In the first of a two part series on buying and selling pharmacies, Richard Hough offers a checklist for those thinking of taking the plunge to purchase.
Buying a pharmacy business can seem a daunting prospect. If you are looking to buy a pharmacy but don’t know where to start, the checklist set out below will hopefully assist.
How to find a business
So, first things first: should you find a business independently or through a broker?
Unless you plan on financing the transaction wholly through your own financial means, it is likely that you will look to secure some measure of independent third party (ie bank or other financial institution) funding for the purchase.
One of the first things that you must do is to find out how much you can realistically borrow to finance your business purchase. Compare interest rates and assess the affordability of the repayments against the current and projected performance of the target business. There are a number of specialist financial institutions who have a good understanding of the pharmacy sector and who are prepared to lend against pharmacy goodwill valuations, which comprise a significant proportion of the assets of any pharmacy business.
If you have an ‘offer in principle’ from a bank that it will finance your acquisition, this will build confidence with the seller and ensure that, when you make your bid for the pharmacy, your bid stands out from the crowd. It will also speed up the acquisition process if and once your offer is accepted.
Banks are notoriously cautious. Given the recent changes and current climate of the sector, banks’ credit policies and processes have changed and become more stringent. The importance of securing a funder early cannot be overstated, especially insofar as it may impact on transaction timescales.
Buying a pharmacy is likely to be one of the most significant and expensive business decisions you will ever undertake. It makes sense therefore to surround yourself with a good team of professional advisers from the outset. Your team should consist of a solicitor who specialises in the buying and selling of pharmacies, and an accountant/ tax advisor with experience in the retail pharmacy sector. Specialist pharmacy solicitors and accountants can be invaluable, not just in guiding you through the transaction process, but also in supporting you through the early stages of the business going forward, when you are most likely to need sound advice.
Once you have found the pharmacy that you wish to buy, finalising the purchase needs to be your priority. Many pharmacy acquisitions are often unnecessarily protracted due to one or both of the parties being underprepared or failing to provide information or instructions within reasonable timescales. Setting a realistic target date for completion (following discussions with your professional advisers) at the outset is likely to focus the minds of everyone involved.
On finding a pharmacy that you are interested in, you need to assess the health of the business through asking a lot of questions of the seller. A pharmacy solicitor can help you to ask the right questions, so that you can assess the business properly. The information gathering stage of the transaction, known as ‘due diligence’, is a vital pre-acquisition exercise in which the buyer checks the health of the target business, its operations and the accuracy of any information provided by the seller.
Enquiries should be made about all aspects of the target business, including: the local CCG, doctors’ surgeries, nursing homes and whether any third party relocations or NHS contract applications are pending, all of which may adversely affect the target business’s profitability.
The last three years’ annual accounts and FP34s should also be obtained, to accurately quantify historic prescription sales, as well as current management accounts, which will reveal any recent business deterioration.
Despite the prevailing gloomy financial outlook, it is heartening to witness that there is still plenty of interest from young, entrepreneurial pharmacists, who want to get a foot on the ladder of pharmacy ownership. Hopefully, the pointers set out above will assist a few of you in taking those first steps to ownership.