Buying a pharmacy for the first time is a significant milestone for any professional pharmacist, fraught with a new set of challenges and considerations that you would not have encountered before. There’s a big difference between working in a pharmacy as a pharmacist, and then taking the leap into ownership. We’ve talked about pharmacy valuation and partnerships before, so this time, we’ll look at those issues that are specific to first time pharmacy owners.
What’s on offer?
How do you find a pharmacy to buy? Many pharmacists employ younger pharmacists as a succession plan, having potential co-owners working in the business and stepping into ownership when the time is right. It’s a great way to develop and mentor a young pharmacist, build trust, and support them as they progress in their career and into becoming a business owner. If you’re not in that situation, there are other ways to identify opportunities to become a business owner. Registering with a pharmacy business broker is a good start, along with seeking advice from trusted specialist professional like an accountant or advisor specialising in Pharmacy businesses.
How much will it cost?
With the risk of disappointing you, the answer is that it depends.
The investment required is one of the biggest hurdles to pharmacy ownership and the reality is that very few young pharmacists can afford to buy a pharmacy outright. Pharmacies can represent significant dollars, with an entry-level pharmacy costing between $1 to $2 million, mid-level between $2 to $5 million, and high-end pharmacies attracting upwards beyond $5 million, depending on their size, location and operations. This makes partnership a practical and often necessary step compared with trying to secure funding alone.
While finances are a significant part of your decision, focusing solely on money can lead to disaster. Assess the current culture and operational processes. Ensure your visions and goals are aligned. Are you a good fit? Can you contribute positively to the existing dynamics? Is the business and commercial arrangement right for you and your lifestyle?
The partnership path
Entering a partnership is the next logical step. It’s not just about pooling resources but also sharing responsibilities and expertise. The initial conversations and communications are critical. Terms must be clearly outlined to prevent future disputes including understanding the process and your commitment. Partners need to discuss how they will secure and service the loan, which might be secured against personal assets like a house, the business itself, or a combination of both. Getting your partnership agreement right is the key.
A well-drafted and considered partnership agreement is the foundation of a successful partnership. This agreement should clearly state the obligations and responsibilities of each partner. Especially as a young professional who is taking the leap into ownership, you should be thinking about questions such as:
- Are you a partner with significant influence on decision-making, or are you essentially a well-paid employee?
- What happens if a partner wants to leave the partnership? Can they sell their share? If so, at what price and to whom?
- Will you be prevented from owning other pharmacies?
- What will be your role and responsibilities and how will you be rewarded for that role?
Due diligence
When making any significant investment, undertaking appropriate due diligence is essential. If you are entering into a partnership, then you’ll need to cover the due diligence of the pharmacy business and the pharmacists who own it. The types of activities to undertake in this exercise may include:
- Understanding the financial health of the business by reviewing financial statements for at least the past three years.
- Look at the revenue sources, profit margins and competition in the area to understand opportunity and risk.
- Evaluate the goodwill of the business. Where does it come from, the location, the partners, nearby medical facilities or other factors?
- Assess the team that runs and works in the business. Look at their experience, stability, culture, values and dynamics. Does it align with you?
- What is the level of security of tenure – does the business have a good lease?
Getting the right advice
As specialists in accounting and advice for pharmacists, it goes without saying that we’re here to help. However, when investigating and assessing pharmacy ownership, you’ll need to bring in a range of experienced advisors to support you. Here are our recommendations of who to include and why:
- Accounting advisors to analyse financial statements and forecasts. We also know and understand the sector, legislative and legal requirements and the impact that these have on revenue streams and growth opportunities. We understand and benchmark individual pharmacy performance, so you will know what looks right and what doesn’t when you are considering purchase options. Your ownership structure is also an important consideration.
- Legal advisors to draft and review the partnership agreement as well as the business sale agreement to ensure compliance with regulations. If you are entering into an existing partnership, you will want to ensure that you fully understand it and the implications. This is particularly important for your role in the pharmacy, your decision-making authority and influence, as well as assessing the risk of your investment.
- Financial advisors or bankers to help secure and structure your loan as well as assess your borrowing capacity.
Your transformation from a job to an owner
Things will change when you become a pharmacy owner. You’ll still likely undertake your ‘old job’ as a pharmacist, but then you will also take on new responsibilities as an owner (not to mention servicing a new loan). If you’re coming from being an employee within the pharmacy, you may have a good grasp of the business operations, which can minimise surprises. However, transitioning from employee to owner means you need to be prepared for a shift in responsibilities and perspectives. How will it affect your relationship with staff and partners in the business?
You’ll now be responsible for the business operations and growth, assessing expansion opportunities, creating and managing relationships in the community and within local health networks. These issues need to be considered in the decision making phase of buying your first pharmacy and worked through over time.
Your future
Buying your first pharmacy is complex process that requires considerable thought. Make sure that in taking the leap, you prepare for a soft landing! By understanding the financial realities, the importance of a well-structured partnership, the need for thorough due diligence, and getting the right advice along the way, you can navigate this process successfully.