Opening a Pharmacy Vs Buying Existing Pharmacy: How Much?

[Sparda29]

What's the cost of opening your own pharmacy vs buying an existing pharmacy that does say (300 scripts/day)?

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[PharFromNormal]

If you have to ask, you can't afford it.

 

[Sparda29]

If you have to ask, you can't afford it.

No I have potential investors (50% will be family who will just loan me the startup money and I pay them back interest free).

 

[PharFromNormal]

No I have potential investors (50% will be family who will just loan me the startup money and I pay them back interest free).

Sounds like a good gig for yourself... probably a bad one for your family. Taking on massive financial risk for best case of 0 financial reward.

 

[BF7]

What's the cost of opening your own pharmacy vs buying an existing pharmacy that does say (300 scripts/day)?

I say this in complete sincerity...you are NO WHERE CLOSE to being capable or ready to own a pharmacy by virtue of the fact that you are on an internet message board attempting to collect information that will be the foundation (how much debt you take on) of likely deciding whether or not your are a success or failure.

Your step NUMERO UNO needs to be this:

http://www.ncpanet.org/conferences-events/ownership-workshop/pharmacy-ownership-workshop

 

[BidingMyTime]

There are so many variables, sometimes the established business will cost more (when you are paying for the good name & an already built-up customer base), sometimes it will cost less (the pharmacy has been losing customers over time, the owner wants to sell quickly.)
Sparda, I agree with BF7, based on this and on your other postings regarding this issue, I do not think you are ready to do either one. You need to really educate yourself about this issue (like with the pharmacy owner workshop BF7 linked to), and then you will have a more realistic idea of which way you should do.

 

[farmadiazepine]

The internet is actually a great place to gather this information. To anyone that says otherwise is either really old, or they don't realize how much can be done with the information from the internet nowadays. Keep asking questions and keep finding answers here. Look at Doc M, he's a perfect example of someone who opened up his own place and posts great information all the time.

I don't know you personally, and I really don't think anyone should judge if you are ready or not to open your own place simply by the posts you made online. That's more immature than anything else.

 

[BF7]

The internet is actually a great place to gather this information. To anyone that says otherwise is either really old, or they don't realize how much can be done with the information from the internet nowadays. Keep asking questions and keep finding answers here. Look at Doc M, he's a perfect example of someone who opened up his own place and posts great information all the time.

I don't know you personally, and I really don't think anyone should judge if you are ready or not to open your own place simply by the posts you made online. That's more immature than anything else.

Let me finish this for you " The internet is actually a great place to GATHER UNSUBSTANTIATED STORIES AND MYOPIC VIEWPOINTS ON MANY DIFFERENT ISSUES OR IDEAS THAT MAY OR MAY NOT BE TRUE."

Anyone who is willing to invest even a single DOLLAR based upon information collected via the internet is simply asking for trouble. Pharmacy ownership by Pharmacists is a GREAT THING for our profession; but not everyone is cut out for ownership from a personality standpoint (whether it be one's "bedside manner" or one's tolerance for risk). Those who are TRULY ready for ownership would never even think of asking the question in post #1 because they'd already know the answer.

 

[BidingMyTime]

I don't know you personally, and I really don't think anyone should judge if you are ready or not to open your own place simply by the posts you made online. That's more immature than anything else.

I base my judgement because of Sparda's flightiness (sorry Sparda, but I think its something you need to face and work on before you get your own pharmacy.) Sparda has had several postings about his spur of the moment career and potential career changes which lead me to believe he really doesn't know what he wants to do, not to mention his posting about the possible corruption of one of his backers. Owning a pharmacy is not something one just wakes up and decides to do on a lark (unless they want to lose a lot of money.)

 

[Sparda29]

I base my judgement because of Sparda's flightiness (sorry Sparda, but I think its something you need to face and work on before you get your own pharmacy.) Sparda has had several postings about his spur of the moment career and potential career changes which lead me to believe he really doesn't know what he wants to do, not to mention his posting about the possible corruption of one of his backers. Owning a pharmacy is not something one just wakes up and decides to do on a lark (unless they want to lose a lot of money.)

That guy is not a backer. I don't want to get involved with the dude I was talking about in that thread. I just want to know how much it costs before I start looking into what I need to do and put a business plan together.

 

[Momus]

That guy is not a backer. I don't want to get involved with the dude I was talking about in that thread. I just want to know how much it costs before I start looking into what I need to do and put a business plan together.

$250k bare minimum. Better save up for a couple more years.

 

[HouTX]

why don't you do the business plan first. you'll ask better questions after putting in some work...

 

[farmadiazepine]

Sparda lets open up a pharmacy. I have licenses in both NJ and NY. Worked for a **** load of independents and chains. I live 10 min from the GWB. Let's get rich

 

[Old Timer]

So here is the answer to your question.

Purchase an existing pharmacy:

You will have immediate income. You will also have a payment to the previous owner. Things to watch for are have sales been steady, increasing or decreasing and why. Is there something you can do to change the situation? Is this a growth area? Do you have enough working capital to hold you until you execute your plan to increase sales. Remember at 300 scripts per week and $60.00 average script price and 3% net profit you get (300X60)X52/12x.03=$2,340.00 per month in profit. If you can live frugally enough and use the$2340.00 to pay off the previous owner and there is growth possible this could be the way to go. If you don't have growth you are stuck working 24x7x365 for the same kind of money you would get at your current job. You will purchase his inventory and finance that over the payout (usually 3-5 years).
​

Startup a new pharmacy:

The three most important things here are location, location and location. You have to have location that will attract business and enough working capital to survive until you build your business enough to make a living. While you have no payment to make to the owner, you also have no income to live on. You will have to purchase the inventory from a wholesaler and the payments are over a shorter period of time.​

 

[Reirrac]

So here is the answer to your question.

Purchase an existing pharmacy:

You will have immediate income. You will also have a payment to the previous owner. Things to watch for are have sales been steady, increasing or decreasing and why. Is there something you can do to change the situation? Is this a growth area? Do you have enough working capital to hold you until you execute your plan to increase sales. Remember at 300 scripts per week and $60.00 average script price and 3% net profit you get (300X60)X52/12x.03=$2,340.00 per month in profit. If you can live frugally enough and use the$2340.00 to pay off the previous owner and there is growth possible this could be the way to go. If you don't have growth you are stuck working 24x7x365 for the same kind of money you would get at your current job. You will purchase his inventory and finance that over the payout (usually 3-5 years).
​

Startup a new pharmacy:

The three most important things here are location, location and location. You have to have location that will attract business and enough working capital to survive until you build your business enough to make a living. While you have no payment to make to the owner, you also have no income to live on. You will have to purchase the inventory from a wholesaler and the payments are over a shorter period of time.​

Can you clarify if the monthly profit is calculated after deducting the new owner's pay (approx 100k per year)? A yearly profit of 28k seems quite pitiful.

 

[BF7]

So here is the answer to your question.

Purchase an existing pharmacy:

You will have immediate income. You will also have a payment to the previous owner. Things to watch for are have sales been steady, increasing or decreasing and why. Is there something you can do to change the situation? Is this a growth area? Do you have enough working capital to hold you until you execute your plan to increase sales. Remember at 300 scripts per week and $60.00 average script price and 3% net profit you get (300X60)X52/12x.03=$2,340.00 per month in profit. If you can live frugally enough and use the$2340.00 to pay off the previous owner and there is growth possible this could be the way to go. If you don't have growth you are stuck working 24x7x365 for the same kind of money you would get at your current job. You will purchase his inventory and finance that over the payout (usually 3-5 years).
​

Startup a new pharmacy:

The three most important things here are location, location and location. You have to have location that will attract business and enough working capital to survive until you build your business enough to make a living. While you have no payment to make to the owner, you also have no income to live on. You will have to purchase the inventory from a wholesaler and the payments are over a shorter period of time.​

As a pharmacy owner and someone who has purchased an existing store, I can tell you that any store doing 300 rxs PER WEEK (300 per day is a GREAT business) isn't worth purchasing...90-100 rxs daily is the BREAK EVEN point which constitutes taxes, over head expenses, supplies and any loan payments. The average Gross margin PER RX is around $11.50. (this example $690 gross profit per day--$179K over your drug costs.) Again a store like this isn't even worth purchasing. it simply won't CASH FLOW. There are examples of Pharmacies who are profitable but go out of Business due to cash flow issues....your drug wholesaler requires payment every 15 days...the insurance companies pay you every 25-34 days. You must have cash on hand to pay your bills--minimum of $50K and you'd need access to a credit line. With sales numbers like those listed above, you are not going to get approved by a bank for a single DIME.

 

[Old Timer]

As a pharmacy owner and someone who has purchased an existing store, I can tell you that any store doing 300 rxs PER WEEK (300 per day is a GREAT business) isn't worth purchasing...90-100 rxs daily is the BREAK EVEN point which constitutes taxes, over head expenses, supplies and any loan payments. The average Gross margin PER RX is around $11.50. (this example $690 gross profit per day--$179K over your drug costs.) Again a store like this isn't even worth purchasing. it simply won't CASH FLOW. There are examples of Pharmacies who are profitable but go out of Business due to cash flow issues....your drug wholesaler requires payment every 15 days...the insurance companies pay you every 25-34 days. You must have cash on hand to pay your bills--minimum of $50K and you'd need access to a credit line. With sales numbers like those listed above, you are not going to get approved by a bank for a single DIME.

He has family financing. It also mean he has some income and also a payment. Opening from scratch means you need more cash flow up front. It also depends on why the store is doing 300 per day and if there is potential to increase. It's the same calculation you make opening from scratch except you start at zero per day. So it all depends on the location, the business, the and business plan. You could open a new store and never make it to 300 per week and go bust. There is no right or wrong answer here. It just depends on the location and the numbers. And obviously 300 per week is not sustainable.....

 

[BF7]

He has family financing. It also mean he has some income and also a payment. Opening from scratch means you need more cash flow up front. It also depends on why the store is doing 300 per day and if there is potential to increase. It's the same calculation you make opening from scratch except you start at zero per day. So it all depends on the location, the business, the and business plan. You could open a new store and never make it to 300 per week and go bust. There is no right or wrong answer here. It just depends on the location and the numbers. And obviously 300 per week is not sustainable.....

To open a new store:

1) Buildout of interior space of leased premises:
$60-75K

(if you have a clean room you're looking at adding between $50-75K more)

2) Lease..you're facing a minimum 5 year commitment and you have to sign a PERSONAL GUARANTEE which in some states means you lose EVERTHING to creditors if you can't pay your bills.
--avg space 2200 sq feet= about $2500-5000/mo x 60 mos = $300,000

3) Drug start up inventory--~$100K--(wholesaler will generally give you this up front via credit line)

4) Pharmacy computer system and point of sale ($15-25K), security cameras/alarm ($7K), phone system ($5K)

These are the MAJORITY of the MAJOR expenses involved in starting a Pharmacy from scratch......


He's looking at $100-$125K short term debt and about $400K in long term debt.

IF his family is foolish enough to give him even "50%" his short term debt when he's posting questions like he did in post #1 of this thread they'd be better off setting it on fire........

 

[Old Timer]

To open a new store:

1) Buildout of interior space of leased premises:
$60-75K

(if you have a clean room you're looking at adding between $50-75K more)

2) Lease..you're facing a minimum 5 year commitment and you have to sign a PERSONAL GUARANTEE which in some states means you lose EVERTHING to creditors if you can't pay your bills.
--avg space 2200 sq feet= about $2500-5000/mo x 60 mos = $300,000

3) Drug start up inventory--~$100K--(wholesaler will generally give you this up front via credit line)

4) Pharmacy computer system and point of sale ($15-25K), security cameras/alarm ($7K), phone system ($5K)

These are the MAJORITY of the MAJOR expenses involved in starting a Pharmacy from scratch......


He's looking at $100-$125K short term debt and about $400K in long term debt.

IF his family is foolish enough to give him even "50%" his short term debt when he's posting questions like he did in post #1 of this thread they'd be better off setting it on fire........

So if the 300 script a week store has the potential to increase it would be better to go that route. Now whether, Sparda should be doing this is not my concern. He asked for the pros and cons of both and between you and I he got them. What he does with that information is up to him....

 

[BF7]

Here's a store for sale:

http://www.bizquest.com/buy-a-busin..._name=searchagent&_cv_scope=2&_cv_value=hocsa

 

[BF7]

Can you clarify if the monthly profit is calculated after deducting the new owner's pay (approx 100k per year)? A yearly profit of 28k seems quite pitiful.

Net profit is what you'd make as the owner...not as a working RPh. That salary is paid from the gross profit (which is your DRUG AQ cost subtracted from the amount that you are paid for dispensing those medications--90% of which is determined by PBMs).......if you work your own store then you'd make the working pharmacist salary and net profit. GROSS PROFIT is what you use to pay all of your expenses(salaries, supplies, electricity, etc) outside of DRUG COST.

-National average for Gross profit as of 2012 was 22-23% and it's been that range(20-25%) since 2006 (MED D began then--previous cash patients now had drug coverage and it hurt margins obviously). I can say that this year our gross profit is down 2 % from 2012 and 2013 and it's due almost entirely to MAC'd out generics and escalating generic drug prices where the PBMS don't update their drug price list until 1-2 months after the AQ has already risen.

 

[BenJammin]

Good god you people are rude as hell. He's just wanting some ideas as a jumping off point, not for you guys to write out his business plan.

 

[BenJammin]

As a pharmacy owner and someone who has purchased an existing store, I can tell you that any store doing 300 rxs PER WEEK (300 per day is a GREAT business) isn't worth purchasing...90-100 rxs daily is the BREAK EVEN point which constitutes taxes, over head expenses, supplies and any loan payments. The average Gross margin PER RX is around $11.50. (this example $690 gross profit per day--$179K over your drug costs.) Again a store like this isn't even worth purchasing. it simply won't CASH FLOW. There are examples of Pharmacies who are profitable but go out of Business due to cash flow issues....your drug wholesaler requires payment every 15 days...the insurance companies pay you every 25-34 days. You must have cash on hand to pay your bills--minimum of $50K and you'd need access to a credit line. With sales numbers like those listed above, you are not going to get approved by a bank for a single DIME.

I do weekends at an independent in DFW that has great cash flow while filling 300 per day. Are you getting this cash flow point just from personal experience?

 

[PharFromNormal]

I do weekends at an independent in DFW that has great cash flow while filling 300 per day. Are you getting this cash flow point just from personal experience?

I believe he said 300/day was a great business...

 

[BMBiology]

Even with 125 k pharmacist salary, 28 k in profit is not good enough considering how much time and energy you will need to run a business.

 

[BenJammin]

I believe he said 300/day was a great business...

He also said he wouldn't purchase it. What's your point?

 

[PharFromNormal]

He also said he wouldn't purchase it. What's your point?

When did he say he wouldn't purchase a 300/day store? I see him saying he wouldn't purchase the 300/week store. But I guess I will let him speak for himself...

He said anything over 90-100/day was breakeven so I'm assuming he would be all for a 300/day store as long as they were on the positive trend...

 

[Sparda29]

The 300/day figure is just a random figure. I'm guessing the price you pay for the pharmacy goes up as the script count the pharmacy is higher?

 

[BidingMyTime]

The 300/day figure is just a random figure. I'm guessing the price you pay for the pharmacy goes up as the script count the pharmacy is higher?

Absolutely, part of what you are paying for when you buy a pharmacy is the existing customer base....the bigger the existing customer base, the more you are going to be paying for the pharmacy.

 

[BF7]

Here's a link to a blog that is authored by a guy who I feel is "anti-Pharmacist" and particularly "anti-independent Pharmacy" but he does collect and post useful material when it comes to the economics and business of Pharmacy.

http://www.drugchannels.net/2013/11/profits-rebound-for-pharmacy-owners.html

 

[BF7]

I do weekends at an independent in DFW that has great cash flow while filling 300 per day. Are you getting this cash flow point just from personal experience?

Cash flow is mostly based upon the number of cash paying patients that you have...in the average retail pharmacy it amounts to ~ 10% of your RXs filled. You could fill 10 Rxs per day, all on cash and have great cash flow. That doesn't make you profitable.

As you could fill 300rxs per day (for argument sake, all Medicaid patients) and be profitable but have ZERO cash flow when it comes to Prescriptions dispensed.

The #300 rxs PER WEEK number was simply a number given by Old Timer is his post above. That is not a sustainable business if it's traditional out patient pharmacy...if it was specialty Pharmacy then it would be very profitable.

300 rxs PER DAY is a fantastic volume and would likely allow a pharmacy owner to work a coupe days per week and to hire a PIC to run their store the majority of the time.

 

[BF7]

Absolutely, part of what you are paying for when you buy a pharmacy is the existing customer base....the bigger the existing customer base, the more you are going to be paying for the pharmacy.

Indeed. In the world of Pharmacy it's called "GOODWILL".

I assess the value of the goodwill by the following rule:

for every $1 million in sales I'd pay around $175-$250K (fluctuates based upon GROSS PROFIT--always look at least 3 years back and ALWAYS get a Year-to-Date).

So for the sale of a Pharmacy doing 300 rxs PER DAY (300 x $60/rx sales price x 5 days x 52 weeks= $4.68 million in sales with say AVERGAE gross margin of 22%) I'd pay around $936K for goodwill, the value of the inventory (probably in the $300K range for a store doing that volume) and the price of real estate if available. (for argument sake say $300K for 3500 sq ft).

So $1.53 million total sales price

that will run you around $15,000 per month on an 11 year note.........www.liveoakbank.com they are the big player in financing Pharmacy AQ and start ups.

 

[oldstock]

Good thread !!

 

[BenJammin]

I've thought about starting a specialty pharmacy but I really don't know how to obtain the pharmacy base in the first place. Did you guys go to doctor's offices and schmooze them to send scripts your way?

 

[BeLikeBueller]

@Sparda29 - I highly recommended the pharmacy ownership workshop referenced above. I attended a session that was hosted at my pharmacy school a few years ago and it highlights a lot of information that will better prepare you for this undertaking. Especially interesting are the potential ways of buying an existing pharmacy (one common way is through loans, of course, but another is through a "progressive buyout," if you will, where you "buy" more ownership each year, while the owner continues to maintain some income from profits - that is kind of a win-win for everyone). In any case, that program comes highly recommended.

Also, last time I was on here, I thought you were heading into a sweet hospital gig somewhere in the NE? I remember you didn't care much for your original hospital, but did the other location turn out to be a bust too?

 

[Sparda29]

@Sparda29 - I highly recommended the pharmacy ownership workshop referenced above. I attended a session that was hosted at my pharmacy school a few years ago and it highlights a lot of information that will better prepare you for this undertaking. Especially interesting are the potential ways of buying an existing pharmacy (one common way is through loans, of course, but another is through a "progressive buyout," if you will, where you "buy" more ownership each year, while the owner continues to maintain some income from profits - that is kind of a win-win for everyone). In any case, that program comes highly recommended.

Also, last time I was on here, I thought you were heading into a sweet hospital gig somewhere in the NE? I remember you didn't care much for your original hospital, but did the other location turn out to be a bust too?

Somewhere in the NE? No, I originally worked for 2 hospitals and the independent. I'm now working FT at the independent and per diem at one of the hospitals.

 

[BeLikeBueller]

Somewhere in the NE? No, I originally worked for 2 hospitals and the independent. I'm now working FT at the independent and per diem at one of the hospitals.

My bad. Well, good luck with pursuing ownership! Being a city pharmer, you're probably not going to like hearing this, but there is a big market for independents in the rural southeast. Some communities almost refuse to go to a big-box store. And the independent owners that I know make bank.

 

[Sparda29]

My bad. Well, good luck with pursuing ownership! Being a city pharmer, you're probably not going to like hearing this, but there is a big market for independents in the rural southeast. Some communities almost refuse to go to a big-box store. And the independent owners that I know make bank.

The main thing that independents have going for them in NYC is the diverse nature of NYC. The big retail chains don't really have the ability to function when customers speak zero english. The translation phone doesn't really work, I've seen it in action at CVS and people don't like it. Some independents cater to Arab customers, some cater to Indian/Pakistani customers, some to Spanish customers, some to Russian customers, some to Italian customers, Greek, Creole, etc. I expect this will go down in the future when these immigrants have kids who will all know English just by being raised here. A lot of independents are able to offer free delivery services that don't happen at chains.

 

[fauxden]

How does one start a "specialty pharmacy"? Isn't the insurance just going to reimburse you the same they would for a regular pharmacy dispensing? You just happen to be having more expensive drugs? I know with some drugs/PBM's when I worked in retail we had access to all the pricing info, we were losing money on a lot of those big ticket drugs. I just don't get it.

 

[anewmanx]

Get a business loan, put down 20%, don't borrow from your family.

If the bank, who knows a hell of a lot more about finances than you, thinks the business is worth lending on then you are more likely to succeed.

Never, ever, EVER borrow large sums of money from family. EVER.

 

[BMBiology]

Get a business loan, put down 20%, don't borrow from your family.

If the bank, who knows a hell of a lot more about finances than you, thinks the business is worth lending on then you are more likely to succeed.

Never, ever, EVER borrow large sums of money from family. EVER.

He has a lot of student loans. Would this affect his ability to get a loan

 

[All4MyDaughter]

How does one start a "specialty pharmacy"? Isn't the insurance just going to reimburse you the same they would for a regular pharmacy dispensing? You just happen to be having more expensive drugs? I know with some drugs/PBM's when I worked in retail we had access to all the pricing info, we were losing money on a lot of those big ticket drugs. I just don't get it.

PBMs are hoarding the specialty business for themselves, these days.

 

[anewmanx]

He has a lot of student loans. Would this affect his ability to get a loan

I would think with IBR and deferments available, NO. As long as his debt to income ratio remains reasonable. Especially if he's buying a profitable business with it's own income history, and he puts it into a C-Corporation in order to avoid things such as student loans piercing the corporate veil were he to fall into collections.

Then again, I am not a commercial loan officer.

 

[BF7]

How does one start a "specialty pharmacy"? Isn't the insurance just going to reimburse you the same they would for a regular pharmacy dispensing? You just happen to be having more expensive drugs? I know with some drugs/PBM's when I worked in retail we had access to all the pricing info, we were losing money on a lot of those big ticket drugs. I just don't get it.

At my store I dispense around 5 enbrel Rxs and 2 humira Rxs per month... I average about $240 gross profit per box of enbrel or humira. I'd LOVE to own a specialty store but the barriers ( URAC accreditation being pushed ( the membership ship price for URAC Is based on your stores expected VOLUME -- if that doesn't scream " money grab" I don't know what does) -- plus as mentioned, many PBMs are directing traffic to only URAC accredited stores who they either own outright or are partnered with... You factor that in with inventory costs and it's a tough business ... But VERY profitable.