Archive for

Buying a Pharmacy: What You Need to Know About This Industry Before You Buy

The outlook is good for the pharmacy industry. It’s stable and growing. The 2010 Healthcare Reform Act, 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. As America’s growing population ages, owning a pharmacy sounds like a good investment. Keep in mind the this industry is highly regulated by the government which is not the case with other traditional commercial businesses. If you are considering buying a pharmacy there are several things you will need to know including deciding on what kind you want to own, assessing your personal finances, and checking a company’s financials against industry benchmarks.

Decide What Kind of Pharmacy You Want To Own

You need to decide what kind of pharmacy you want to own; a franchise or an independent one. If you want to go the franchise route keep in mind that industry leaders who are dominating the market including chains like Walgreens, CVS and Rite Aid are not currently offering any franchising opportunities. However, there are many small companies that exist that are offering franchising opportunities.

If you decide to go the independent pharmacy route, there are several options to consider. It is common practice to buy into a partnership of an existing operation. This is advantageous because your initial investment will be much lower than if you were going it alone. The best option would be to get into a pharmacy where the owner plans to retire in the next 3-5 years. You can learn from their expertise and also share in expenses. Another option to consider is buying a pharmacy that caters to a niche market. An example of a niche market pharmacy is a compounding pharmacy. These types of operations can be highly lucrative.

Know Your Finances

Most pharmacy sales are all cash. If you plan to finance your business keep in mind banks want to see around 20% of your own money down. Banks may not fund the entire purchase price. You will need to know how you will make up the difference. Seller financing may be an available option. Sellers offer financing typically for 3-7 years with an interest rate at prime plus or minus 1-2 percent.

Financial Benchmarks

According to IBISWorld.com, pharmacies and drug stores in the US generate $248 billion each year. 52,193 businesses are 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.

Conclusion

Traditional brick-and-mortar pharmacies are facing increased competition from online retailers of prescription drugs. However, overall, buying one can be a good business investment as it is a pretty stable industry that will most likely grow as America’s population ages.