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Buying A Pharmacy: What You Need to Know Before You Buy


Buying A Pharmacy Business

Buying a pharmacy takes a lot of planning and research as it is not like buying a traditional commercial business. Due to the nature of the business there are many government regulations to take into consideration.

Additionally, there are financial considerations to plan for so if you are thinking about buying a pharmacy, here is what you need to know about the industry before you buy.

Know Your Finances

Buying a pharmacy can be a large investment.  While most banks see a pharmacy as a strong business proposition, you will most likely need around 20 to 40 percent of your own money to put down on the purchase.  Before applying for a SBA loan or commercial loan, assess your finances and know where you stand.  If the bank will not fund the entire purchase price, you need to know how and if you can make up the difference.  There is also the option to pursue seller financing opportunities.  While most pharmacy sales are all cash, some sellers will finance typically for a term of 3 to 7 years with interest at prime +/- 1 or 2 percent.

Decide What Kind of Pharmacy You Want To Own

Like any other commercial business there are several options to consider when purchasing a pharmacy.  As you enter into this industry, you will need to decide if you want to pursue a chain pharmacy or an independent pharmacy.  This industry is dominated by three large chains Walgreens, CVS and Rite Aid.  While none of the top three chains offer franchising opportunities, there are smaller pharmacy companies that offer franchising opportunities.

If you are more attracted to an independent pharmacy for sale, you also have some options to consider.  Instead of just buying a pharmacy yourself, it is common in this industry for people to buy into a partnership of an existing operation. An ideal scenario is to find a pharmacy for sale in which the owner is looking to retire over the next 3 to 5 years. This gives you the advantage of working with someone who is experienced in the business side of owning a pharmacy and will be able to share in the expenses with you for a while.  The other major advantage to entering the industry this way is that your initial investment won't have to be as high if you just buying into a portion of the business.  There are also pharmacies that cater to niche markets such as compounding pharmacies.  These types of operations can be highly profitable and should also be considered closely.  

Financial Benchmarks

According to IBISWorld.com, pharmacies and drug stores in the US generate $248 billion each year.  52,193 businesses sharing in that revenue and within those businesses, 775,721 people are employed.  The average pharmacy will fill 54,427 prescriptions annually or 174 per day and the average independent pharmacy typically generates $2.8 million in sales each year.  Cost of goods sold will be your highest expense running at about 75% of annual sales.  
 
Industry Outlook

The 2010 Healthcare Reform Act, as well as recent changes due to Obama Care, has expanded insurance coverage for many Americans, making prescription drugs more affordable.  As a result of this there has been an increased demand for pharmaceuticals creating some growth in the industry.  While many Americans now have better access to prescription drugs, some are using online pharmacies as an alternative to the traditional brick and mortar pharmacy we discussed in this post.  If this trend continues and grows in popularity it could jeopardize the health of some smaller, independent pharmacies. Overall buying a pharmacy can be a good business investment as it is a pretty stable industry that will most likely grow as America's population ages.

Peter Siegel, MBAAbout The Author: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) consulting with business buyers. Reach him direct at 866-270-6278 or 888-212-4747 to discuss strategies regarding buying a business (& financing a puchase of) a California business.


Categories: BizBen Blog Contributor, How To Buy A Business



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Professionals who understand the importance of world class business brokerage service and the value it can create. Specializing in assisting sellers and buyers with retail stores, restaurants, hospitality & lodging, manufacturing operations, distribution companies, e-commerce and service businesses.

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