Healing a pharmacy

Bryan Simms of Lehman Brothers arrives one morning from New York City, sporting a shaved head and pin-striped suit. He draws more than a few stares from the old men sitting on a low brick wall at the bus stop. He makes his way to the pharmacy and gets to work.

"You have three options," he explains to Edloe. "You can keep the business, grow it by acquisition, or divest yourself." The hardest part of succession planning, Simms says, is making the decision to sell. Edloe is no exception. "My father worked hard, and he had more obstacles and fewer resources than I did," he says quietly. "Am I taking the easy way out?" At the same time, he admits to being tired: "This is physically and emotionally too much." He is thinking of the past year of slow reimbursement, mounting bank debt, and long hours. "Yesterday I filled 224 prescriptions myself, and I realized how burned out I am."

Simms gently steers him toward a conclusion. "You've done your job, Dr. Edloe, creating significant brand and presence," he says. "It's time. You can honor your father's legacy by maximizing the company's value." Edloe nods thoughtfully and admits that he doesn't want to be doing this in five years.

Yet Edloe is loath to sell his stores to a chain, the obvious buyer. He would like to see them preserved as independent, minority-owned pharmacies. Other African-American pharmacists have expressed interest in buying, but talks have always stalled over price.

That's because there is no clearly established value for the business, Simms explains. Setting a good price requires a professional valuation firm to comb through the company's financial history. Edloe can then respond to interested buyers with a documented value based on comparable businesses. Also, he should start planning for that sale at least a year in advance.

"The further away you can start to plan, the better you can manage tax ramifications and post-sale issues," Simms says. For example, income tax can go as high as 50 percent, while state and federal capital gains top out at about 25 percent. "The trick is for the post-sale income to be taxed at the capital gains rate," Simms explains. In other words, taking a lump sum is better than continuing to draw from the company payroll after the sale.

Another issue is share value. Shares held by the entrepreneur can be eligible for IRS discounts if they are given as gifts to family or trusts, Simms says - but only if Edloe transfers the stock before a company value is officially established. Timing, Simms explains, is everything when maximizing the company's value.

Going through the makeover process made Edloe examine his business more carefully. He recently stopped giving prescription discounts to patients accustomed to paying pre-Medicare Part D prices. "I still want to help folks," he says, "but I can't save the world." Now, he says, everything he sells is profitable.

But the best news, for Edloe, is that he is talking price with a potential buyer. A pharmacist who formerly worked for him is interested in finding partners to help her buy the business. Although Edloe won't divulge the number, he says she believes she can raise the money to meet his requested price.

Whatever the outcome, Edloe hopes that the pharmacy he worked so hard to build will live to see another half-century of change in Richmond.