owners should understand the laws in the state where they operate. Lack of knowledge is not an excuse.
4. When an acceleration clause is exercised on a commercial lease, there is the possibility the landlord cannot collect rent from both the defaulting tenant and a new tenant at the same time. To save themselves some money, pharmacy owners should help the process by assisting the landlord re-lease the property. However, please note, should the pharmacy be in the process of being sold and the files and inventory moved to a competitor’s location, the pharmacy buyer in
5. Lenders prefer not to have to go through the foreclosure process, so if your
6. There are pharmacy business loans and commercial leases that require a “personal” guarantee from the business owner, which means that the business owner’s credit and personal assets will become involved in the event of a default. A business' “corporate” status will not keep the lender from seizing the personal assets.
When considering to finance a ND pharmacy for acquisition, or expansion, understanding due diligence of every aspect of the transaction should be considered. Using the services of a pharmacy industry expert to guide a pharmacy owner in
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Monday, October 3, 2011
Pharmacy Industry: Current Market Conditions in North Dakota
By Brad MacLiver
There are currently there are a number of factors making an impact on the current market conditions of the
Local Market Conditions:
The valuation process also includes local demographics and local market conditions. There is less potential for growth in smaller communities and with the declining profits, a buyer must purchase at a lower value because they will need to service the debt from a business loan while still trying to make a living. This is also the case for a community that has lost population due to economic conditions, or currently has a high rate of unemployment. Fewer people means fewer customers with the ability to purchase, which then means reduced sales and a smaller chance of any substantial improvement in the near term. This results in a lower pharmacy business value.
Pharmacies in North Dakota
Fewer Buyers:
There are also fewer corporate buyers. Some of the largest pharmacy chains have been purchased and consolidated in the pharmacy industry roll up. Many smaller chains have run into financial difficulties and have stopped their expansion. It is more difficult to drive a price higher when there are fewer willing, or capable, to purchase.
Current Market Conditions Requires Industry Roll-up:
The consolidation of the pharmacy industry is required to get more traffic into a single store. Due to simple economics, when any business has a reduction in profits they are less attractive to a buyer and pharmacy business values drop. There are many factors contributing to the downward pressure of pharmacy values and there is not any expectation of a turn around. Pharmacy owners should not be fooled by inexperienced Brokers claiming grand outcomes and over stating North Dakota pharmacy business values not based on realistic market conditions.
With the consolidation of the pharmacy industry that has been happening for several years, many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have pharmacy related experience, nor do they use current market conditions when they value a pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current North Dakota pharmacy market conditions. Due to this many brokers are valuing pharmacies 2 to 3 times more than what the market is really willing to pay. Any inexperienced person can quote a high value to capture a listing. However, that does not mean the over inflated asking price is what the business will actually sell for.
Mail Order:
Some insurance companies are designating a noticeable amount of pharmacy patients as “long-term medications” and require they only purchase the medications from mail order ND pharmacy companies who provide products at lower prices. This results in local pharmacies not only missing out on prescription sales, but front-end sales will also decline since the customer is not entering the store. Pharmacy mail order sales have now surpassed sales from independent retail pharmacies.
Choose a firm that provides pharmacy business valuations based on real market conditions and does not use a simple formula for calculating the value of a North Dakota pharmacy. Complex methods are used to derive the value of a pharmacy.
It is best to use a company that specializes in pharmacy and has extensive and current industry data. Choose pharmacy specialists who have been working in the pharmacy industry long enough to have extensive pharmacy experience in North Dakota
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Thursday, August 11, 2011
Buy-Sell Agreements for Pharmacy Owners in North Dakota
By Brad MacLiver
Authorship and profile at Google
When a ND pharmacy is owned by at least two people, the partners/stockholders should have a Buy-Sell Agreement. This agreement is a written document that will outline and govern the procedures for the future sale of the pharmacy business.
Pharmacy buy-sell Agreements are documents that protect the interest of the parties who own the pharmacy and direct the actions triggered by a stockholder leaving due to death, divorce, dissolution, retirement, or disability. The document will govern how and when theNorth Dakota pharmacy business' shares can be transferred or sold. The document will also provide guidance as to how the pharmacy will be valued as well as outline the obligations of the remaining shareholders of the ND pharmacy.
When a ND pharmacy is owned by at least two people, the partners/stockholders should have a Buy-Sell Agreement. This agreement is a written document that will outline and govern the procedures for the future sale of the pharmacy business.
Pharmacy buy-sell Agreements are documents that protect the interest of the parties who own the pharmacy and direct the actions triggered by a stockholder leaving due to death, divorce, dissolution, retirement, or disability. The document will govern how and when the
Buy-sell agreements are important documents because the differing elements of a future sell are predetermined and will not need to be negotiated during a heated dispute or grieving period. They provide both the stockholder and the family some reassurance that when the inevitable time comes for an exit strategy, the process will have been thoroughly thought out in advance.
One of the disadvantages to not having a buy-sell agreement between North Dakota pharmacy owners is that a disability leaves one partner working more than another who is not adding to the productivity. Should a partner die before an agreement is established, the remaining partner may be left with a non-productive heir or a new partner who has personality conflicts with the surviving partner may be inserted. An incompatible partner could be devastating for the pharmacy business.
Buy-Sell agreements come in many other forms: Entity Buy-Sell Agreement, Cross-Purchase Buy-Sell Agreement, Wait and See Buy-Sell Agreement, Disability Buy-Sell Agreement. Buy-sell agreements are also known as a Business Will or a Buyout Agreement.
Potential elements of a North Dakota Buy-Sell Agreement:
1. Stockholders names and the number of shares and voting rights of each.
2. Guidance for the certified North Dakota pharmacy valuation and purchase of a stockholder’s shares.
3. Mutual covenants and considerations.
4. Restrictions on transferring, purchasing or encumbering the company’s stock.
5. Protocol in the event of a shareholder’s divorce or termination of a shareholders employment.
6. Obligation to buy/sell shares from an estate.
7. Purchase of insurance to ensure ability to meet obligations.
8. Purchase of stock paid in lump sum or by installments.
9. Remedies for breach of the agreement or default of payment.
10. Until transfer is complete the right to inspect books and records.
11. Amendments and notices for offers or legal matters.
12. Enforceability of the agreement, the binding effects, and arbitration procedures for disputes.
13. Process for dissolution, or liquidation, of the corporation.
14. Maintaining the premises during a transition.
15. Preserving representations and warranties.
16. The terms of transfer.
17. Bill of Sale.
To ensure that the money required is available, buy-sell agreements are often funded with a life insurance policy. Should the death of one of North Dakota pharmacy owners occur, the life insurance settlement will provide the funds for the remaining pharmacy owner in ND to buyout the partners shares from the estate.
Life insurance coverage for each partner needs to be in place, because without a way to accomplish the purchase of the pharmacy shares the buy-sell agreement will not be functional. As the business grows and develops the amount of insurance need to be adjusted to provide an adequate coverage. Without the insurance the surviving stockholder may not have enough cash to satisfy the amount required to buy out the estate - leaving the survivor with an unwanted partner.
To have the adequate insurance coverage and to determine the specifics of the buy-out terms, a certified North Dakota pharmacy business valuation is needed. There are a large number of companies that provide business valuations. Due to the dynamics and current market conditions of the pharmacy industry a valuation firm should have extensive pharmacy experience in ND. Simple accounting formulas and multipliers will not provide an adequate, or realistic, valuation for a pharmacy business.
Pharmacy buy-sell agreements are extremely important documents that need to be completed with seriousness and care. Even with a long standing partnership, it is only too late to create a buy-sell agreement when an event has already occurred....that would require the document.
Tips:
1. Buy-Sell Agreements are critical documents that should not be taken lightly. Consult a licensed professional.
2. Documents must address the proper laws and regulations which vary from state to state. Seek the proper guidance.
3. Premiums for insurance that will fund the buy-sell agreement might be deductible.
4. Ensure that the North Dakota pharmacy valuation is performed by an established ND pharmacy industry expert.
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