Specialist advice can save pharmacy buyers time and help to avoid costly pitfalls, says Vinku Shah…

Acquiring your first pharmacy can be a challenge for most pharmacists, especially when they do not have the necessary skill in reading the numbers presented in terms of the target pharmacy’s performance and how to interpret these in order to arrive at a valuation for the purpose of making an offer.

Assessing the risk

Once the target pharmacy has been identified, you should seek the advice of a pharmacy specialist accountant in assessing the risks and determining if it would be a viable investment so that you can make an informed decision. At this point, the accountant will gain an understanding of your knowledge of the pharmacy and be able to give you further guidance on income/profit generation as well as growth potential.

The valuation of the business

Based on the information provided by the vendor’s agents, you should arrange for a valuation from your appointed accountant and ask them to provide a range of offer to submit. This is to ensure that you are not overpaying for the target pharmacy and bidding within sensible parameters.

The negotiation process

Sometimes when the initial offer is not accepted, negotiation may take place. You should seek guidance on how to go about this, with a view to successfully bidding for the target pharmacy.

Financial and tax advice

The target pharmacy may be sold as an asset sale, which usually happens when a chain is selling one of its pharmacies, or a company sale, whereby the vendor(s) may own only one pharmacy and are selling the company’s shares (this is common when the vendor(s) are retiring pharmacists). Each of these transactions will have their own financial and tax implications that will need to be considered at the time of acquisition.

Accounts and tax due diligence

This is the crux of the whole transaction and our advice to all purchasers (first-time buyers as well as those expanding) is not to compromise. You should ensure that your advisors carry out a thorough and an in-depth review of the

accounting records and information provided by the vendors, conduct their own independent checks to support the figures presented and liaise with you throughout, highlighting areas of concern.

One of the major risks, for example, in a company purchase is that there may be undisclosed liabilities or overstated assets and if this is not accurately verified, you could end up paying a lot more to the vendors, potentially leading to long-standing disputes to recover sums overpaid.

Litigation could take years; it is a distraction and very costly indeed. It is far better to seek professional advice from the outset from an experienced firm than to have to face a dispute after the acquisition.

Financial and tax aspects of the asset/share purchase agreement

The asset/share purchase agreement is a binding agreement between the parties, encapsulating the mechanism of the sale price, payment terms, financial and tax warranties, indemnities and tax covenant, etc. These agreements should be reviewed in detail – particularly the financial and tax

matters to ensure that any risks are identified and mitigated by requesting relevant clauses be inserted/removed in the agreement.

Loan to finance the purchase

The acquisition is most likely to be financed by borrowing from lenders, and there are a number of pharmacy specialist lenders who understand the community pharmacy business and are willing to work with ambitious pharmacists/entrepreneurs and help them to grow. Each case is judged on the creditworthiness/security of the borrower.

Business plans, cashflow and profit forecasts

You will be required to produce business plans, cashflow and profit forecasts, which will be required by lenders to secure the finance for the acquisition. These should be prepared by your professional advisers.

VAT/PAYE registrations

Within four weeks of the completion date, you should ensure registration with the relevant authorities for all taxes – for example, VAT, PAYE, self-assessment, etc.

Ongoing accounting and tax services

Post completion, you will require a range of compliance services like bookkeeping, MTD (making tax digital) compliant VAT returns, payroll, management accounts, annual accounts, corporation tax, personal tax, tax planning, financial services, etc. You should ensure that you speak to a pharmacy specialist accountant so that you save valuable time, which could be utilised in growing your newly acquired business.

Other pharmacy specialist service providers

There are a number of pharmacy specialist. service providers, such as solicitors, lenders, stock takers, etc, and we recommend using these professionals as they understand the business and its requirements, thereby saving valuable time and costs.

We have over 30 years of experience in this sector and have helped a number of first-time buyers to acquire their first pharmacy. Several of our clients have also transitioned into multiple pharmacy owners under our specialist guidance and support.

Vinku Shah is a partner at Silver Levene.