FPP Blog: The Process of Buying a Pharmacy

Blog Post

Date: 15 November 2019

The biggest decision in any ambitious pharmacist’s career will be the first pharmacy purchase. Not only is it the biggest investment decision they will make, bigger than the family home, but also is associated with the biggest debt and the greatest risk. Of course, this typically comes at a time when the pharmacist may not be cognisant of financial decisions, debt structuring, legal entities, business strategy, leadership and all the other issues business owners must deal with. Mistakes can be expensive, but the opportunities can be grand.

To help the first-time buyers, the Future Pharmacy Program will present a series of blogs all associated with the buying process. There are lots of issues you will encounter, and lots of steps you must go through. But if you are careful, diligent, and methodical with the right team, you can negotiate your way through this process and become the owner of a community pharmacy and be front and centre with improving people’s health.

Of course, many topics that we will discuss below are complicated and involve a lot of issues. Therefore, we are limited with the amount of content with some steps in the process. However, we will endeavour to cover these in more detail in future blogs.

1. Family

This often overlooked, but the most critical. This is not just about you. Your significant other will be just as emotionally invested in this as you will be and will be your support when times are tough. And trust me, times will get tough. Do not underestimate how hard pharmacy ownership life can be. Family support is everything here. Make sure you have the blessing of your significant other and discuss the impact this will have on your personal and family life.

2. Strategy

Modern day pharmacy is a competitive industry. And it is constantly evolving. Before you borrow a substantial amount of money with the family home on the line, you must spend time on what type of pharmacy you want to run. Metro, regional, medical centre, small shopping centre, large shopping centre, retail-based, discount, high-service model? What type of products and services do you want to provide? What community health problems do you want to address? You must give this some thought before you launch into anything further.

3. Network of Advisors

It is unrealistic to think we can all happily negotiate and deal with all the tax, legal, structuring, buy/sell agreements, lease agreements, finance agreements etc on our own with a reasonable degree of competency. There are some high-level complex issues that require attending to, and for that you need your key advisors around you to help advise and guide you carefully through this critical stage. We would strongly advise you get your network organised early before you start looking and signing legal documents. The worse thing you can do is sign a legal document and then seek advice. By that stage to rectify anything will be expensive and time consuming.

As a guide, these are the key advisors you need. Note here, all must be pharmacy experts and your own advisors.

  1. Accountant
  2. Lawyer
  3. Bank Manager and/or finance broker
  4. Financial Planner

Ensure there is no conflict of interest with having your advisor looking after both parties. Also, it is very dangerous to seek advice from anyone who doesn’t intimately understand this industry. It is rather unique. If you’re ever unsure who to engage, speak to the Guild and they can refer you to some trusted advisors who specialise in pharmacy.

4. Get advice of Legal Entity Structures

Sometimes when the right pharmacy comes along that you want to buy, you need to move quickly and swiftly. If you are serious about buying a pharmacy, then go see your accountant and discuss what legal entity structures would suit your situation best. This does require careful consideration and is not something that should be rushed. We won’t go into this topic in detail here as it is very complex and involves a lot of issues. The best tip here is ensuring whatever legal structure you use, that it is “pharmacised”, meaning it meets the Pharmacy Boards requirements. Have these legal entities set up correctly before you get serious.

5. Get Advice on Funding

It is vitally important you understand the general bank pharmacy funding frameworks, particularly around security and affordability. Do you know what size of pharmacy you can afford to buy, and more importantly get funding for? Pharmacies can range from below $1m to above $10m. Most banks have pharmacy specialist relationship managers who will be happy to discuss this with you. Similarly, there are also a few pharmacy specialist finance brokers who can do the same. Once you know the size of pharmacy you can start looking at, it is time to go “shopping”.

That is where we will leave this blog. Next time we will go through how to find opportunities, sale agreements, due diligence funding, valuations and much more.

Above all, make sure you seek advice early from a pharmacy specialist. Be careful, don’t rush things, and listen to your advisors.

Written by John Thornett, Director of Peak Strategies.

Every effort has been made to ensure that the information and/or advice contained in these pages are free from error and/or omission. You should seek your own advice prior to acting on any information contained within these pages. No responsibility can be accepted by the Pharmacy Guild of Australia or its employees involved in the preparation of these pages for any claim which may arise from a person acting on information and/or advice contained herein.

Contact: Lyndsey Mead
Phone: 08 9429 4100

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Page last updated 15 November 2019