Start up vs acquisition ?

[tammoraf81]

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I am trying to get myself ready "financially " to own a pharmacy , the one million dollar question is , would you start up a new pharmacy (risky but affordable ) or buy an existing pharmacy (too much money but guaranteed cash flow from day 1 )? Advice please

 

[zelman]

I am trying to get myself ready "financially " to own a pharmacy , the one million dollar question is , would you start up a new pharmacy (risky but affordable ) or buy an existing pharmacy (too much money but guaranteed cash flow from day 1 )? Advice please

I'd prefer the start up. Baggage in pharmacy can be hell. The pharmacy across the street from my first chain store used to let people phone in their own prescriptions, then double park on the town's narrow main street and have a staff member run outside to swap the written Rx for the meds once they arrived. They were super pissed when we did not do the same after the acquisition. Also, employee baggage can be even worse. But as you said, you need to be able to deal with limited to no income for a while.

 

[StellargalS]

I'd prefer the start up. Baggage in pharmacy can be hell. The pharmacy across the street from my first chain store used to let people phone in their own prescriptions, then double park on the town's narrow main street and have a staff member run outside to swap the written Rx for the meds once they arrived. They were super pissed when we did not do the same after the acquisition. Also, employee baggage can be even worse. But as you said, you need to be able to deal with limited to no income for a while.

Baggage Scenario: Yeah but in 30 to 90 days (time minus pissed persons next refill) you have a clean shop. In the meantime you establish relationships with the reasonable customers that remain and you have income. Cleaning house just requires adequate communication, a little flexibility and documentation.

No Baggage Scenario: However if you establish interest with your targeted prescribers in advance of investing that would be acceptable risk too. One of the (non-pharmacist) indie startups I oversaw assumed she had a corner on the market (spoke Persian in a predominately Persian neighborhood). 3 months 20 rxs max. I kept after her to market and she says "I tried" but that when she met one of the Persian docs he asked her "my patients can speak English so what do they need to change pharmacies for? " I said to her "That's doctors for you. Forget about it and go see him again and again and again. He will loosen up." Wouldn't do it. I bailed when they tried cut my pay and they were closed within a year. Now I hear she is located in a medical building but I guarantee she made more assumptions. Her ego couldn't hack the marketing, but maybe she'll get lucky.

Either way if the prospectus/plan was reasonable I would do it. Right now it would be worth it to me for $100,000 in profit. Salaries are going down and maybe dispensing will no longer require a pharmacist. A $100,000/ year for someone with a worthless doctoral degree isn't so bad. No? (BTW the italics is NOT said in amusement. It is what I think would be the best place in the worst case. My best case is way better than that)

 

[Silent Cool]

Baggage Scenario: Yeah but in 30 to 90 days (time minus pissed persons next refill) you have a clean shop. In the meantime you establish relationships with the reasonable customers that remain and you have income. Cleaning house just requires adequate communication, a little flexibility and documentation.

No Baggage Scenario: However if you establish interest with your targeted prescribers in advance of investing that would be acceptable risk too. One of the (non-pharmacist) indie startups I oversaw assumed she had a corner on the market (spoke Persian in a predominately Persian neighborhood). 3 months 20 rxs max. I kept after her to market and she says "I tried" but that when she met one of the Persian docs he asked her "my patients can speak English so what do they need to change pharmacies for? " I said to her "That's doctors for you. Forget about it and go see him again and again and again. He will loosen up." Wouldn't do it. I bailed when they tried cut my pay and they were closed within a year. Now I hear she is located in a medical building but I guarantee she made more assumptions. Her ego couldn't hack the marketing, but maybe she'll get lucky.

Either way if the prospectus/plan was reasonable I would do it. Right now it would be worth it to me for $100,000 in profit. Salaries are going down and maybe dispensing will no longer require a pharmacist. A $100,000/ year for someone with a worthless doctoral degree isn't so bad. No? (BTW the italics is NOT said in amusement. It is what I think would be the best place in the worst case. My best case is way better than that)

Stellar,

Are you planning to buy someone out? If so, where? Are you going rural or major metro?
Compounding? Specialty?

thanx
😎

 

[tammoraf81]

Great feedback . There is a town not too far from me that doesn't have a pharmacy , 2700 people and the nearest pharmacy is in next town like 15-20 minutes drive . Not sure if it's enough population to serve a pharmacy tho . It also doesn't have doctor office or clinic what do u think ?

 

[StellargalS]

Great feedback . There is a town not too far from me that doesn't have a pharmacy , 2700 people and the nearest pharmacy is in next town like 15-20 minutes drive . Not sure if it's enough population to serve a pharmacy tho . It also doesn't have doctor office or clinic what do u think ?

It is really hard to speculate from where I am sitting. This part is a rewrite now cuz I changed my mind. Start up? We have to remember that the cushion afforded to the failed independent (go work for the big box) is loosing reliability.

I had this guy walk in to the aforementioned startup to bust my chops.. He was a circa 78 yo x HTN adequately managed on lotrel. And he was thrilled with the mail order cuz the copay was cheaper and it came right to his door without him ever having to think about it. I had nada to offer him. You would have to gain market insight. Way more than just demographics.

We drive the super highways twenty minutes in traffic to go the Crap Mart and think nothing of a 45 minute drive and tool to see a doctor. Forty five minutes and no means of transportation maybe but what can you do for them if they have no doctor?

You need the docs anyway. They are an integral IMO.

 

[Silent Cool]

Stellar,

Are you planning to buy someone out? If so, where? Are you going rural or major metro?
Compounding? Specialty?

thanx
😎

Stellar,

Still curious about the above.
thanx
😎

 

[tammoraf81]

Stellar,

Still curious about the above.
thanx
😎

Yes stellar
Me too wanna know if u r planning for acquisition , and where ?

 

[BeLikeBueller]

We had a CE seminar at my school one day (although I think it mostly ended up being students) about community ownership. You're probably already aware of this, but one way to significantly reduce your risk in purchasing an independent is to establish a junior partnership where you buy out the business over the course of some number of years (usually six). What tends to happen is that you pay less out of pocket for the pharmacy but the owner makes more money over the course of the selling period. There are a lot of resources available if you just search "junior partnership pharmacy."

One good one is this: http://faculty.mercer.edu/jackson_r/jrpship.htm

If you scroll to the second to last table at the bottom (table 4, I think), you can see how you would pay (out of pocket) less than the value of the pharmacy, but the owner would make more total (bottom right of the table), because of the profit, than he/she would if they sold it outright in year 1.

So assuming you find the right opportunity and an owner willing to participate in this type of model, it can be a win-win situation.

 

[StellargalS]

Yes stellar
Me too wanna know if u r planning for acquisition , and where ?

No employment cushion requires a solid prospectus and the green light from the trusted and experienced. I currently have nothing pending. The inventory carrying costs + the stinking reimbursement/turnaround times lead my seemingly successful prior employer to sell his specialty for the second time in ten years. It was the success that eventually broke him because his carrying costs kept going up and up. The acquisition costs due to the current pricing structure literally squeeze the small man out. That is specialty today. In 2000 we were fighting for specialty patients. The spread on one months supply of serostim was 7 grand. Today it is $12.00.

Another start up I oversaw had some connections for superior pricing and the wholesaler was fronting the startup inventory. These people were unscrupulous though. Point? Some success is ill gotten. You have to account for such factors because they are real.

 

[kvl1027]

I am trying to get myself ready "financially " to own a pharmacy , the one million dollar question is , would you start up a new pharmacy (risky but affordable ) or buy an existing pharmacy (too much money but guaranteed cash flow from day 1 )? Advice please

I think you have it backwards. It would be more affordable to acquire a pre-existing pharmacy than start one from scratch. You would need significant amount of capital to stay open and that is without paying yourself for 2-3 years.

You can make a very good living owning an independent, but right now you are not going to go rich doing it like our predecessors. Look for someone looking to sell and discuss the option of them holding onto part of the note on the store and you will have to put very little of your own money into the business. You will need to find a lender or service that deals primarily with pharmacy acquisitions and has a lot of experience in the industry.

 

[tammoraf81]

I think you have it backwards. It would be more affordable to acquire a pre-existing pharmacy than start one from scratch. You would need significant amount of capital to stay open and that is without paying yourself for 2-3 years.

You can make a very good living owning an independent, but right now you are not going to go rich doing it like our predecessors. Look for someone looking to sell and discuss the option of them holding onto part of the note on the store and you will have to put very little of your own money into the business. You will need to find a lender or service that deals primarily with pharmacy acquisitions and has a lot of experience in the industry.

You make a lot of sense now that I'm looking at it from your perspective , but a profitable pharmacy to buy will cost arm and leg , doesn't it ? I see some for sale for over a million or two . mmmm a lot of Capital needed

 

[kvl1027]

You make a lot of sense now that I'm looking at it from your perspective , but a profitable pharmacy to buy will cost arm and leg , doesn't it ? I see some for sale for over a million or two . mmmm a lot of Capital needed

You will be financing the business.

Lets say the pharmacy is worth and sells at $2M The lender will require, at the very least, 20%. You can put the $400K up yourself and you are good to go. With your purchase you will get a salary, all of the receivables, inventory, equipment, cash-flow, etc.

Lets say you don't have $400K. The lender is going to require that you have some skin in the game, lets say $10k-$25K, you have to have something to lose. Then the seller holds onto the remainder of the note, $390K-$375K. This means that at closing, the lender will cut a check to the seller for $2M - Note ~ $1.6M (not including cap. gains of course). Depending on the lender and the terms, the seller will get the rest of their money after 2-3 years with a little interest to boot (probably around +/-6%y)

A good lender will be one that understands the pharmacy business. One that makes sure that the business is healthy and profitable enough to sustain itself, pay you, and pay the loan. This is not a rare scenario either. There are plenty of old guys out there, that would rather burn their stores to the ground, than sell to Walgreens, CVS, etc. You will have to make some connections, you will have to put yourself out there, and you will most likely have to move somewhere else.

 

[StellargalS]

We had a CE seminar at my school one day (although I think it mostly ended up being students) about community ownership. You're probably already aware of this, but one way to significantly reduce your risk in purchasing an independent is to establish a junior partnership where you buy out the business over the course of some number of years (usually six). What tends to happen is that you pay less out of pocket for the pharmacy but the owner makes more money over the course of the selling period. There are a lot of resources available if you just search "junior partnership pharmacy."

One good one is this: http://faculty.mercer.edu/jackson_r/jrpship.htm

If you scroll to the second to last table at the bottom (table 4, I think), you can see how you would pay (out of pocket) less than the value of the pharmacy, but the owner would make more total (bottom right of the table), because of the profit, than he/she would if they sold it outright in year 1.

So assuming you find the right opportunity and an owner willing to participate in this type of model, it can be a win-win situation.

Great contribution. And this clears another concern I have which is why did the big box not want the business in question? If it was so hot they would slaughter you in the bidding. My prior bosses hated big boxes with a passion yet that was who they sold to. Anyway why it clears up the concern is because the seller is tied to you and bares risk. Big box needs easy money cuz their customer service is lacking. Indies are the creative ones in the bunch and have turned a drip into a deluge. Yeah Bueler! Bueler? Bueler?

MiniSegway in support of the students: In my perspective limited opinion acquiring a BS in advance of the pharm d is overkill in terms of the what a pharmacist actually does. HOWEVER I believe you guys are at an advantage because it takes longer to get through and the material is less condensed (I repeat less condensed not watered down) and offers opportunity for somewhat practical application where you can actually think about your future and plan. Also when you are young a spread of a few years makes a vast difference in risk strategizing i.e. I wasted money on rent for the first seven years of my career AND that was with negligible loan burden. However in my defense uptake of the internet was relatively slow for many due to the unknown value of it. The internet I believe is your greatest advantage.