In deciding to own and operate a pharmacy business, there is no doubt that the pharmacy owner will have a long-term goal of maximising the value of their business.

While pharmacy business owners are typically more comfortable in developing and regularly reviewing short-term business operational and marketing plans to assist in the successful day-to-day operation of their business, it is surprising how many of these same business owners fail to devote any meaningful time into taking a longer-term view and actually look at planning for the day that they may exit the business.

By properly planning for the day a pharmacy business owner leaves their business (whether as a result of deciding to cash-in at an opportune time, progressively completing a sell-down so as to eventually retire or prematurely disposing of their business due to unforeseen health reasons), the pharmacy business owner can help achieve the long-term goal of maximising the value of their business, as well as putting the business into a position to best meet its future needs.

A well-considered succession or exit plan enables a seamless and trouble-free transition and helps to avoid disruption and loss of goodwill value to pharmacy business operations, by outlining what will happen and who will take over the pharmacy business when the current owner leaves.

To put together a comprehensive business succession plan, it is important to analyse the key aspects of the pharmacy business in question and the planned succession outcome. By way of example, areas to be considered in formulating a succession plan include identifying:

  • the current business ownership structure e.g. sole trader, partnership, trust or company;
  • the expected type(s) of planned succession e.g. will the current owner be completely removed from the pharmacy business or only partially, and if so, what will be the owner’s future involvement;
  • the details of any key person who has been earmarked as a proposed successor to (or partner of) the current owner as well as an expected time-frame for implementation of the succession plan;
  • appropriate skill retention strategies which will enable the current owner’s individual roles and skill-sets to be effectively taken over and transferred;
  • whether any legal documents presently exist (and if not, arranging for appropriate documents to be drafted) which may dictate the terms of any planned succession e.g. a partnership agreement between partners setting out options to purchase and agreed method for determining the sale price) or a buy/sell agreement between shareholders;
  • the details of all insurance policies currently held by a pharmacy business owner in the event of a disability, death or injury;
  • where the pharmacy business has more than one owner, whether the relationship agreement between the owners (e.g. partnership agreement) identifies what happens upon the death of a partner i.e. does the agreement specify the partnership immediately terminates or does it specify the partnership continues with the result being that the other partners are deemed to be in partnership with the deceased’s executor
  • (who is more than likely to be a non-pharmacist with no understanding of the business’s operational issues);
  • separate preferred buy-out details for determining the value of the business dependent on whether the business owner is selling to existing partners, family members who are entitled to have a pecuniary interest in a pharmacy business or to external third parties.

In summary, planning for the day a business owner leaves their pharmacy business is a valuable exercise especially in the context of the ever-changing world in which pharmacies operate which can greatly impact on goodwill value (e.g. location rules including impact of ministerial discretion applications, 5 yearly PBS related Government agreements, pandemics such as Covid-19).

To assist a pharmacy business owner in putting together (and reviewing on an ongoing basis) a comprehensive and well considered succession plan, the professional assistance and advice from a trusted team of appropriately experienced pharmacy business advisors, lawyers or accountants is strongly recommended.

Prepared by
Anthony Cannizzo
Partner

Robert James Lawyers
Level 22, 140 William Street
Melbourne VIC 3000
Mobile 0439 00 2012
Email: anthony@robertjames.com.au
Web site: www.robertjames.com.au