By Brad MacLiver
Authorship and profile at Google
When acquiring or selling an Idaho pharmacy or drug store, one alternative is to have the seller originate the financing and carry back a business note. At first glance many pharmacy owners will not want to take this approach. They want their cash and their exit. When an Idaho pharmacy owner is considering selling their drug store, looking at the benefits of originating a business note and not just the perceived costs, they may find that offering Private Finance in the form of a Pharmacy Business Note will provide them an alternative course of action.
Advantages of Creating and Selling an ID Pharmacy Business Note
1. The process of selling a pharmacy or drug store to an individual can be easier and less time consuming when the Idaho pharmacy seller agrees to carry a business note, than a buyer pursuing traditional financing.
2. By offering Seller Carryback Financing, often referred to as Private Finance, an Idaho pharmacy business owner can greatly increase the number of potential buyers for their business, and most likely sell the business at a higher price.
3. When a pharmacy business note is created there are the options of keeping it for monthly income, selling the entire ID pharmacy note for a large lump sum, or selling part of the pharmacy business note to meet current financial needs and keeping the remainder for future income.
4. Selling either a portion, or the entire pharmacy business note in ID, frees up capital that can be used for new ventures, or paying off old debt.
5. When an Idaho pharmacy business note is created and sold, with the proper professional guidance, a transaction can be structured that allows the pharmacy business seller the biggest advantage in achieving the seller’s goals.
When originating a pharmacy business note the terms and interest rate are set and agreed upon between the seller and buyer of the business. A pharmacy valuation performed by a valuation company that has expertise in pharmacy valuations will assist negotiating the purchase price. The seller of the business accepts the promissory note, which is secured by the business including any inventory and equipment that belongs to the business. The Idaho pharmacy business seller then sells the note to an Investor who is willing to hold the pharmacy note in exchange for compensation. Since Investor can’t go back to the ID pharmacy business buyer and change the terms of his purchase agreement, the seller of the note must discount the note. The Investor is compensated from the difference of what the note was originated for and the discounted price paid for the pharmacy business note.
Additional Tips for Business Notes:
1. Business notes that have been poorly structured. may prevent their sale. Seek professional guidance before originating a financial instrument that can’t be sold.
2. The sellers of business notes must fully understand the risks of Investors in order to successful sell the business note.
3. Private Finance in the form of a Business Note is an alternative financing method that should be looked at as a valid business financing option.
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By Brad MacLiver
Authorship and profile at Google
A provision of many ID pharmacy business loans and commercial leases is an acceleration clause. The acceleration clause in the loan/lease agreements allows the lender to accelerate their collection of payments contingent on an event occurring. These events may include lack of payment by the borrower, failure to keep the property adequately insured, failing to pay tax assessments, not maintaining the property, selling the property/asset, etc.
Lenders view the acceleration clause as an important tool in their business loan and commercial lease programs. Loan and lease documents might not specifically address the foreclosure of a property, or repossession of an asset, but this is where the acceleration clause comes into effect. Without the clause the lender would only be able to foreclose on one missed payment at a time. With the acceleration clause, despite whatever event kicks the clause into gear, the lender can demand immediate and full payment of all remaining balances and fees.
The Idaho pharmacy business loan or lease documents provided to the independent drug store owner will describe the rights, conditions, and obligations relevant to the acceleration clause. In the event that pharmacy owner in Idaho (the borrower) cannot meet their obligations, the loan or lease goes into default. A default can be caused by a payment that is even one day late, which means commercial and pharmacy business loans lease documents should be read and thoroughly understood before signing.
Tips Regarding Acceleration Clauses:
1. If slowing cash flow of a pharmacy is going to cause a business loan default but the Idaho pharmacy owner has additional unencumbered assets, they might be able to negotiate with the lender by offering additional collateral.
2. If its possible for the ID pharmacy to catch up on their payments, they can reinstate the business loan before the acceleration starts.
3. Different states have different rules requiring notification of an acceleration clause being exercised. Pharmacy owners should be aware of the laws in their state where they operate because lack of knowledge is not an excuse.
4. When an acceleration clause is exercised on a commercial lease, there is the possibility the landlord cannot collect rent from both the defaulting tenant and a new tenant at the same time. To save themselves some money, Idaho pharmacy owners should help the process by assisting the landlord re-lease the property. However, please note, should the ID pharmacy be in the process of being sold and the files and inventory moved to a competitor’s location, the pharmacy buyer will require restrictions in the Purchase and Sale Agreement that the new tenant cannot be another pharmacy.
5. Lenders prefer not to have to go through the foreclosure process, so if your ID pharmacy is headed in that direction start talking with the lender about finding a solution. Communication with the lender is a good thing.
6. Some pharmacy business loans and commercial leases require a “personal” guarantee from the business owner. This means that the business owner’s personal assets and credit will become involved in the event of a default. The “corporate” status of the business will not keep the lender from seizing the personal assets.
When considering financing a pharmacy in ID for acquisition, or expansion, due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide a pharmacy owner through the maze of details will benefit the Idaho pharmacy owner in making the best business decision.
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By Brad MacLiver
Authorship and profile at Google
Almost everything you own and use for personal, or business, purposes is a capital asset. When Idaho (ID) pharmacy owners sell a capital asset, the difference between the amounts you sell it for and the amount you paid for it (the basis), is a capital gain, or a capital loss.
Capital gains may also refer to "investment income" that arises in relation to real assets, such as property, financial assets, and intangible assets such as goodwill. In the U.S., all capital gains must be reported and the appropriate tax paid.
When selling a pharmacy or a drug store, there are specific tax strategies that can be used to help offset the tax liabilities. 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.
During this period of history where it is more difficult to finance a business, pharmacy sellers in Idaho may already be required to lower their asking price, so a pharmacy buyer can qualify for the financing required. On top of the lower offers they will be required to pay higher percentages in taxes.
This is a dilemma for the pharmacy seller who wants as much money out of the deal as possible. For most pharmacy owners their business is the largest asset they will ever own and selling the business at a certain dollar amount has been part of their retirement and estate planning. Knowing they will need to cut out a larger chunk of the proceeds to give to the government will cause some pharmacy owners to reconsider their retirement plans. The good news is there are financial tools and strategies that allow the Idaho pharmacy owner to proceed with their plans.
Family Foundations are tax exempt/nonprofit organizations, which provide tax advantages and control over philanthropic activities. Family foundations are typically private foundations that are funded by a small number of sources, and do not conduct widespread fund-raising activities. They may receive gifts from friends and limited sources. Family members serve as trustees, directors, and officers. As private foundations they can make grants, or donations to other organizations. Having a Family Foundation provides a number of benefits including, income tax deductions, exemptions from estate and gift taxes, along with the reduction or elimination of other taxes.
One of many strategies currently available to assist capital gains tax burdens is the Charitable Remainder Trust (CRT). CRT's are legally defined as Split Interest Trusts. That term is applied because of the blend of both philanthropic motivations and personal financial aspects. CRT’s can reduce tax liability, increase the wealth of a business owner, and provide a vessel for charitable giving at the same time.
CRT’s are created when someone donates assets into this special type of Trust. These assets can be cash, stocks, real estate, etc. The CRT is then established up for a either pre-established of time or until the donor’s (ID pharmacy owners) death. Individuals (pharmacy owner or family member) can receive income from the assets in the Trust. Upon death of the donor, the assets will go to a designated charity and part of the income from the Trust can be spent to purchase life insurance for the donor. The proceeds from the life insurance then go to designated heirs who receive the money without incurring any estate tax liability.
Many tax strategies, including the use of CRTs, are not common knowledge, so it's recommended that pharmacy business owners in Idaho be aware of the different tools available when structuring a business transaction. They should also keep in mind that only professionals with vast experience in CRTs should be used to setup a Charitable Remainder Trust. Not following the stringent IRS guidelines could result in penalties, increased taxes, and criminal charges in some cases.
Over the years there have been unscrupulous individuals who have tried using CRTs and similar financial tools in illegal scams. With the increase in capital gains taxes there are expectations more scams will be floating around out there. Be knowledgeable about the possibilities, but be confident you are working with experts in your industry.
You should consult a firm with extensive experience in pharmacy and drug store acquisitions. Firms that have the knowledge and expertise to structure the transaction appropriately, for tax considerations, can save a pharmacy owner large sums of money when a Idaho pharmacy is sold.
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