Buying A Pharmacy: A How To Guide
As you will now see, a how to guide to buying a pharmacy will not read like any other business. A pharmacy business is not like any other, so therefore, the buying process will also be unique.
While this is by no means comprehensive, this will hit upon the main points and show you how best to prepare for the journey of buying a pharmacy business.
Why do you want to buy a pharmacy?
Think long and hard about this. Are you willing to put in long hours, putting up with stressful situations, and having the financial burden of a six-figure bank loan hanging over your head? And do you have an idea of how you will grow and develop a business you are taking on? Remember, this won’t be as easy as being an employed pharmacist or a locum pharmacist – and if you see buying a pharmacy as merely a route to just “being your own boss” you may need to re-consider your decision.
Do your research
Be prepared to look outside of your current area to find the right pharmacy, so that means you may have to do some networking and/or sign up with some pharmacy agents in order to maximise coverage. Don’t just jump into a deal with the first person you find and always look into the reason why they want to sell up. Just think to yourself, if this was my business, why would I want to sell my pharmacy?
Get the bank on board
Now, you are probably aware of the prices involved in buying a pharmacy and chances are if you don’t have half a million lying in the bank you will probably need to borrow the money. Luckily, the banks consider buying a pharmacy as a good risk. Just be prepared to have to hire an accountant (preferably one that specialises in pharmacies) who will prepare a business plan for you. And once you have a loan secured, you should hire a solicitor to go through the lengthy list of terms and conditions of the loan with you.
Due diligence is key
Its one thing to see the turnover and profit margin, but before you get excited and jump in with an offer, make sure you see the accounts of the business. The old “pence in the pound” based valuation system is now obsolete, so you will then need to have a calculation of the “true net profit”. This is the gross profit, minus the overheads which are necessary to keep the business running, and it is then multiplied 5-7 times to give a final valuation. Again, you will perhaps need some expert help to help with analysing the numbers, i.e. from the bank manager or an experienced pharmacy agent.
However, bear in mind, some pharmacies may hold a premium value which are dependent on a number of factors, so it could fetch for even higher than this.
You must also take into consideration how the business is performing and what it means for your financial situation when you take it on. Is it an efficiently-run, over-performing machine? Or is it untidy, poorly run and surrounded by competitors running at full-tilt? This may seem counter-intuitive, but it may be better to go with a pharmacy which matches the second description, as there could be a good opportunity to grow the business, improve the turnover and subsequently pay off the bank loan quicker.
Making an offer
Now, at this point, you’ll have done your research, seen the potential for growth and have a good idea for how much you want to offer.
The main things you want to consider though are if you are also taking on a lease of the premises and will continue paying rent to the owner, or are taking ownership of the premises(freehold). And if you are looking on acquiring ownership of the premises, just ensure you have it independently valued to get a good deal.
Also, when making an offer make sure its clear that you are in discussions with your lender and have solid financial backing – this is especially important when you are in competition with other buyers. And try anything you can to stand out from the competition – you could perhaps offer to pay a bonus to the existing staff after the deal has been completed.
Now, while this was a fairly short buying a pharmacy how to guide – the whole process will not be short and simple. There could be many stumbling blocks and obstacles along the way, and you may find offer after offer rejected – only to have an offer many months down be unexpectedly accepted. Don’t let this put you off though, just remember to do your due diligence, hire the appropriate expert advice and make an offer based on what makes good business sense.
I hope that gave some useful tips and makes the journey to buying a pharmacy smoother, please contact me and let me know how you get on!