Pharmacy Articles

New General Manager of Pharmacy Lending

By |September 15th, 2014|

Monday, September 15, 2014 – Wilmington, NC – Live Oak Bank, headquartered in Wilmington, NC, the nation’s only bank whose sole mission is to provide financing to independent business owners, announced today that Jimmy Neil has joined the Bank as General Manager of the Pharmacy division.
Jimmy spent six years with Cardinal Health, most recently as the Vice President of Pharmacy Transition and Investment Strategy for the Retail Independent segment. Prior to that he spent four years with the Small Business Administration, lending to more than 1,500 small businesses. He is also a co-owner of two independent pharmacies in Louisiana.
“Jimmy is a major asset to Live Oak Bank,” said the Bank’s President, Neil Underwood. “His experience working with pharmacies in various stages of ownership transition enables him to add tremendous value to customers seeking financing. We’re thrilled to have him on board.”
“Live Oak Bank has a great reputation in the independent pharmacy space,” said Jimmy Neil. “I [...]

Expert Tip: Factors Affecting a Pharmacy’s Value

By |June 23rd, 2014|

A pharmacy’s value is made up of tangible and intangible assets. Tangible assets include inventory, furniture, fixtures equipment (FF&E), accounts receivable (A/R), and sometimes real estate (RE). Tangible assets are generally valued by a physical count (inventory & A/R), a book value for FF&E, and an appraised value for RE. A pharmacy’s intangible assets (goodwill) are, by definition, less exact to value. Though the ultimate selling price is determined by a negotiation between the buyer and seller, an initial valuation can be done by use of a formula. Historically, there have been many formulas, but in today’s market, two are common. Chains value pharmacies on a price per prescription filled in the past 12 months, plus inventory. Independent buyers and sellers generally value pharmacies by a business’ enterprise value. The enterprise value is calculated by a multiple of normalized EBITDA, or Net Operating Income (NOI), plus the tangible assets. Generally, the multiple of NOI ranges from 1.5x to 4x, [...]

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    A Primer on Pharmacy Financing: Financing A Startup Pharmacy

A Primer on Pharmacy Financing: Financing A Startup Pharmacy

By |April 29th, 2014|

Banks are actively seeking good projects to fund and that includes independent pharmacies.

Many pharmacists become interested in starting a pharmacy from scratch with the idea that the initial investment will be smaller than acquiring an existing pharmacy for $1 million or more. In fact, properly funded startup projects can be close to $500,000. When considering a startup, it is important to budget for the full project, including initial startup costs, build out, fixtures, furniture, equipment, inventory, and sufficient working capital to carry the business during the ramp up until the pharmacy becomes cash flow positive. To fund a startup request, a bank will need a detailed business plan complete with realistic projections. Startup projects need to be properly funded from the outset. It is difficult for a lender to provide financing to a recently opened business that has been underfunded.

When approaching a bank to fund a project, pharmacy owners should consider the project from the banker’s view. Is this a clear, understandable, and viable project? Are the pharmacy’s financial statements and/or projections complete and reasonable? Do all of the [...]

A Primer on Pharmacy Financing: Real Estate Financing

By |April 29th, 2014|

Banks are actively seeking good projects to fund and that includes independent pharmacies.

One opportunity for a pharmacy owner to best position the business and increase their future wealth is to own the building where the pharmacy is located. In recent years, commercial real estate values have reset and many commercial properties have become available and more affordable. Consequently, a number of pharmacy owners have taken advantage of the opportunity to become their own landlord. Purchasing an existing building, building a new facility, or remodeling an existing store are generally easily finance-able and banks often provide 100 percent financing for such a project. It can be helpful to include real estate in a business loan, whether it is an acquisition, expansion, refinance, or a start-up. Including real estate in a loan will allow the bank to lengthen the term. Real estate loans are generally termed over 20-25 years, making payments very affordable.

Read the full article here: A Primer on Pharmacy Financing

www.americaspharmacist.net

A Primer on Pharmacy Financing: Expansion Financing

By |April 19th, 2014|

Banks are actively seeking good projects to fund and that includes independent pharmacies.

Increasingly, entrepreneurial pharmacists are becoming multiple pharmacy owners. The 2013 NCPA Digest, sponsored by Cardinal Health, shows that 25 percent of community pharmacy owners have ownership in two or more pharmacies. The average number of pharmacies in which each owner has ownership is 1.79, and that number is rising. Financing a second pharmacy (or third, or fourth, etc.), whether it is an acquisition or a startup, is easier than financing the first.

First, an owner usually won’t need to draw a salary from a second location, so all of the excess cash flow can be devoted to debt service. Second, a banker may be able to consider cash flow from all of the owner’s businesses, or the global cash flow, when evaluating financing an additional pharmacy. Strong cash flows from the owner’s existing pharmacies can support the acquisition or startup. For owners with a fair amount of equity in their existing pharmacy, a bank can often offer 100 percent financing for the expansion.

Read the full article [...]

A Primer on Pharmacy Financing: Acquisition Loans

By |April 16th, 2014|

Banks are actively seeking good projects to fund and that includes independent pharmacies.

With more than 1,000 independent pharmacies trading annually, and many banks now recognizing the value of an independent pharmacy as a customer, pharmacy acquisition loans through banks have become more common. A typical pharmacy acquisition exceeds $1 million, but is within the reach of many pharmacists as long as they meet the criteria of the 5Cs. The first step when evaluating an acquisition project is to develop a loan budget with a banker.

It is important that the lender fully understand the project to ensure that the budget is sufficient to acquire the business, transition the business, and run the business. Underfunding an acquisition project is a major reason for failure in pharmacy acquisitions. After developing a sufficient budget, a lender will utilize the previous owner’s tax returns to determine if there is sufficient cash flow to provide the new owner with a salary, have monies left to service the debt as well as additional funds provide a return to the business. When reviewing a pharmacy’s tax [...]

Common Terms Used In Lending

By |April 8th, 2014|

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    A Primer on Pharmacy Financing: What Compromises A Credit Analysis?

A Primer on Pharmacy Financing: What Compromises A Credit Analysis?

By |April 4th, 2014|

Banks are actively seeking good projects to fund and that includes independent pharmacies.

Credit analysis by a lender is determined by the “5Cs”:
credit, character, capacity, collateral, and condition.

• Credit: As history is the best predictor of the future, a lender will examine the personal credit of all borrowers and guarantors. Good personal credit is a must. Any problems must be thoroughly explained.
• Character: Lenders need to know the borrower and guarantors are honest and have integrity. Additionally, the lender needs to be confident the applicant has the background, education, experience, and industry knowledge to successfully run the business.
• Capacity (cash flow): The business should have sufficient cash flow to support its business expenses and debts comfortably while providing the principals salaries that will support personal expenses and debts.
• Collateral: A lender will consider the value of the business’ assets and the personal assets of the guarantors securing the loan as a secondary source of repayment if the loan cannot be repaid. Collateral is an important
consideration for a conventional loan, but not [...]

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    A Primer on Pharmacy Financing: SBA Versus Conventional Loans

A Primer on Pharmacy Financing: SBA Versus Conventional Loans

By |March 31st, 2014|

Banks are actively seeking good projects to fund and that includes independent pharmacies.

Most pharmacy owners are eligible for SBA-guaranteed loans that may offer some advantages to a borrower. In an SBA loan, the bank makes the loan, but the debt is partially guaranteed by the SBA. This allows the bank to provide credit for a borrower who may otherwise have difficulty obtaining a loan with favorable terms. SBA loans tend to be borrower friendly, flexible to equity and collateral requirements, and do not have loan covenants. SBA loans have longer terms with no balloons. For example, a conventional loan may have a 10-year amortization with a balloon in 3-5 years, while an SBA loan will have an amortization and term of 10 years. The SBA acts like an insurance company, allowing the bank to extend its conventional credit reach.

Not surprisingly, SBA lending requires numerous documents and can be tedious for borrowers when the lender is not a specialist. When considering an SBA loan, it is helpful to seek out a lender who is part of SBA’s Preferred Lender Program. [...]

A Primer on Pharmacy Financing: Intro

By |March 14th, 2014|

Banks are actively seeking good projects to fund and that includes independent pharmacies.

Independent community pharmacy is an evolving yet thriving industry, with many opportunities as well as some challenges. Among the challenges pharmacy owners often face is financing. As a pharmacist and former pharmacy owner, and a banker since 2009, I regularly hear pharmacy owners exclaim: “Banks don’t understand pharmacies, they just don’t get it!” Many times during my 20 years as a pharmacy owner, I felt the same frustration.

Independent pharmacies are often an enigma to bankers. Bankers are generally younger, healthier, and wealthier than the service-seeking demographic frequenting most independent pharmacies. There is often a fundamental disconnect with the industry. Those bankers don’t understand why patients would seek out an independent pharmacy instead of a local chain, grocery store pharmacy or even mail order. These bankers consider an independent pharmacy as a quaint anachronism rather than the $4 million local health care provider. It is often frustrating, but pharmacy owners need to do a better job explaining their businesses, their opportunities, and their prospective financing projects to bankers. Bankers want [...]