Medici Capital > Articles > Succession Planning: maximising financial and personal satisfaction

Article By:

Frank Sirianni

Succession Planning: maximising financial and personal satisfaction

Wednesday, 25 July 2007

With a significant number of current pharmacists estimated to be over the age of 50; the next ten years will bring about many challenges for pharmacy. The consequent change of owner to a younger generation of pharmacists will, without a doubt, expose the value of succession planning. For many, a succession plan enables the protection of assets and use of business equity to formulate and implement a retirement strategy.

Succession planning refers to the process of progressively transferring ownership and control to another generation of owners. In essence, it aims to promote a win-win situation for vendor, entrant and industry as a whole. Correctly managed, and with the right parties, it leads to improved values for the retiring owner and reduced risks for the incoming partner.

The first step is to carefully examine your personality and ability to implement a succession plan. Can you work with others? Can you delegate? Is control critical to you? Whose business is it?

Another key question: Is the business of a sufficient size to support the partners through the transition period?

At Medici Capital each succession plan is developed and tailored to suit the objectives of the prospective partners. Every process is different.

Ultimately it's a process not an event and requires careful execution of a number of steps. It also must be tailored to the objectives of each partner; new and old.

Rational and objective decisions must be executed through a set of orderly steps. 90% of the process is social or lifestyle based and unrelated to financial matters. Approximately 10% relates to financial and legal matters. It is more likely a succession plan will run into difficulty because of cultural (i.e. differences in management style and work ethic) conflicts rather than financial.

The steps used by Medici Capital include:

Set objectives and key milestones (including timing);
Preliminary discussions and preparatory meeting;
Individual meeting;
Mediation and group meeting;
Evaluation and business succession plan;
Testing and independent advice;
Change process; and
Implementation and monitoring.

"A successfully implemented Succession Plan inevitably leads to better outcomes for both the retiring and succeeding partner".

For the Vendor a succession plan versus outright sale may result in reduced risks, overall achievement of higher values and economic returns, and a planned transition from ownership to fulfilling retirement.

For the successor, the incoming partner, a succession plan versus purchase may result in Access to a larger pharmacy than could otherwise have been afforded, transition into ownership and transfer of management skills, reduced business ownership risks through mentorship, and guaranteed transfer of goodwill without the risk of loss of personal goodwill.

Medici Capital has completed detailed financial analysis which demonstrates that succession is financially beneficial to both the buyer and the seller. They are both initially better off and they become much better off in overall wealth terms by opting for a transitional process. While the risks may be higher, well planned and managed the benefits of this process warrant the serious consideration of succession as an option.

Succession relies on management of transition from previous owners to new. It is important that it is managed harmoniously and with the minimum disruption to the pharmacy, its customers, and staff.

Appropriately managed, it drives growth and opportunity and leads to better business outcomes. It also harnesses the value and resources of the pharmacy to achieve a true win-win outcome for buyer and vendor; entrant and exiter.

Succession planning will be an increasing aspect of pharmacy ownership for the next decade. While driven by industry structural and capital requirements, it is also fed by the need for most people to have 3-5 years to prepare and create substantial interests outside pharmacy and achieve a fulfilling retirement.

If you're looking for a partner, call Medici Capital 03 9853 7933.