Are_ you_ thinking_ of_ buying_ a_ pharmacy?

28 August 20Umesh Modi
Pharmacy Accountant

We have been specialising in community pharmacy sector for over 30 years and have helped many pharmacists acquire their first pharmacy. Several of our clients have also transitioned into multiple pharmacy owners under our specialist guidance and support through the years.

We have seen a surge in first time buyers looking to snap up pharmacies with good profits and growth potential despite the current climate. In fact, during the economic downturns, pharmacies tend to do well because of the impact on people’s lives. Covid-19 has demonstrated that whilst everyone else was in a lock down, community pharmacies kept their doors open. It is an excellent business model. Inevitably though, there are many pharmacists that are looking to retire, and this could present an opportunity for the IT savvy to innovate, find efficiencies, increase turnover and improve profits. Retirement pharmacies are in great demand at the present.

Acquiring the first pharmacy can be a challenge to most pharmacists especially when they do not have the necessary skill in reading the numbers presented in terms of the target pharmacy’s performance and how to interpret these in order to arrive at a valuation for the purpose of submitting an offer. Without the guidance of a specialist accountant in community pharmacy, one of the major risks is that one could end up paying more than what the pharmacy is worth. Once the offer is accepted, there are other challenges to overcome to get the deal over the line.

How we can help make the acquisition a smooth process for you:

1. Assessing the risk

Once the target pharmacy has been identified, we can assist with assessing the risks and advise if it would be a viable investment so that you are able to make an informed decision. At this point, we will gain an understanding of your knowledge of the target pharmacy and be able to provide you with further guidance on income/profit generation and growth potential.

2. The valuation of the business

Based on the information already provided by the vendor’s agents, we may request further data to work out a valuation for the pharmacy and provide you with a range of offer to submit. This is to ensure that you are not overpaying for the target pharmacy and bidding within sensible parameters.

3. The negotiation process

Sometimes when the initial offer is not accepted, a negotiation may take place and we would provide guidance on how to go about it with a view to successfully bidding for the target pharmacy.

4. Financial and tax advice whether an asset purchase or a company purchase

The target pharmacy may be sold as an asset sale which usually happens when a chain is selling one of its pharmacies or it could be a company sale whereby the vendor(s) may own only one pharmacy and are selling the company’s shares (this is common when the vendor(s) are retiring pharmacists).

Each of these transactions will have their own financial and tax implications that will need to be considered at the time of acquisition and we will provide sound advice in either case with a view to maximising your tax benefit and protecting you from over-paying through inadequate due diligence.

5. Accounts and tax due diligence

This is the crux of the whole transaction and we advise all our clients (first time buyers as well as those expanding) not to compromise on this. We carry out a thorough and an in-depth review of the accounting records and information provided by the vendors, conduct our own independent checks to support the figures presented and liaise with our client throughout highlighting areas of concern. One of the major risks, for example, in a company purchase is that there may be undisclosed liabilities or overstated assets and if this is not accurately verified, you could end up paying a lot more to the vendors potentially leading to long standing disputes to recover sums overpaid. Litigation could take years, is a distraction and very costly indeed. It is far better to seek professional advice from the outset from an experienced firm then to have to face a dispute after the acquisition.

6. Financial and tax aspects of the asset/share purchase agreement

The asset/share purchase agreement is a binding agreement between the parties encapsulating the mechanism of the sale price, payment terms, financial and tax warranties, indemnities, and tax covenants, etc. We review these agreements in detail, particularly to the financial and tax matters to ensure that and any risks are identified and mitigated through requesting relevant clauses be inserted/removed in the agreement.

7. Loan to finance the purchase

The acquisition is most likely to be financed by borrowing from lenders and we have a panel of pharmacy specialist lenders that we introduce our clients to. The lenders understand the community pharmacy business and are willing to work with ambitious pharmacists/entrepreneurs and to help them grow.  As we conduct considerable business with many of these lenders, we are often able to negotiate better terms for our clients. The lending fee or interest saving can sometimes more than cover the cost of our services to you. Each case is judged on the creditworthiness/security of the borrower.

8. Business plans, cashflow and profit forecasts

As part of our complete due diligence package, we assist in drawing up the business plans, cashflow and profit forecasts which will be required by the lenders to secure the finance for the acquisition.

9. VAT/PAYE registrations

Within 4 weeks of completion date, we will assist you with registration with the relevant authorities for all taxes for example VAT, PAYE, Self-assessment, etc.

10. On-going accounting/tax services

Post completion, we offer a range of compliance services like bookkeeping, MTD compliant VAT returns, payroll, management accounts, annual accounts, corporation tax, personal tax, tax planning, financial services, etc. You will have a dedicated and well-trained team dealing with your all your accounting and tax requirements.

11. Recommending pharmacy specialist service providers

We deal with several pharmacy specialist service providers such as solicitors, lenders, stock takers, etc that we introduce to our clients. We recommend using professionals that specialise in community pharmacy as they understand the business and its requirements thereby saving valuable time and costs.

If you are thinking of buying a pharmacy or interested in any of our services then please do get in touch for a free telephone consultation by contacting Vinku Shah by emailing vinku.shah@silverlevene.co.uk or calling us on +44(0)20 7383 3200.