Buying Independent Community Pharmacy 101

[Markiv]

I have some question on buying an independent pharmacy. Please pardon me for asking specifics, but I guess it's the specifics that really help towards taking the next steps.

I will be limiting my questions to 5 per one time, so that the answer can be comprehensive and from different people.

Question:
1. What is the best place to search for pharmacies for sale listings?
2. Why should the owner of an existing pharmacy sell his profit making pharmacy? Do they really want to retire or are actually seeing a decline in the business? How do you asses this?
3. How do you rightly asses that a pharmacy under sale is profit making?
4. Say for example - I buy a pharmacy for a million dollars, will an investment of $200K suffice to get me bank loan of the remaining $800K? How do these %'s work?
5. What does a bank look into before lending and what % of amount do the banks lend?

---

Members don't see this ad.

 

[twinspharm]

I have some question on buying an independent pharmacy. Please pardon me for asking specifics, but I guess it's the specifics that really help towards taking the next steps.

I will be limiting my questions to 5 per one time, so that the answer can be comprehensive and from different people.

Question:
1. What is the best place to search for pharmacies for sale listings?
2. Why should the owner of an existing pharmacy sell his profit making pharmacy? Do they really want to retire or are actually seeing a decline in the business? How do you asses this?
3. How do you rightly asses that a pharmacy under sale is profit making?
4. Say for example - I buy a pharmacy for a million dollars, will an investment of $200K suffice to get me bank loan of the remaining $800K? How do these %'s work?
5. What does a bank look into before lending and what % of amount do the banks lend?

I'm not an expert but I own my own business currently and aspire to own my own pharmacy some day.

Questions.

1. I don’t know the best place to look but you can search various websites on the internet or hire a business broker but brokers tend to only assist with larger businesses.

2. The owner may want to retire. They may have a ton of savings and simply don’t need the money. They may want to shift their assets to other businesses or are simply old and in bad health. Owning ur own business puts stress on a person and if ur lets say 70+ u may no longer want this stress.

3. Uh the owner should have his tax documents (schedule C, ect) to show profits. Also he should have detailed records to prove the profits. Don’t listen to how much he says it makes but look at the tax forms, bank statements, ect for the past ten years. If people know they are selling a business they can move assets into that business that year to show a much higher profit. Look at the past ten years and there should be a consistent grown each year. If something looks inconsistent, walk away. There are plenty of pharmacies to buy.

4. 200k down would be enough for a million dollar pharmacy but you need to have credit to get the financing. The owner may finance some of it. If you can’t get the financing you may need a partner or a family member to cosign.

5. Banks will asses how much money the pharmacy makes and give it a value. If they say its work 800k that’s the max they will give u and they will expect money down. u may have to come out of pocket for the difference, (ie if the pharmacy costs one million, you will have to put 160 down plus pay the 200k difference) bc banks give conservative estimates.

Important !!!

Hire an accountant, a consulting firm, and a lawyer to purchase a large pharmacy. The consulting firm will asses if its profitable, the accountant will make sure the profits r legit and not inflated. The lawyer will deal with the transfer of the business to u.

 

[that1guy]

1. If I had a specific pharmacy in mind, I'd walk right in and talk to the owner. If I had a city or region where I wanted to buy, I'd try to find meetings of the local pharmacy associations and network or I'd call wholesalers and talk to the rep in that region. If the location didn't matter, I'd hit the national association meetings. Otherwise, there are some websites with listings, but most of the one's I've seen have outdated info.

2. As far as I've seen the answer is almost always age. The pharmacist has been doing it for 20-30 years and they want to hand over the reins and relax. And usually it's very important that another independent take over...they hate the idea of selling to a chain.

3. If the owner is serious about selling they should be willing to share their financial information with you. Good tools for parsing the financial information are available to NCPA members on the NCPA website. They have numerous financial ratio calculators you can use to dissect inventory levels, cash flow, profitability, etc.

4. If you're financing through traditional bank lending you will need approximately 20% of the loan for down payment. If you're not buying the building, the rest will generally be financed over 5 years. If you're buying the building it's 7 years. (Source: NCPA Ownership Workshop)

5. Banks look at your business plan (you have to make one, even if not a new pharmacy), your credit, they appraise the pharmacy, they look at the pharmacy's tax returns, P&L, balance sheet, leasing terms. They'll also want projections for the next 5 years. (Source: same as above)

 

[twinspharm]

the rest will generally be financed over 5 years. QUOTE]

Really?

I always thought most business loans were taken out over ten years. For a five year loan a substantial amount of you income would be used to pay off the business.

 

[that1guy]

I don't have personal experience with it myself, so that's coming straight from Daniel Strause (http://www.greenwoodsstatebank.com/aboutus/bios/strause.html) who did the banking and accounting lecture at the ownership workshop.

While that does seem like a short time, I think the example of 1mill to buy a pharmacy is on the high side. Still, if you did pay 1 mill for the pharmacy then you'd figure that sales would be about 4 mill, and if you were making 4% margins on 4 mill you're discretionary income, on top of you're 100k salary, would be about 160K. Granted, that still makes things tight, but that's just more incentive to work your ass of and increase your margins.