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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Using Business Notes for Financing a Pharmacy Acquisition in North Dakota

By Brad MacLiver

Authorship and profile at Google

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 North Dakota is considering selling their drug store, looking at the benefits of originating a business note and not just the perceived costs, they may find that offering Private Finance in the form of a Pharmacy Business Note will provide them an alternative course of action.
                          
Advantages of Creating and Selling a North Dakota Pharmacy Business Note

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 North Dakota to meet current financial needs and keeping the remainder for future income.

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 North Dakota pharmacy business note is created and sold, with the proper professional guidance, a transaction can be structured that allows the pharmacy business seller the biggest advantage in achieving the seller’s goals.

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 North Dakota pharmacy business buyer and change the terms of his purchase agreement, the seller of the note must discount the note. The Investor is compensated from the difference of what the note was originated for and the discounted price paid for the ND pharmacy business note.

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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Acceleration Clauses for Commercial Leases and North Dakota Pharmacy Business Loans

By Brad MacLiver

Authorship and profile at Google

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 North Dakota pharmacy owner will describe the rights, conditions, and obligations relevant to the acceleration clause. When the pharmacy owner (the borrower) doesn’t meet their obligations then the loan or lease goes into default. A payment that is even one day late can cause a default. Due to this, pharmacy business loans and commercial lease documents should be thoroughly read and understood before signing.

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 North Dakota pharmacy can catch up on their payments they can reinstate the business loan before the acceleration starts.

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 North Dakota will require restrictions in the Purchase and Sale Agreement  that the new tenant cannot be another pharmacy.

5. Lenders prefer not to have to go through the foreclosure process, so if your North Dakota pharmacy is headed in that direction start talking with the lender about finding a solution. Communication with the lender is a good thing.

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 North Dakota through the maze of details will benefit the pharmacy owner in making the best business decision.

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