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Establishing a Pharmacy From Scratch

We have a number of pharmacies on the market at present that have been open for between 1 and 2 years. This has raised some concern amongst buyers that without significant history, the businesses may present risk. Others have commented that given the price of these businesses, they would be better opening their own business from scratch. However before proceeding with this option, be advised that there are significant costs and risks associated with opening a new pharmacy. And often, the costs may be significantly more than purchasing a newly opened pharmacy.

In order to open a pharmacy, your proposed site must satisfy the current Pharmacy Location Rules. As such, at a minimum, you must have a right to occupy a premises (a lease) in a location that satisfies the requirements (which will often require a survey). Once this is complete, you still need to lodge your application and ensure that it is successful. Through this process alone, you may often be paying for the lease of a premises for up to (if not more than) a year before you even have the right to open the pharmacy. This can result in between $20,000 to $50,000 in lease repayments even before you have been granted approval to operate a pharmacy - a big risk.

Beyond this, you still need to pay for a fit-out of the pharmacy, stock, equipment and computers to allow you to operate the business. And many of these will need to be paid for in equity outright - all before you have even begun to earn an income.

Traditionally, greenfield sites take approximately 2 to 3 years to become profitable. (However, in the current market environment, 3 to 5 years is more likely.) So you also need to factor into your analysis loss of income for 2 years.

As you can see, the costs are mounting and often the lead-time between establishing a site and operating in that site can be significant. In addition, we have not even touched on the analysis required to determine if the site will even be viable! It's one thing to be allowed to establish a pharmacy, but another to turn a profit in that location.

So, as a buyer, you may be concerned that a newly established pharmacy presents an element of risk. However if the business is profitable and you are buying it on the current figures it may be a better opportunity than establishing one on your own - especially if you lack the know-how or the funds to manage the establishment.

My analysis here has been very simplistic. If you wish to establish your own Greenfield site, there are a large number of additional steps required in the process. So when looking to buy or establish a pharmacy, ensure that you are looking at the complete picture. Often there is more involved than meets the eye.

For more information about establishing a pharmacy, contact Attain Business Brokers on 1300 ATTAIN (1300 288 246).

 

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