Accountant Vinku Shah spoke at the Avicenna conference in London earlier this year on how to protect your pharmacy’s value as you prepare to sell
Most owners are focused on day to day challenges like funding and workforce, Vinku Shah told the Avicenna conference in September, adding that “one of the biggest financial decisions you will ever make is often one that receives the least attention”.
He explained: “It is how your business is structured and how prepared you are for an eventual sale or exit.
“The reality is that decisions that you make years before a sale transaction can have a significant impact on the value that you realise, the tax that you pay, and the options available to you and your families.”
Despite market challenges, “buyers remain interested in profitable, well-run pharmacies,” he said, adding: “What buyers are increasingly looking for is not just a pharmacy that makes money today, but a business that can continue generating profits without relying entirely on the business owner. That is why structure and exit planning are crucial.
“The businesses that command the highest values are often the ones that have strategically planned the exit in advance.
“Many pharmacy businesses evolve over time. The business structure when you first acquired your pharmacy may not be suitable today.
“As profits grow, additional sites are acquired, family members become involved, the original structure can become inefficient.”
Mr Shah said business structure should protect assets and improve tax efficiency, as well as supporting growth and facilitating an eventual sale or succession.
He said that while business owners think of ‘value’ in terms of profit alone, prospective buyers also consider sustainability, scalability and whether there are any compliance or regulatory risks.
“A pharmacy business with lower risk and strong future prospects will command a higher valuation than another pharmacy with similar profits but higher risk and lower prospects,” said Mr Shah.
He added: “There are five key areas I would advise pharmacy owners to review. First, separate valuable assets from the trading risk where appropriate. Second, have clear succession and shareholder plans. Third, build management capability. Fourth, maintain clean financials and records. Fifth, review your business structure regularly as the business grows.”
Explaining the last point, he said a structure that works for one pharmacy may not be suitable for a group of three or four.
He commented: “You should review your business structure regularly as you grow, not just when you plan to sell the business.
“One of the biggest mistakes that I have seen is business owners start exit planning just when they are ready to sell.
“The best exits are planned years in advance.”
Outlining his ideal approach, he told contractors: “Five years before the sale, you should be reviewing your business structure. Four years before the sale, develop your management team. Three years before the sale, improve profitability. Two years before the sale, reduce operational and compliance risk. And one year before the sale, you should be preparing for due diligence.”
To increase sale value, he advised prospective sellers to look at their business and “reduce owner dependence,” explaining: “The less dependent the business is on the owner, the more attractive it will be.”
He advised that “consistent profits” are of more value than one exceptionally strong year, and said good governance and compliance reduces risk and ensures higher confidence and valuation.
Mr Shah recommended: “Build recurring income streams. Clinical services, repeat prescriptions, patient loyalty— these all create value.
“Develop a growth strategy. If you can demonstrate opportunities for future growth, you create competitive tension and stronger valuations.”
He said: “You should ask yourself these questions. Could my pharmacy operate successfully without me for four weeks? Would I provide three years of clean financial information tomorrow? Do I know what my pharmacy is worth today? Would a buyer see an opportunity or risk? These four questions are perhaps the best measure of exit readiness.”
