Pitfalls to be avoided when acquiring one's own pharmacy were described by three speakers at an IPMI/YPG conference session on preparing oneself to run a business.
Paying for expert advice would save money in the long run, suggested Mr GERRY GREEN (Green Pharmacy Consultants), who warned that before taking steps to buy a pharmacy, pharmacists should be aware of all the costs involved. The stock would require an upfront payment of £20,000 to £30,000, and fixtures and fittings could have a book value of £10,000. The goodwill would be five or six times the business's net profit figure. On top of that, the purchaser needed to allow about £10,000 for various fees and start-up costs. Finding a pharmacy to buy could be a problem, since only 100-200 were sold each year in Britain. The thing to do was to identify the area in which one wished to practise and then do some research. The most useful information source was the Register of Pharmaceutical Chemists, available in most libraries. It enabled one to check the ownership of local pharmacies and estimate the age of proprietor pharmacists from their date of registration, so as to identify those who might be approaching retirement. Other useful information to be found in libraries included census data, medical lists, local government plans and local news. The next stage was to study maps and to tour the areas, looking at pharmacies, medical practices and shopping centres. One should also visit the local authority planning department to find out about proposed new superstores and road schemes that might affect access to the pharmacy. |
Gerry Green: worth paying for expert advice |
Having identified a target pharmacy, the next stage was to make a visual check, looking at the state of the pharmacy, neighbouring shops, surgeries, public transport, schools and parking. If the pharmacy still looked tempting, then an approach could be made either directly or through an agent. But before making an offer one would need access to a broad range of information about the state of the business - information that pharmacy owners were often hesitant to release.
Talking about legal pitfalls in buying a pharmacy, Mr JOHN MILES (commercial solicitor, Lightfoots solicitors) said that a pharmacist running a business as a sole trader faced total liability for the business. If things went wrong, all his personal assets were available to his creditors. Running a pharmacy through a limited company reduced one's personal liability but introduced other problems. Where there was more than one shareholder, it was essential to have a shareholders' agreement setting out structural matters and laying down policies for borrowing, for loans to the company, for dividend payments and for appointing directors. It needed to include a mechanism for getting rid of directors who no longer fitted in and redistributing their shares.
Running a business through a limited liability company did not remove personal liability from directors. Banks, landlords and others would ask directors to sign personal guarantees, and one should not sign one's life away by giving unlimited guarantees.
Directors also needed to be aware that there were more than 1,000 possible offences they could personally be charged with if the company got into trouble. They could not hide behind the corporate veil.
Mr ROBERT COLE (financial director, Phoenix Pharmaceuticals) said that starting a new business was generally preferable to buying an existing one because of the high cost of goodwill. However, in pharmacy this was complicated by the extremely bureaucratic process of obtaining a new National Health Service contract, which could drag on for two years or more because of objections from existing businesses.
On sources of finance, Mr Cole said that the ideal was to be able to use one's own capital. If one borrowed from a bank, one would have to give all sorts of personal guarantees - which the bank would have no hesitation in enforcing - and pay interest at base rate plus 2.5 to 3 per cent. A better option was a bank loan guaranteed by a wholesaler, which would often be able to arrange funding at base rate plus only 0.5 to 1.5 per cent. One would have to use that company for one's supplies, but the lower interest rate would more than compensate for the loss of purchasing flexibility.
The key to managing one's finances and profitability was cash flow. Since most if the pharmacies that came onto the market depended on NHS revenue for at least 80 per cent of business, it was essential to understand and make the most of parallel imports, generics and brand equalisation deals.
Other topics discussed include: |