By Brad MacLiver
Authorship and profile at Google
Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. OR pharmacy buyers participate in the pharmacy industry roll-up to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Oregon pharmacy sellers both independent owners and drug store chains must consider their current market value, narrowing of profit margins, and what their tax consequences will be if they sell.
When pharmacy owners in Oregon sell their pharmacy it is considered a capital asset. The difference between the selling amount and the purchasing or starting amount of the pharmacy is a capital gain, or a capital loss. In the U.S., all capital gains must be reported and the appropriate tax paid.
Specific tax strategies can be used to help offset the tax liabilities when selling a Oregon pharmacy or a drug store. Unless a professional is handling a large number of pharmacy acquisitions, they usually do not know these federal regulations that allow for reducing the tax liability for the pharmacy owner.
Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a pharmacy in Oregon will result in tax consequences. However, most of these professionals do not handle the buying and selling of pharmacies 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 OK pharmacy. When a drug store owner is considering selling their pharmacy either now, or in the next few years, it is urgent the best course of action be considered now instead of later.
Estate planning when selling an Oregon pharmacy should also be a consideration. Specific federal regulations allow an asset to be converted to an income stream, provide a tax deduction, increase asset diversification, and provide risk reduction, along with offering effective retirement and estate planning. If the pharmacy seller in OR is nearing a retirement age, or will be working as a pharmacist for another company, instead of being an owner, then estate planning should also be considered.
As reimbursements are cut, more regulations are applied, and pharmacy profits continue to slip, more independent Oregon pharmacy owners along with small and regional pharmacy chains will be considering selling their pharmacies and drug stores in OR. Tax considerations should be a paramount part of the decision process.
Oregon pharmacy owners should consult with a pharmacy industry expert for advice on structuring the sale of their pharmacy. Someone with extensive experience in Oregon pharmacy and drug store acquisitions will have the knowledge and expertise to structure the transaction for tax considerations. Like all tax planning issues, waiting until the end of the year is not always the best strategy. Following this advice can place larger sums of money in the bank of pharmacy owners when an Oregon pharmacy is sold.
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By Brad MacLiver
Authorship and profile at Google
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 don’t meet that criteria, this formula is not a useful measure as the sole means for valuing Oregon pharmacies for acquisition purposes.
To Calculate EBITDA:
Step 1) Calculate net income by obtaining total income and subtract total expenses.
Step 2) Determine the total amount of taxes paid to federal, state, and local governments.
Step 3) Compute interest fees paid to companies or individuals for the use of credit, or capital.
Step 4) Establish the cost of depreciation (the expense recorded to allocate a tangible asset's cost over its useful life).
Step 5) Determine the cost of amortization (the expense for consumption of the value of intangible assets, such as goodwill, patents, and copyrights, over a specific period of time, or the asset's expected life.
Step 6) Add #1 through #5.
EBITDA calculation example: (OR Pharmacy Reps, change these numbers as part of the changes you do.)
Step 1) Net Income 1,700
Step 2) + Taxes paid 380
Step 3) + Interest Expenses 310
Step 4) + Depreciation 170
Step 5) + Amortization 85
Step 6) = EBITDA 2,645
Seven drawbacks to using EBITDA:
* Can be misleading number when it is confused with cash flow.
* Can make even completely unprofitable firms appear to be financially healthy.
* Numbers are easy to manipulate.
* Can overlook cash requirements for growth in accounts receivable.
* Can miss cash requirements for growth in inventories.
* Not factual when valuing small companies.
* Not effective for companies with few assets, small amounts of debt, or low depreciation or amortization schedules.
During the 1980s EBITDA was being 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 pharmacy specialists performing Oregon pharmacy business valuations will use EBITDA in pharmacy valuations, but only as part of a larger formula when computing values for specialty OR pharmacies especially those who have a niche in HIV, disease management, long term care, etc. However, EBITDA should not be used as part of the usual formula for standard retail pharmacy acquisitions.
The EBITDA number for a specific existing pharmacy in Oregon is important, for the most part, when the existing ownership is establishing their store value for the purpose of a line of credit, borrowing, creating a Trust, stock values, etc., but EBITDA does not have the same importance when selling a Oregon pharmacy. This is due to the fact the buyer will not have the same expenses as the seller.
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 Oregon pharmacy. Instead of the EBITDA number, OR pharmacy buyers should be focusing on sales, gross profit, cash flow, and customer mix.
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By Brad MacLiver
Authorship and profile at Google
Oregon (OR) Industry Roll-Ups are where an industry’s many players are consolidated into smaller groups for economic benefits. Recessions, new government regulations, or other aspects of the industry that may be stifling profits end up providing incentives to consolidate
A principal reason for an industry roll-up is to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Consolidated businesses also have less risk from the impact of an unsatisfied customer and have the reward of being able to recruit, or keep, key employees.
An example of an industry roll-up can be seen with the Oregon pharmacy industry. It is a well established industry and is still experiencing sales growth. However, pharmacies and drug stores have seen a steady decline in their profit margins due mainly to government regulations, even as sales increase. There has also been a shortage of pharmacists in Oregon - a required key employee.
Industry roll-ups are often initiated by investors seeking investment opportunities. However, in the case of Oregon pharmacies, the roll-up is a necessity due to declining net profits ratios. Companies that are acquired in a roll-up are usually small independently-owned businesses whose owners believe in the economic benefits of combining forces with a larger organization, or simply need an exit strategy. In the pharmacy industry roll-up, independents have been a majority of the acquisitions, but there has also been a consolidation of a number of the larger pharmacy chains.
During the pharmacy industry roll-up pharmacies in OR with better financial wherewithal are acquiring their local competition and combining two or more stores into a single location. This results in more customer traffic through a single location and reduces the expenses that come with multiple locations. This can dramatically drive up total sales while driving down the administrative and overhead costs per customer.
To help fund Oregon pharmacy acquisitions during the roll-up, specific funding programs have been developed. These pharmacy chain funding programs are backed by major financial institutions that provide the funding for OR pharmacy acquisitions. These pharmacy funding programs allow an individual pharmacy business, or an investment group, the capital to acquire and combine Oregon pharmacies in geographic areas.
Funders are willing to provide the capital for the pharmacy roll-up because they recognize that combining the individual pharmacy businesses provides a greater total business value than if each individual pharmacy value were added together. This synergistic value reduces the risk of funding the individual acquisition.
When considering the buying, selling, or financing a pharmacy, whether an independent drug store, or multiple OR pharmacy locations, due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide an Oregon pharmacy owner through the maze of details will benefit the pharmacy owner in Oregon in making the best business decision.
All transactions involved in the pharmacy roll-up need to have the business valued at the current market value. Business valuations for the pharmacy industry should be performed by a company with in-depth knowledge of the Oregon pharmacy. Simple formulas for accounting used by many to estimate a value do not provide an accurate picture because the simple formulas do not take into account the aspects that are causing the pharmacy industry roll-up in OR.
The various aspects of the market which are stimulating the roll-up are also having downward pressure on pharmacy business valuations. Pharmacy owners have been watching what has been occurring in the pharmacy industry in Oregon. While profit margins drop and new regulations are being imposed, and as reimbursements are pared down there is wide expectation that the business values in the pharmacy industry will continue to slide to lower levels, and thus the pharmacy industry roll-up will continue in OR.
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