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Using Tax Strategies When Selling a Pharmacy in Nebraska

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. Nebraska (NE) pharmacy buyers participate in the pharmacy industry roll-up to achieve economies of scale in purchasing, marketing, information systems, logistics, distribution, and top management. Pharmacy sellers in Nebraska both independent owners and drug store chains must consider their current market value, recognize the narrowing of profit margins, and realize what their tax consequences will be if they sell.

When pharmacy owners sell their Nebraska pharmacy it is considered a capital asset. The difference between the amounts it is sold for and the amount spent to either purchase or start the NE 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 pharmacy in Nebraska 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 NE pharmacy owner.

Many Business Brokers, CPA’s, attorneys, and other professional advisors inform their clients that selling a pharmacy in NE 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 Nebraska 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 pharmacy. When a drug store owner is considering selling their Nebraska pharmacy either now, or in the next few years, it is urgent to understand the pharmacy's current valuation and the best course of action to be considered - now instead of later.

Estate planning when selling a NE 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 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 Nebraska pharmacy profits continue to slip, more independent pharmacy owners along with small and regional NE pharmacy chains will be considering selling their Nebraska pharmacies and drug stores. Tax considerations should be a paramount part of the decision process.

Pharmacy owners should consult with a Nebraska pharmacy industry expert for advice on structuring the sale of their pharmacy. Someone with extensive experience in 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 Nebraska pharmacy owners when a NE pharmacy is sold.

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Pharmacy Acquisition Finance in Nebraska

By Brad MacLiver
Authorship and profile at Google


When a NE pharmacy or drug store is being sold, the buyer will typically not use “out of pocket” cash for their acquisition, even if they have cash available.  Pharmacy acquisition strategies in Nebraska usually involve financing the transaction.

A typical acquisition will take 6-9 months to complete.  This means the Nebraska pharmacy seller will need the buyer to provide some proof up front about their ability to close the transaction.  Because the acquisition process will require many hours of due diligence and negotiation, the process should involve qualified parties.

Along with the buyer and seller the acquisition will involve attorneys, accountants, lenders, valuation companies, industry specialists, along with others. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the pharmacy buyer’s ability to close the deal.

The acquisition process starts with determining the value of the business. Many companies are out there who offer valuation services, pharmacies are special businesses, not ice cream stores. There are quite a few aspects to valuing pharmacies that are unique to the industry, which means either generic valuations or simple accounting formulas should be avoided. An industry specialist should be used for valuing the Nebraska pharmacies instead of a valuation company that has a broader spectrum.

In order to complete a valuation the selling company needs to provide up-to-date data. Lenders will not accept old data, or a sellers “gut feeling.” Lenders need to make a decision to finance based on sound and verifiable information.                

Structuring the transaction is extremely important. The seller of course wants as much money as possible and wants cash. The buyer needs to spread out the debt service and wants to have as little cash as possible invested in the acquisition.

NE pharmacies and drug stores are in an industry where it is more difficult to obtain business loan due to the majority of the value in a pharmacy is the customer files and not hard assets. Therefore, for the acquisition to be financed a lender will need a strong understanding of the industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

Pharmacies in Nebraska have typically been known for generating profits and to be stable businesses. However, they are usually in leased locations, and their furniture, fixtures, and computers will only provide $15-20,000 of collateral for a buyer possibly requesting a million dollar loan. A lot of money is tied up in inventory, but the small pills are considered by a lender to easy to move out the door in the event of default. Due to these circumstances many lenders will not loan money to these traditional money making businesses. A successful transaction takes a lender that understands the pharmacy industry.

Tips regarding Nebraska pharmacy acquisitions and finance:
1. Attorneys and CPAs who have been representing the pharmacy seller for many years may see the transaction as putting themselves in a position of losing a client when the business is sold. Make sure they are working diligently on the transaction and are not slowing or undermining the process

2. Since pharmacy acquisitions in NE involve 6-9 months of work to complete, all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All financial information needs to be current. Over the lengthy process the data supplied to both the buyer and the lender will need to be updated on a continuous basis. Things can change drastically during a nine month period and the Nebraska pharmacy seller will need to continually prove the financial condition of the company.

When pursuing “pharmacy acquisition finance,” for the best chance of success, make sure the valuation company and the lender have expertise in that industry. Choose a company that has the Nebraska pharmacy experience and expertise, and is a direct correspondent with lenders who understand pharmacy.

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