5 key considerations when buying a pharmacy

This article is written for the acquisition of pharmacies however, the principles apply to the acquisition and potential future success of any business. Buying a pharmacy can be a life changing experience, so carefully consider your situation and the below tips to ensure you are making the right purchase for your personal circumstances. To get the best understanding of the below tips make sure to surround yourself with great, industry specialist advisors (accountant, lawyer etc) and avoid at all costs the unskilled advisors (suppliers, well-meaning family members etc) who are, with best intentions, always willing to offer free unsolicited advice.

Turnover is much harder to grow than most people believe when purchasing a pharmacy business. We are all hopeful and often go into business fuelled by the excitement of what can happen which is a great way to be however, there is no silver bullet when it comes to growing turnover. Growing turnover is highly possible however, it is a lengthy process so before you commit you should always assess whether the current level of turnover will allow you to cover your costs and expenses.

Fixed Costs are the costs which are unlikely to change and which you have little to no ability to influence. You must be able to carry these costs ongoing otherwise it will be impossible to have a successful business. A perfect example of this is your rent – your lease is essentially a contract between yourself and your landlord. Your landlord is to provide you with a premise from which to conduct your pharmacy business and, within reason, this is where their obligations end. The ongoing performance of your pharmacy is not your landlords concern and they will rarely carry an obligation to provide you with assistance or support so you must make sure you can sustain the full rental on an ongoing basis.  

Variable Costs are a great area to improve the profitability of your business without impacting your customer experience. Firstly, focus on the areas that genuinely have no impact on your customer experience – electricity, phone & internet, merchant fees etc. These variable costs are frequently overlooked as they seem like small expenses in the scheme of pharmacy however, they can quickly add up to big savings. When reviewing any pharmacy for sale make sure you check these as they can be easy wins for you in the early days.

Trading Cash or Working Capital is by far the most important consideration when buying a pharmacy. Assuming the business is independently profitable you still need to provision for your expenses and should carry at least 3 months of operating expenses in a separate account to manage any cash flow speed bumps along the way. It is completely normal for a profitable pharmacy to lose money in certain months due to the timing of busy periods vs the need to pay suppliers, consultants and other business expenses.  

Risk and Competition are the other key area of consideration for any pharmacy purchase. Competition isn’t necessarily a bad thing; you simply need to consider the risks associated with the current and potential future competition and apply the same to your negotiations. E.g. If no major discounter exists in the area you are considering purchasing you should to consider the ease in which a major discounter could enter the competitive environment and the likelihood of that happening.

Buying your own pharmacy is a wonderful opportunity to be the master of your own destiny and you are right to be excited. The advice in this article is intended to provide you with some simple framework to help you to make an informed decision. At all times make sure you surround yourself with experienced, expert advisors and listen to their advice carefully to ensure you are buying the right pharmacy for your situation.

– Robert Whelan, Managing Director at AP Group

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