The completion of a succession plan rests firmly with the seller’s ability and willingness to introduce a partner and the buyer’s ability to enter ownership in a profitable business with empathy for the seller and patience for implementing change.
Matching the expectations of both the buyer and seller in a succession transaction can be tricky. The reality is that both parties hold the keys to a prosperous partnership.
The Seller
For the seller, the qualitative implications for life without a business in an outright sale may in fact be a much worse contemplation than a business that probably has flat or declining profit in the current or future market place.
Succession planning is but one of the options open to Pharmacists who want to both reorganise their working/retirement lives in an orderly fashion over a number of years and give something back to the profession by providing an opportunity to a young pharmacist/s.
The Buyer
The next generation of pharmacists are enthusiastic about the profession and are studying to engage customers and provide them with health outcomes (i.e. they are not studying to fill scripts nor to open discount pharmacy operations).
The current values of profitable pharmacies however, often make outright purchase difficult for the next generation.
The existing owners of pharmacy therefore have a unique opportunity to harness this next generation to grow the business through succession, ensuring the longevity of their current business, this industry and not burdening the next generation with unserviceable debt.
The Plan
Like all good adventures you need a well laid plan. In a business sense, the succession plan must including the following key points in order to be successful:
Definition of the roles the partners will take in the business;
Remuneration of the partners;
Transmission of additional/equity in the future;
Valuation methodology to be adopted to value the equity;
Financing arrangements of the partnership; and
Pre-emptive rights in the event of death/default.
There are of course many other points to be included in a partnership agreement but a basic understanding of the above between the prospective partners will air any concerns either party may have before incurring costs on legal documentation. I find most partnerships fail when there is a lack of understanding on any of the above points. Once the partnership has commenced, it can be difficult to unwind.
by Norman Thurecht – Partner JR Pharmacy Services