Useful Information

Key points when buying a pharmacy

Buying your own business is a major decision and it is essential that you do your homework thoroughly beforehand to avoid difficulties at a later stage.

Caveat Emptor (Let the buyer beware)

You are responsible for what you buy and the investments you make, so look at the time and money spent at this stage of the transaction as an investment and not a cost.

You should engage the services of a competent solicitor and accountant who should both be able to give sound advice on all the legal and financial aspects to the transaction. Seek advice and guidance from the pharmaceutical bodies, other pharmacists who have gone the ownership route and of course the management team at Statim, who are dealing with similar situations every day.

A number of general points to be aware of and look out for, are highlighted below are not exhaustive. Retail pharmacy has recently is gone through a period of great change and continues to change with new challenges being presented almost on a daily basis. Those pharmacists who will be successful will be the ones who rise to those challenges and recognise them as opportunities.

General considerations

What is the reason for the sale - is it genuine? Who is the local competition and how close are they? Are there any possible local developments, which could affect the business? Are the doctors planning to move or is the local council considering a new road scheme, which could affect trade? Is there to be a restructure of the provision of primary healthcare in the neighbourhood, perhaps under 'LIFT' scheme (Local Initiative Finance Trust)?

Detailed research in these areas will never be wasted. The number of doctors upon which the pharmacy depends is important. A pharmacy, which depends upon only one doctor, would be at risk should that doctor relocate or retire.

Where are they situated? Buy a local street map and mark all the surgeries and pharmacies. These can be identified through a simple post code search on the NHS website. Follow this link www.nhs.uk and obtain all the information needed. Now mark them on the local street map and you will start to get a clear idea of the local layout.

Walk the area to understand the pedestrian flow and to identify what threats and opportunities might arise from relocations of doctors or pharmacies.

The Property

Whether the building is freehold or leasehold, it should be in good condition. If it is not, then funds should be allowed to enable the faults to be rectified. The market price of the freehold should reflect any faults. If the property is leasehold, then the reduction in value will reflect in the goodwill price being paid for the business, as the landlord will almost certainly serve a dilapidation order upon the new owner.

As the new owner you will then be spending money on repairs, which should have been spent by the previous owner. A building surveyor's report should be obtained prior to completion, to ensure that all major faults are identified. It is quite normal for this to be carried out once Statim has made an offer of guarantee support so that unnecessary expenses are not incurred should the purchase not proceed.

The Lease

The remaining term on the lease to the pharmacy should exceed the term of the proposed loan. Should this not be the case, then it may be necessary to renegotiate a new lease, or at the bare minimum obtain a letter of intent to renew from the landlord. A tenant does have some protection under the Landlord & Tenants Acts, but there are a number of reasons under which a landlord can take back possession should he desire. One of these is for the redevelopment of the site.

Not every situation is black and white and if there is an alternative property into which the pharmacy could locate, then the business could continue, subject to the costs of relocation and refit. The level of rent and the date of the next review are relevant to the goodwill calculation.

Retail Area

The larger the retail area the more shelves there are to be stocked. The average pharmacy is around 750 square feet. Anything much larger than this requires good OTC sales to ensure adequate stock turnover.

Opening Hours

The longer the opening hours, the higher the wage bill and the more expensive it will be to obtain locum cover, particularly if open on a Sunday.

Nursing Home Sales

Nursing Homes can be a source of good business but they are labour intensive (monitored dosage systems) and can be susceptible to loss to a competitor. Goodwill value should be adjusted downwards if the number of scripts through homes forms a substantial (over 10%) proportion of the total prescriptions dispensed.

Prescription Numbers

Always obtain at least the most recent last 12 months NHS statements as these will confirm the present level of NHS sales turnover, the volume, trend and profitability.

Sale of Assets or Shares

So you have found a pharmacy you want to buy but the vendor wants to complete the transaction by way of a sale of the company's shares. What does this mean?

Basically it means that instead of buying specific assets, for example: stock, property and the NHS licence (Goodwill) you acquire the whole company and everything contained in it, including any liabilities (some of which may not even be apparent.) This is quite a common method of transfer of ownership but there are a few issues, of which you should be aware, so that you avoid any unpleasant surprises.

Sale of Assets

From the purchasers' point of view, the preferred method of completing the transaction is usually a simple transfer of assets. In other words you buy the goodwill, fixtures and fittings, the lease to the premises and the stock in the pharmacy. You may have the opportunity to buy the freehold of the property instead of a lease.

The value of the goodwill is relative to the sales and profitability of the pharmacy and can be calculated with reasonable accuracy. The value of the fixtures and fittings and the lease is usually a nominal amount and included in the figure for goodwill.

The stock is normally valued on the day before completion usually by an independent stocktaking firm. If you are buying the freehold then an independent property consultant should complete the valuation. You liabilities for the business will only commence once completion has taken place.

Sale of Shares

If the current owner trades as a limited company he may state that the sale will be by way of a transfer of shares in the company, rather than simply the assets. This is normally a more advantageous method of sale for the vendor due to tax considerations.