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  • Pharmacy purchase

    Hi Everyone,

    I am currently a GP partner in the North of England. Our practice has recently undergone renovation work with an extension to accommodate a pharmacy within the building. Currently our closest pharmacy is across a busy dual carriage way and this captures 40% of our scripts. We have no other pharmacies in the area wanting to move into our building as they are based in local supermarkets. The Pharmacy chain across the road was approached and rather than move their business in they have offered us to buy their license. This national pharmacy chain have closed 2 other pharmacies in the local area in the last couple of years. We have taken advice from our broker and we have had an offer of £410k accepted for the business. My concern is that currently the figures don't look great.

    Turnover was 545k last year and they are doing around 4500 scripts per month. They rent their current location and sublet some of the space. Some further figures below.
    NHS Items 54604
    NHS sales 479857
    OTC sales 25956
    Total sales 545861
    GP% 34.7
    Rental income 8172
    Gross Proffit 197585
    Pharmacist 77427
    Staff 66302
    Total controllable and establishment costs 42381
    Net Profit 11475
    In addition to the 410k purchase price we have been advised that we would need approximately a further 200k to cover buying their stock, shop fit, 3 month of salaries etc...


    Our broker as suggested we could increase capture of scripts from 40 to 60% with the change in location and with the savings in rent net profit could increase to around 50k. We would require this sort of return to cover the loan costs from the bank. My problem is the uncertainty of this. We also may lose some scripts from neighbouring practices.

    We are considering finding a superintendent pharmacist to partner the business but I would appreciate based on the above information whether this would be an appealing venture to one?

    Has anyone had any experience of this kind of situation? I would appreciate any wisdom?

  • #2
    We do have a couple of pharmacy purchase experts on the forum, Bob and Brian.
    The latter has specialised knowledge of GP pharmacy. He will be able to help.
    Search the forum for his posts using the search box.
    johnep

    Comment


    • #3
      £410,000 for a business that made less than £12k profit last year?

      There's a lot more information needed to see if it stack up.
      Is there a long running lease on the current building? (will you be stuck with the premises?)
      If you apply to move the contract could this be blocked? You may be reducing the availability of pharmaceutical services on the other side of the previously mentioned dual carriageway.
      Do their controllable costs include loans on the business?

      £200k sounds like a hell of a lot of stock as well. Any well run pharmacy shouldn't have more than 4 weeks stock holding with for a business this size would be closer to £50k.

      As johnep mentioned I know BrianA has offered some good advice to people in the past and even offers a consultant service if I'm not mistaken. Would be worth reaching out to a service matter expert.
      I remember when a blog was an individual boot.

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      • #4
        Its 60k for stock, 60-70k for fit out and 60-70k for wages etc..
        The pharmacy have already applied to move into the building with no objections so to stop it being blocked they would manage it until moved in. I agree 410k does seem a high value for a business making 12k profit but we were advised that the valuation is based on 80p-£1 on prescription numbers. But this is still my concern! They current pharmacy do not have any loans and their lease ends within a year of the proposed takeover date.

        I just dont know if the potential of being in our building will increase the prescriptions number enough to make it more profitable or if there are other areas that could improve.

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        • #5
          Do any of their other costs seem high/low?

          Comment


          • #6
            Staff costs seem high.

            it would depend. If the staff are being paid a lot above the minimum wage i.e £9 an hour then that would explain it. Also depends on the number of hours.

            pharmacist costs could be high depending on whether it is a 40, 60 or 100 hour pharmacy.

            Comment


            • #7
              Thanks for that, Pharmacist is on 40 hour contract at 48K, locum costs account for 22k.

              Other staff are 33hr/w dispenser, 23hr/w healthcare assistant, 38hr/w sales assistant and 35hr/w healthcare supervisor all on under £9/hour.

              Comment


              • #8
                If it is a Floyds, then I would say that profit margin may be accurate.

                Comment


                • #9
                  ok thanks, Is 22k locum costs a lot? Do people think having a pharmacist as a partner would help with profitability? Would this be an appealing business venture for a pharmacist?

                  Comment


                  • #10
                    Originally posted by Hearts77 View Post
                    ok thanks, Is 22k locum costs a lot? Do people think having a pharmacist as a partner would help with profitability? Would this be an appealing business venture for a pharmacist?
                    Depends how many hours the pharmacy is open for. If it's open for 40 hours it's a lot, if it's open for 60 hours that's about right.

                    I think having a pharmacist or other staff member as a partner would help with profitability. GPs surgeries that dispense or own pharmacies and GP surgeries in general have a real reputation for being tight wads. In pharmacy we do so much for free and often it's to make the life of GPs and surgeries easier and we lose money. If you have someone else on board this is going to be a major motivator. Also don't neglect your staff. Most of your business here would be dispensing - who does a lot of the work, the dispensers and they aren't paid a lot. It's going to piss off every pharmacist on here, but your dispensing staff are really crucial to profitability too. Really crucial.

                    There are people who know what they are talking about on here (not me), but unless the rent savings are huge, getting profitability to £50k seems unlikely. Having thought about some of the stuff you've gone into earlier, for reasons that I won't write, I believe the profit margin of £12k may be accurate. Margins in pharmacy aren't great.

                    On the other hand if a chain is getting rid, it's an opportunity. Most people that work in pharmacy dislike the big chains. One of the pharmacies flogged off by the same company around here is doing really well in new hands, but the underlying numbers were quite different.

                    Comment


                    • #11
                      Er 40 hours or 60 hours. One surgery where a friend works is a 100 hour.
                      johnep

                      Comment


                      • #12
                        Originally posted by johnep View Post
                        Er 40 hours or 60 hours. One surgery where a friend works is a 100 hour.
                        johnep
                        Yeah I don't know do I, was why I was asking and the reply back made it sound like it's about 60 hours. If it's a 22k locum bill it's not a 100 hour pharmacy!!!!!!!!!

                        Yes some surgeries have 100 hour pharmacies.

                        All men are Greeks and all that.

                        Comment


                        • #13
                          Thanks for your thoughts which i gather is that a pharmacist is unlikely to want to be a partner given that they would lose money on the business. The actuall opening hours of the pharmacy is 8:30-6 mon-fri &sat 9-1 so 51.5 in total.

                          Comment


                          • #14
                            Originally posted by Hearts77 View Post
                            Thanks for your thoughts which i gather is that a pharmacist is unlikely to want to be a partner given that they would lose money on the business. The actuall opening hours of the pharmacy is 8:30-6 mon-fri &sat 9-1 so 51.5 in total.
                            Anyone's unlikely to want to be involved if they're likely to lose money. In the event that there's likely to be a profit, even if not in the first year, that's a different story. I suspect that it would depend on the responsibilities of the pharmacist as partner; for example you might find that pharmaceutical involvement had a beneficial effect on the profitability and effectiveness of the practice as a whole, but it would depend on how the duties of the pharmacist (or pharmacists) ere integrated into the overall business. Our colleague 'mctlr' is making some good points and as others have pointed out BrianA has considerable experience of business development, including start-ups.
                            I hope you have, over the Christmas/New Year period, got to the position where you are prepared to sit down with someone such as him, even if if it costs a little, and have a face-to-face discussion on the pro's and con's.

                            Comment


                            • #15
                              I agree, thanks for your opinion. i have messaged BrianA and have a few local contacts and friends in the pharmacy profession who i still need to ask. We have already paid a few thousand to a pharmacy broker to advise us but i am still concerned that they may be biased and wanting to complete a deal even if its a bad one. I suppose my other question is if we dont take up the offer would the chain sell the pharmacyn on the open market and would it go for much less or not be sold at all?

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