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20 BUSINESS THROUGH INNOVATION FINANCE TMHE CRITICAL PATH TO BUYING A PHARMACY ost community pharmacies lawyer and financer broker. Liaise several months. However, in my recent appear to have coped with them early and often to experience, a few have taken more than admirably with the Covid understand your price limit and other six to complete. So, keep this in mind challenge, demonstrating fundamental expectations. when embarking on the journey. themselves to be trusted professionals • Liaise with pharmacy brokers to Throughout the process you’ll need to in the national healthcare environment. But as small business owners, most pharmacies have been able to maintain a high level of service and, at the same time, keep their finances afloat. Part of this is due to their experience of being in business for many years, thus being able to manage cashflow and make sensible decisions as required. Also, the professional training background tends to prepare pharmacists to be more conservative, so their risk profiles influence their style of management. Either way, community pharmacy is still a good professional business. This implies that from a potential buyer’s (or future partner’s) perspective, there is still reason to be motivated to take the step into ownership. 2021 will hopefully bring some new positives for everyone, especially in the small business community. Young pharmacists planning to be owners or partners may have needed to postpone their dream this year, but potentially 2021 could be a new ballgame. Over the past 12 months I’ve observed that some buyers have experienced significant additional difficulties in completing their acquisition. This has been fuelled by fewer sellers in the marketplace (and thus fewer opportunities), more onerous processes in securing bank funding, challenges in negotiating with landlords, and delays with regulatory bodies. Some of this is unavoidable, but if you’re familiar with what to expect, you can navigate the procedure more efficiently. The basic critical path is as follows: • Build your specialist team well before you start looking. This should include specialist pharmacy accountant, • understand the market. What is for sale, where are they located, how much are sellers expecting to receive? Identify an attractive pharmacy (location, style, demographics, turnover, profitability, etc) and seek financial and supporting data for analysis. If this is via a broker, a detailed information memorandum is usually available. However, if you’ve been given an opportunity directly from the owner, perhaps not all the essential preparations will have been made, so tread lightly. Refer to your accountant and determine if you would like to make an offer. Ask them to undertake further financial analysis and compare with industry benchmarks. If your initial offer is accepted, then conduct a thorough due diligence (I have written about this in detail previously many times, so please email me if you’d like a copy of those articles). Liaise with finance broker to prepare application for finance. Contact lawyer to review and negotiate contract. Consider and establish suitable business structure for tax and asset protection purposes. Liaise with landlord for assignment of existing lease or granting a new lease. Consider whether you will join/remain in a banner group. Consider preferred wholesaler. Prepare Pharmacy Council and Medicare applications. Organise final stocktake. Review existing staff roster and employment agreements and determine future requirements. The entire process is likely to take maintain confidentiality so as not to alert customers, staff or the public. This is difficult at times (as you’re interacting with many different parties) although it helps preserve the integrity of the deal and the value of the exiting goodwill. At an appropriate point, the vendor will help identify with you the ‘right’ time to notify staff of the impending change and when it’s likely to occur. This is an extremely delicate step because human nature is that we fear change, so I recommend care and compassion are demonstrated by buyer and seller. You should also be thinking about post-settlement. Start building your business plan early, even if you don’t know exactly what to expect. Using the data you’ve analysed during the due diligence as a rough starting point, document your priorities for your future pharmacy. Map out roughly what you’d like to do, including: • • • • • • • • • • • • • • Introducing new services and products. Staff training and team building. Marketing and promotion (loyalty clubs, social media, etc). Forecasting financial performance and cashflow projections (focusing on turnover, gross profit margins, rent, wages and loan repayments). By Neil Featherstone. Director Pinn Deavin Neil Featherstone is a director of Pinn Deavin, a leading accounting, management consulting and investment firm. Neil has been advising pharmacists since 1984. Inquiries: neil@pinndeavin.com.au or 02 8525 3700. Accountants specialising in Pharmacy www.pinndeavin.com.au Neil Featherstone (02)85253700 Neil Featherstone 30x190.indd 1 RETAIL PHARMACY • NOV/DEC 2020 19/1/05 8:38:24 AM 2019-1-11_PinnDeavin_StripAd_Proof.indd 1 11/1/19 1:26 pm