Family-based pharmacies need strong financial planning

Family-owned businesses possess many strengths, such as their ability to look at the long-term development of their operation and align interests between management and owner.

This is especially true of “owner-operator” structures often seen with independent pharmacy operators. However, owner/operators also face some challenges, such as how to objectively evaluate performance and capabilities and how best to ensure talent development within the family.

In some cases, families – despite having a common base to build on and often working together day-to-day – find it difficult to conduct conversations among themselves about important financial issues. It’s very hard to disconnect emotions and be fact-based and objective in a family business. Therefore, obtaining some external impartial support can be a source of great assistance.

According to the Family Firm Institute, 70% of family businesses will not survive into the second generation and 90% will not survive to the third generation. As well, a Canadian Business Insights study from 2021 found that "only 34% of Canadian family businesses have a robust, documented and communicated succession plan in place."

Succession planning for family-owned pharmacies need not be a frightening prospect.

Here’s how you can plan for success:

Not a one-off succession plan

The first thing to understand about succession planning is that it is not a one-off exercise, but rather a way of managing the family business professionally during the business’s lifetime. In addition, this is not only about succession at the top, but throughout your entire operation. The same issues appear across the business on all levels. Having adequate processes in place is necessary for all family-owned businesses.

Start early

Engaging family to determine their personal aspirations and wishes is no small feat. It takes time and rarely proceeds in a straight line. It’s important to start early so the family’s collective goals and values can percolate over the years and lead to a broadly accepted family vision. In multi-generational family businesses involving various branches, it’s crucial to encourage full participation of the entire family or representatives of the various family branches. Family meetings can be a productive way to promote communication, cooperation, and, most importantly, trust. Creating a board of family advisors might be a good idea. Emotions can run high when dealing with family issues. Holding regular “check-ins” can help manage the emotions around succession planning.

Prepare for your business transition

Comparing internal factors that a family can control versus external factors that are beyond a family’s control helps the decision-making process. Internal factors within the control of the family are: the corporate structure (including the current shareholders agreement), culture, employees, business profitability, and access to financing. External factors include changes in competition, technology, market demand, and public policy. By blending both internal and external analysis with family member communication, it should become clear whether your family should keep the business in the family or consider selling. The family should set out steps and milestones within the framework of a strategic plan.

Prepare for your personal transition

Succession planning tends to focus on technical aspects like tax and estate, while insufficient attention is paid to planning for lifestyle balance and building a new identity post-succession. Only in hindsight do many owners realize the impact that succession of the family business creates. Inevitably, leaving the business can create a void. Some owners even haunt their former restaurant, never quite yielding control to the next generation, and, in some extreme cases, may actually disrupt the succession plan they put in place. Take the time to create your personal post-succession life plan.

Work with the right team of advisors

Given the generation-to-generation nuances of a family-owned business, choosing the right type of support is critical. Typically, succession planning issues appear across generations, so it’s useful if you already work with a trusted advisor, with that trust spanning across multiple generations of family members. Your trusted advisor can head up a larger team of specialists (such as an accountant, lawyer, banker and insurance broker) skilled in succession planning itself, but also in related key areas such as talent and career planning, skills development, governance, communications, and role definition across the generations.

Quick tips to plan for transition

• Establish timelines to keep on track.
• Set milestones for achieving goals.
• Keep your succession plan up to date.
• Review your plan at least once a year to reflect changes.
• Prepare a communication plan to notify your successors, staff, suppliers and customers of your succession plans.
• Work with professional advisors.