From evaluating financials to finding the right loan, here are the basics on financing a pharmacy.
There’s a lot you need to consider before deciding on the right business loan for your pharmacy. Our guide examines how you can find the right pharmacy to buy, how much it costs to buy and run a pharmacy and how to find the right business loan to fund your purchase.
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How can I finance the purchase of a pharmacy?
Banks, credit unions and online lenders can provide the money you need to purchase a pharmacy. However, it’s not just as simple as filling out a quick application with your personal details and the amount you want to borrow. You’ll need to prepare a detailed business plan to prove your reliability as a borrower.
The lender will want the following details:
- Earnings and profit margins of the pharmacy
- Sales performance
- Sales and cash flow forecasts
- Your qualifications and previous experience
Your accountant can run you through the process of developing a detailed business plan and loan application to help you find the financing you need.
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What factors should I consider when buying a pharmacy?
The first step to take when buying a pharmacy is to determine how well the business runs and the reasons you should make the purchase. These are the main points to keep in mind when examining a pharmacy you’d like to own.
- Business history. How long has the pharmacy been in business? Does it have a solid base of loyal customers?
- Business performance. You’ll need to review the pharmacy’s financial performance in previous years to gauge how it’s performing. Check previous profit figures and forecasts for the future. Is there room for growth?
- Your experience. While it’s not necessary to have previous experience running a pharmacy to qualify for a loan, previous management experience is a must.
- How the industry is faring. Changes in regulation from the federal government and your state government can have a significant impact on the profitability of your pharmacy. Keep ahead of the changes in the healthcare industry to ensure you’re making a good purchase.
- Understand why the current owner is selling. Find out why the current owner of the pharmacy is selling. Retirement or moving to a new area may be a reason for the owner to sell, but so could low business or high overhead costs. Understand the situation of the owner before you start the sales process.
- Location availability. Finding a local pharmacy for sale can be difficult if you have a certain area in mind. Although there are over 20,000 independent pharmacies open in the US, not all of these will have that coveted For Sale sign in the window. The business your looking at should be in a good location for you and your customers to increase your profits.
How much will buying a pharmacy cost?
The purchase price of an independent pharmacy usually ranges between $1.2 to $1.4 million. The final cost is influenced by a number of factors, including the size of the business, equipment, the number of employees and the types of products the pharmacy sells.
To get a more accurate idea of just how much a pharmacy is worth, contact an accountant or business broker. They’ll be able to examine the business’s strengths and weaknesses to help determine a fair value. When determining your purchase price, look at the following points to get the best deal:
- The business’s financial statements
- Both physical and liquid assets
- Any current leases on property or equipment
- Local and national market conditions
- Information about sales
- The current owner’s business plan
- Details about the employees and suppliers
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What are the ongoing costs of running a pharmacy?
The upfront costs aren’t all you’ll have to worry about. Beyond regular bills and rent costs, you’ll need to have the revenue to cover these common costs.
- Equipment maintenance and replacement. Maintenance of your equipment is critical to running your pharmacy, and if you’ve purchased a business stocked with older equipment, you may need to factor in the cost of new equipment when you take over.
- Employee salaries and certifications. Your staff needs to get paid and remain certified by the relevant state and national boards. You’ll need to make sure they’re taken care of before you can turn a profit.
- Drug supplies. Both prescription and non-prescription medication need to be restocked fairly often. Keep a running tab on what you have and what you need to purchase, and always have money set aside to pay for the medications that keep your store running.
- Inventory. Many pharmacies sell more than just medicine. You’ll want to keep your shelves stocked full of things like beauty products, toiletries and snacks.
- Insurance. You’ll need be sure your businesses is covered by insurance. For pharmacies, this is a cost that you need to consider to keep your doors open.
How can I ensure the pharmacy is worth buying?
No one wants to take out loans and saddle themselves with debt only to find the business venture hasn’t been worthwhile and isn’t paying off. Before you sign those purchase agreements, take a look at these factors to get a good idea what you should expect when you take over command.
- Financial position. Cash flow statements, profit and loss statements from the past five years, debts and annual turnover all show how well a pharmacy is doing financially. In addition, you should also consider any assets the pharmacy owns as these will likely be passed to you during the final sale.
- Business features. Is the pharmacy part of a franchise that restricts how it operates? Does the retail space have all the necessary fixtures and equipment? What does the pharmacy sell apart from medications to ensure that it continues to turn a profit? These play a role in how much you can expect to make per month and per year.
- Location. Location is a crucial factor in the success of any business that operates in the retail sphere, so consider the pharmacy’s location and how that affects its ability to attract customers.
- Employees. How many people does the pharmacy employ and what qualifications and experience do they have? Consider how much they’re paid and the morale of the workplace. The success of your business is in their hands for the first few months, so make sure your staff are knowledgeable and dependable.
- Suppliers. What supply agreements does the pharmacy have in place? Are they adequate, or can you adjust them to suit your needs? How many prescriptions does your pharmacy fill each month as reported on the Prescription Pricing Division statements (FP34s)? What does it sell beyond prescriptions? You may not be able to negotiate a new deal right away, so know how and when your pharmacy restocks its supplies is crucial to running your business.
Check out our guide on buying a business for more tips
Bottom line
Buying an existing pharmacy may be a lot of work, but the payoff can be worthwhile if you’re looking to become the owner of a reliable business. Make sure your business plan is solid and the pharmacy you’re looking to buy is financially stable, and don’t forget to browse your business loan options to finance your pharmaceutical venture.
