These are normally highly attractive to purchasers because they will dispense upwards of 5,000 prescription items per month and are often sold to those with one or two local pharmacies or, if large enough, to multiples. There are exceptions to every rule and it may be that a poorly performing business is simply not being competitive.
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Since you are unlikely to have a track record with suppliers, you will have to rely on a bank reference and possibly character references, so strike up a good relationship with your bank as soon you can. One hundred businesses is a small sample but, taken as a percentage of all trading pharmacies, it is nevertheless a significant percentage of those that changed hands during the period. |
It may be possible to secure the business for less than the asking price, but if there is plenty of interest it may be necessary to offer 10 per cent or more above the advertised price. Finally, make sure you are present during the stocktake so that you can agree with the vendor how to treat any problem stock that the stocktakers identify. |
Essential small pharmacies In order to qualify as an essential small pharmacy (ESP), a pharmacy must be at least one kilometre from the nearest pharmacy with a National Health Service contract, so they tend to be in rural locations or residential areas. Apart from the usual chores of notifying the utility companies and dealing with VAT registration, you must give proper notice to the Royal Pharmaceutical Society and the local health authority. |
| In recent years it has become commonplace for the purchaser's solicitor to set the ball rolling by drafting the sale and purchase agreement. |
If the premises are leasehold, ensure that the lease offers enough security of tenure to satisfy your financier. |
Try to ascertain how much interest in the business there is in order to help you pitch your offer at the correct level. |
It is important that they have a local knowledge of your particular area and that you can strike up a good working relationship with them. |
| Different agents and finance houses have different ways of arriving at this figure, which is linked to the return on investment, but they invariably end up close to each other's valuations. Once your offer is accepted you may be asked to lodge a returnable deposit with the vendor's solicitor, which he will hold as stakeholder acting between the parties. |
You will probably be taking an assignment of a lease and will therefore need references for the landlord. Finally, make sure you are present during the stocktake so that you can agree with the vendor how to treat any problem stock that the stocktakers identify. |
Offer and legal process Your solicitor will perform the local searches after your offer is accepted but, before you make the offer, ask the vendor if there is anything that might affect the future trading of the business, such as relocation of another pharmacy, a new or moving health centre or doctor's surgery. From a total of 100 sales effected by Orridge Business Sales Ltd in 2002 and, so far in 2003, prices seem to be holding up remarkably well. |
In recent years, larger businesses have become available to first-time buyers due to the support offered by wholesalers.
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| 700,000 and, the larger the turnover, the greater the competition and the more likely for a premium price to be achieved. By reorganising or refitting the premises it might be possible to attract more OTC sales. |
These businesses are often easier to finance than smaller ones and it is not unknown for businesses with annual turnover in excess of .600,000 available to first- and second-time buyers. |
Pick ones that cover the geographical area in which you are interested (some operate nationally) and telephone them for a chat. |
From a total of 100 sales effected by Orridge Business Sales Ltd in 2002 and, so far in 2003, prices seem to be holding up remarkably well. |
| If you are unfamiliar with employment legislation, you will be well advised to consult a specialist employment lawyer. |
If you are in doubt, a reputable agent will value a private business for you for a modest fee and could save you several thousands of pounds and a lot of wasted time.600,000 available to first- and second-time buyers. |
Finding and financing are separate operations, but the choice of business is clearly restricted by the availability of funds, so it is important to know at an early stage how much capital is available and how much loan, or other finance, can be raised. |
You will probably be taking an assignment of a lease and will therefore need references for the landlord. |
| For example, you may be tempted to buy one of the pharmacies offered for sale privately, but unless you seek independent advice you will not know whether it is correctly valued. This is not compulsory but it shows good faith on your part, which could help to fend off any late offers in excess of yours. |
Profit margins To understand the different profit margins you will encounter during your search, it is essential to consider the turnover split. |
Multiples and regional groups with between two and 40 premises, rarely look at businesses with turnovers of less than . |
A prospective purchaser should consider whether the shop could benefit from longer opening hours. |
| This is not compulsory but it shows good faith on your part, which could help to fend off any late offers in excess of yours. |
Agenda for 2003 The Pharmaceutical Journal Vol 270 No 7246 p578-580 26 April 2003 This article Reprint Photocopy PDF * 130K Features Buying a pharmacy: A guide for the first-time buyer By Nick Holland-Brown, FCIS, FCMI Buying and managing their own pharmacy business is something that recently qualified pharmacists sometimes aspire to, but knowing where to start is often a problem. (Such pharmacies are potentially unsaleable unless they can obtain consent for a relocation or a competitor is prepared to buy the business and close it down. |
As a rule of thumb, clearing banks will probably lend in the region of 80 per cent of the true value of a business and possibly also the value of the stock, provided you have security. If the premises are leasehold, ensure that the lease offers enough security of tenure to satisfy your financier. |
True value The true value of a business was referred to above. The main reason for these changes appears to be because true profits have increased over the period. |
| Try to ascertain how much interest in the business there is in order to help you pitch your offer at the correct level. |
Different agents and finance houses have different ways of arriving at this figure, which is linked to the return on investment, but they invariably end up close to each other's valuations. Turnover Having arrived at your budget figure the next decision is what to buy. |
Finding and financing are separate operations, but the choice of business is clearly restricted by the availability of funds, so it is important to know at an early stage how much capital is available and how much loan, or other finance, can be raised. It could be possible to stay open while the doctor's surgery remains open or to stay open at lunch time. |
Sales agency A first-time buyer would be well advised to make contact with an established and reputable specialist pharmacy sales agency.pharmacysales. |
| A pharmacy which qualifies for an ESP allowance will receive an additional payment over and above its other NHS remuneration and will, therefore, achieve a considerably higher gross margin on dispensing turnover. Offer and legal process Your solicitor will perform the local searches after your offer is accepted but, before you make the offer, ask the vendor if there is anything that might affect the future trading of the business, such as relocation of another pharmacy, a new or moving health centre or doctor's surgery. |
Changing circumstances and the effect of the Office of Fair Trading report One of the biggest potential problems you could face is changing circumstances that would affect future trading. The trend we found particularly interesting is that after a small drop in the number of pharmacies being sold over the whole period, compared with previous years, the number of sales currently in solicitors' hands and due to complete in the second quarter of 2003 is the highest of the last six quarters. |
It is likely that buying a pharmacy will be the largest and most complicated transaction in which a prospective purchaser will ever have been involved, so choosing one's advisers carefully is essential. A pharmacy which qualifies for an ESP allowance will receive an additional payment over and above its other NHS remuneration and will, therefore, achieve a considerably higher gross margin on dispensing turnover. |
The best definition of the true value of any business is what it will fetch on the open market, but in the context of obtaining finance it means the value according to an accepted formula within the pharmacy profession. |