10 Tips for Buying Your First Pharmacy
Previous blogs we have talked about the issues you need to contend with when buying a pharmacy (So You Want to Buy a Pharmacy? and Pharmacy Partnerships – What you need to Know). For most young pharmacist’s keen on ownership, the most common and likely affordable entry point is buying a share of the pharmacy they work in. Most feel more comfortable buying into a pharmacy and partner up with an owner they already know, where they have worked for many years and trust. They feel it is a safer bet than buying into a partnership where they don’t know the owner or at least not very well. This is more of an emotional decision than a business or investment decision. For young pharmacists about to go down this path, I’ll let you know about some of the matters you need to contend with.
Are you ready to be a business owner?
Being a business owner requires you to change from an employee to an employer. Are you prepared for the sacrifices you need to make? The stress, the long hours and the problems you need to deal with. You need to transform from an employee to a business person. Learn how to be a leader and how to lead a team. Make sure you really understand what it takes to be an owner of a community pharmacy in today’s market.
Be certain on what changes you want to make and how you will grow your investment.
Investing in a pharmacy is no different than any other business investment. You’re investing your money in expectation of a certain return and with expectation of growth in the investment. Yet with many pharmacies earnings dropping and with many pharmacies values declining, how sure are you that your investment will grow? Don’t assume it will. Many have made that mistake before. It is important you note here. You don’t have to do this. Be certain you can make the necessary changes required to grow the business and your investment.
Advice from industry advisors
Get advice early from a specialist pharmacy accountant or other bank panel pharmacy valuation experts. This is to understand if your potential investment in the pharmacy is below, equal to or above market values. This is an important step that you must seek advice on early in the process. If you are paying a premium for example, paying above market value then you must be very certain of the points I raised in point 2 above.
What is your investment and borrowing limits?
It is important you understand your borrowing limitations and investment limits. Most banks will need you to demonstrate you have the capacity to comfortably meet the loan repayments and have the required security. To meet the repayments, you need to show you have a comfortable surplus once you deduct tax and loan repayments from your drawings (note what you can draw down from the business and your share of the profits of the profits of the business are different considerations). You also need adequate security. Most banks will secure between 70% and 80% against the market value of the business. You need the ability to provide cash or use some other asset as security for the remaining 20% to 30%. Do your homework beforehand and understand what your capabilities are. Make sure you contact us and we can connect you with the best pharmacy specialist bank managers and finance brokers.
Have your own advisers and get your own advice.
It is important at this stage you have your own independent professional advisors to assist you. You should not be getting help from the lawyers and accountants who also represent the current owners, as you may not be getting truly independent advice. We are very experienced at assisting pharmacists into their first purchase. We also have access to a range of lawyers who specialise in pharmacy. Make sure you call us if you need help.
Think before you sign.
The most important thing of all, is don’t sign anything until you have received proper advice. Have everything structured and set up properly before you sign any agreements. Once you have signed legal documents, to then go and make changes will very, very costly and time consuming.
The right structures in place.
Speak to your pharmacy accountant to make sure you have the right structures in place before any sale agreement is drawn up. If you have your own name on the sale agreement to go and change it may incur double stamp duty.
Listen to your lawyer.
Your lawyers will assist with the sale agreement, assignment of lease and partnership agreements. Make sure you listen to their advice before acting.
Pre-purchase investigation
Most sale agreements are subject to a due diligence, meaning you and your advisors undertake a pre-purchase investigation as a condition of the sale agreement. This gives you and your advisors time to investigate the books of the business so you are sure about what you are buying.
Proper Partnership and succession agreement in place.
The last major consideration is ensuring a proper partnership agreement and succession agreement are in place. Again, your lawyer and accountant will assist you here. Do not under estimate this process. It is vitally important and in my experience one day you will be thankful you went through this process and made sure these documents are in place. We don’t have enough space here to discuss what these documents are and the benefits. That will be a topic for another blog.
This is an important process.
It is an exciting and nervous time. The best thing to do is ask questions and get the right advice early, before you sign anything. Don’t make the mistake of others and be pressured into anything or think this is the only opportunity you will get. You are about to invest a substantial amount of money. Be careful and find the right support.
Getting the right advice early with the right support will help you through this process. It could potential save you from making expensive and costly mistakes you will later regret. We are experts in pharmacy and have assisted many young pharmacists into their first pharmacy ownership. Come and talk to us and receive the right advice.
