Sell my pharmacy and plan my retirement

Selling a pharmacy is a major career step. According to Guillaume, it’s a turning point in a pharmacist’s life, since it’s not only the transition to a new phase of life, but also the time when he’ll be able to put a dollar value on all the expertise and hard work he’s put into his profession and his business. “Selling your pharmacy is a rigorous process that requires careful analysis, so it’s advisable to start preparing for the sale two to three years in advance. There are several stages to go through, and it’s very important to surround yourself with qualified specialists for this type of transaction: accountants, tax specialists, financial planners and a specialized appraiser are key resources to help you through this complex transaction.”

In this transaction, Guillaume explains that a potential buyer will want specific information on, among other things:

• inventory and condition of equipment (dispensary and store)
• customer files (prescription volume – public/private)
• staff (pay attention to labour standards!)
• accounting records
• contracts (lease, franchise or banner, suppliers, association, etc.)

“Don’t forget that the value of a pharmacy is directly linked to its profitability,” says Guillaume. “To maximize it, you need to improve this profitability. A complete analysis of the pharmacy and a game plan are essential. To make his analysis, Pierre-Jean needs to ask himself a number of questions, such as: are IT and robotization optimal? As for human resources, are the work schedules, tasks, hourly rates and benefits competitive? Would an internal successor be ready to buy?”

“He must also consider other sources of expenditure that could be analyzed or reorganized, such as insurance. Comparing rates with competing insurers and renegotiating loan rates and lines of credit with his bank are good ways of optimizing costs. If his pharmacy offers a home delivery service, checking its profitability, revalidating the area it serves and reviewing its rates are also possible ways of creating value.”

“Because this step is so important, Pierre-Jean should call on a professional appraiser specializing in pharmacy to help him determine the price of his pharmacy.” Guillaume continues: “There are two types of assets to value: tangible assets (specialized and laboratory equipment, instruments, adapted furniture, merchandise, supplies, office equipment including software and computers, leasehold improvements) and intangible assets (goodwill, number of customers, prescription volume, organizational system).“

Pierre-Jean will have to declare any capital gains realized on the sale of his pharmacy. “One of the particularities of owner-pharmacists is that many have a corporate structure that includes a company that receives the owner-pharmacist’s professional income, a company for the pharmacy’s commercial activities other than prescriptions, and another that owns the building (if that’s the case) and the financial investments.”

Guillaume adds: “It’s very important for Pierre-Jean to have a good corporate structure so that when he sells, he can take advantage of the capital gains exemption.There is a lifetime capital gains exemption (LCGE) available to Canadian taxpayers who dispose of qualified small business shares held personally or as a member of a partnership, and who meet the general criteria. If Pierre-Jean has not yet used his exemption, more than $1 million in capital gains could be tax-exempt on the sale of his shares. The exact amount of the exemption will depend on the cumulative threshold available in the year of sale.”

“Pierre-Jean should consult a tax advisor regarding these criteria, and he should also discuss with his financial planner cash management in his company (too much cash in the management company account earning next to nothing, or unprofitable allocation of his investments) and potential capital dividend account (CDA) strategies.”

“In the years leading up to the sale, he could also enhance the couple’s wealth by contributing to a spousal RRSP in Helena’s name and to her TFSA. Since Pierre-Jean and Helena are married under the regime of separation of property, it’s important to know that these contributions will be part of the family patrimony or property covered by the marriage contract in the event of divorce or death.“

“Once the sale is finalized, Pierre-Jean will need to take the time to set up a disbursement plan with his financial planner. Taking into account his existing RRSP and TFSA, as well as his dividend income combined with government retirement benefits (Quebec Pension Plan and Old Age Security), he will need to determine the order of disbursement of the accumulated amounts to reduce his tax bill, and decide whether he should opt for income splitting with his spouse,” concludes Guillaume. “As for the inheritance that Pierre-Jean wants to leave to his children, it could be beneficial to compare insurance products. The life insurance already held by his company will enable him to maximize the eventual transfer to his children. Pierre-Jean could also consider a gift inter vivos, or even a trust, to ensure that he leaves as much as possible to his children, without compromising his retirement.“

A final recommendation from Guillaume concerns the review of Pierre-Jean and Helena’s legal documents. “Since they haven’t been reviewed for ten years, it’s time for the couple’s protection mandates and wills to be reviewed and updated, especially following the sale of the pharmacy. Life changes can happen quickly, and it’s very important that these legal documents reflect each person’s current wishes. To this end, an estate balance sheet would make it possible to assess the legacy options for his beneficiaries and adjust them to each person’s particular reality.“