In Idaho, Is it Worth Selling a Pharmacy Note at a Discount?

By Brad MacLiver
Authorship and profile at Google


When a ID pharmacy acquisition has been accomplished by using the private financing method of a pharmacy business note, the holder of the pharmacy note has the option of selling the pharmacy business note for a lump sum of cash instead of waiting for the monthly payments and taking the risk those payments will always be made. Idaho pharmacy business notes can be sold by using a discounting method. Instead of buying a pharmacy note at its face value, the pharmacy note will be discounted. Meaning the Investor will pay less than face value due to the risk being transferred from the Pharmacy Note Holder (the note seller) to the Pharmacy Note Investor (the note buyer).

Most Idaho pharmacy business note sellers only look at the discount rate and quickly calculate in their head that they are giving up too much money to make the selling of the pharmacy note an attractive proposition. However, further analysis needs to be completed before a final decision is made by weighing the discounted amount with the benefits of a lump sum of cash.

1. What is the motivation for selling the pharmacy note in Idaho? What are the desired goals? Is reducing the exposure to risk a consideration? Is there a financial decision to pay off debt? Is capital required for a new venture? Are there dreams of exotic vacations or world travel that could be accomplished with a lump sum of cash? How important is it to accomplish these goals? What are the opportunity costs if you don’t have the lump sum of cash to achieve your goals, or invest in something that pays a higher return? Determine your investment and family priorities wisely.

2. Do you know the Current Fair Market Value of the pharmacy business? This is what someone is actually willing to pay for the business.  This is not just an “earnings times x” formula because real aspects of what is happening in the pharmacy industry must be considered.  It is advantageous to have a pharmacy industry specialist calculate the Idaho pharmacy business valuation.

3. How much cash is required by the holder of the pharmacy note immediately?

4. A Idaho pharmacy note that is seasoned has more value than a “green” note that doesn’t have a payment history. Are you willing to hold onto the note for a certain period of time to allow the business buyer enough time to prove to an Note Investor the capability of the payor making the payments?

5. Are you willing to perform a "partial sell" by selling only a portion of the Note? The discount rate can be a more attractive proposition when only a portion of the note is sold and the Pharmacy Note Investor in Idaho is not holding all the risk.

Understanding the Risk for the Note Buyer:
1. ID Pharmacy Buyer Competency - There is the risk that the pharmacy buyer may not run the business as efficiently as you have, sales drop, and the pharmacy business buyer cannot meet the payment obligations. Incompetency could lead to late payments, missed payments, or bankruptcy.

2. ID Pharmacy Industry Changes - Changes caused by influences either within the industry, or regulations governing the industry, can make it increasingly difficult for the pharmacy business buyer to meet the contractual financial obligations.

3. Future Competition - Sales and income of the store may be affected by yet unforeseen Idaho pharmacy competition either building in the neighborhood or through mail order.

4. Loan to Value - When originating a pharmacy business note in Idaho, you may be creating financing where there is a “negative loan to value.” Example: the pharmacy business note is for $300,000, but there is only $100,000 of tangible assets for collateral.

5. Title Insurance – ID pharmacy business notes don’t have title insurance that will make good a loss arising through defects of titles, or liens.     

6. Time Value of Money - Where a dollar received today is more valuable than a dollar received in the future.

7. Opportunity Costs - When the selection of holding the Idaho pharmacy business note ties up capital and prevents potential financial gains from other investments.

It is beneficial to discuss the options and potential origination of a pharmacy note with Pharmacy Business Note Investor before the Purchase and Sale Agreement is finalized for the acquisition of the pharmacy. This provides the ID pharmacy business seller, and future note seller, valuable insight into structuring the pharmacy business note so it can be successfully purchased.

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